[PPT] - Transmission Pricing Methodology 1 May 2019 1 Presentation Outline PowerPoint Presentation

SLIDE 1

1

Transmission Pricing Methodology

1 May 2019

SLIDE 2

2

Presentation Outline

Indicative Timing

1. Introduction

10 min

2. Commerce Commission Pricing Framework

15 min

3. Calculating First Gas Revenue

20 min

4. How we charge under GTAC

20 min

5. Calculating our Prices

45 min

6. Pricing Outcomes

45 min

7. Consultation Process

15 min

8. Wrap up

10 min

SLIDE 3

3

Introduction

What we want stakeholders to get out of today’s session: Overall objective: Understanding of the First Gas revenue framework Knowledge of how we calculated the prices Understanding of how pricing will change and affect them

1 2 3

Opportunity to clarify any points they need to on pricing to inform their submission

4 We get good quality submissions on the TPM that contribute positively to our pricing for the 2019/20 gas year

SLIDE 4

4

Commerce Commission Pricing Framework

SLIDE 5

5

Commerce Commission Pricing Framework

First Gas transmission falls under Part 4 of the Commerce Act 1986
Since October 2017 First Gas transmission has been operating under a pure revenue cap:
Default Price-Quality Path (DPP) sets maximum revenue that First Gas is allowed to earn each year
Revenue is cap is calculated based on the allowable return from capital invested in our infrastructure
First Gas can wash-up under/over recovery in subsequent years (up to 20% of revenue cap)
First Gas must demonstrate compliance with this regime through the following documents:
Transmission Pricing Methodology
Price-Quality Compliance Statements (before start and after end of each gas year)
We must also disclose the following:
Asset Management Plan (before start of each gas year)
Financial and non-financial information disclosures (after end of each gas year)
Capacity and Peak Flow Disclosure
Non-standard Contract Disclosure

Find out more on these disclosures and documents here: https://firstgas.co.nz/about- us/regulatory/transmission/

SLIDE 6

6

Pricing Principles

Prices are to signal the economic costs of service provision, by: (a) being subsidy free, that is, equal to or greater than incremental costs and less than or equal to standalone costs, except where subsidies arise from compliance with legislation and/or other regulation; (b) having regard, to the extent practicable, to the level of available service capacity; and (c) signalling, to the extent practicable, the effect of additional usage on future investment costs. Where prices based on ‘efficient’ incremental costs would under-recover allowed revenues, the shortfall is made up by prices being set in a manner that has regard to consumers’ demand responsiveness, to the extent practicable. Provided that prices satisfy (1) above, prices are responsive to the requirements and circumstances

f consumers in order to:

(a) discourage uneconomic bypass; and (b) allow negotiation to better reflect the economic value of services and enable consumers to make price/quality trade-offs or non-standard arrangements for services

1 2 3

Development of prices is transparent, promotes price stability and certainty for consumers, and changes to prices have regard to the effect on consumers.

4

SLIDE 7

7

Calculating First Gas Forecast Allowable Revenue

Forecast Revenue from Prices ≤ Forecast Allowable Revenue This equals the: sum

f

each price multiplied by each corresponding forecast Quantity: DNC including overruns/underruns, peaking charges, auto-nomination charges and

verflow charges

+ Non-Standard Pricing including ICA revenue and SA revenue This is our Target Revenue for the pricing year. This equals the: forecast net allowable revenue + forecast pass-through and recoverable costs, which includes: Rates and levies (Commerce Act, Industry levies) Balancing gas costs and revenues ERM charges Mokau Compressor fuel gas costs CAPEX Wash-up Adjustment + opening balance of the wash-up account This is our Forecast Allowable Revenue for the pricing year.

SLIDE 8

8

GY 2019/20 Forecast Allowable Revenue

Revenue Element Total Forecast net Allowable Revenue $126,456,000.00 Pass through costs Rates $1,673,596.12 Commerce Act Levies $832,268.00 Industry Levies $33,000.00 Subtotal Pass-through Costs $2,538,864,.12 Recoverable costs Balancing Gas costs $231,237.47 Mokau Compressor fuel gas costs $1,779,547.18 ERM Charges $468,065.08 Capex wash-up adjustment recoverable costs $755,408.70 Subtotal Recoverable Costs $3,234,258.43 Revenue wash-up $(718,770.66) Forecast Allowable Revenue $131,504,613.97

SLIDE 9

9

Balancing and Pass-through Cost Assumptions

Rates and levies

Property rates from GY18 adjusted for CPI
Commerce Act Levies the same as the

GY18

Utilities Disputes Levies based on values

from 2018 revision Balancing gas costs and revenues

Based on volume of gas bought and sold

during GY18

Priced on First Gas average buy/sell price

for the first two months of 2019

Reduced by 50% to reflect stronger

balancing incentives under the GTAC Excess Running Mismatch Charges

Volumes based on absolute value of cash
ut gas bought and sold each year during

the period 2016 – 2018

Reduced by 50% to reflect stronger

balancing incentives under the GTAC

ERM Fee of $0.50/GJ

Mokau compressor fuel gas costs

Average volumes from GY17 and GY18
Average market price for the first two

months of 2019

SLIDE 10

10

Balancing and Pass-through Cost Assumptions

Revenue cap wash-up

Published as part of First Gas’ Default Price Path (DPP) Compliance Statement
Time value of money adjustment as prescribed in the DPP Determination is applied to the calculated

raw amount. CAPEX wash-up adjustment

Difference between the revenues for a DPP regulatory period using the actual values of

commissioned assets for a prior regulatory period, and the revenues using forecast commissioned assets applied by the Commission when setting prices

Ensures regulated businesses are in approximately the same position (in terms of allowable

revenue), had the actual opening Regulated Asset Base been known when revenue for the DPP period were reset

SLIDE 11

11

How we charge under the GTAC

SLIDE 12

12

Standard charge for

delivery of gas to a delivery point or zone

Exceeding physical

capacity of a delivery point

Paid to Interruptible load
Collected from shippers

at beneficiary DPs

Mass market load
Average of other load
verrun/underrun across

system

GTAC Pricing - Transmission

Daily Nominated Capacity for Transmission

Overrun charge at DNC

Fee x 1.5

Underrun charge at DNC

Fee x -0.5 Overrun/Underrun Charge Automated Nominations Charge

Peaky load with hourly

profile

Mirrors overrun/Underrun

Charge Peaking charge Overflow Charge

PR Auction determines

price

Rebated within year

Priority Rights Charges Congestion Management Charge

Supplementary Capacity
Fixed/Throughput Fees
Interconnection Fees

Non-standard charges

SLIDE 13

13

$0.5/GJ for Running

Mismatch over tolerance

No change in title of gas

GTAC Pricing – Non-Transmission

OBA Parties pay Overrun/Underrun and Balancing charges for their points Excess Running Mismatch Charge

Pass-through of

balancing gas bought/sold to those with ERM in direction of sale

Passed through at cost
Doesn’t always clear a

Running Mismatch position

Not all gas will be able to

be passed through Balancing Gas Costs/Credits

SLIDE 14

14

GTAC Pricing Zones

Grouping delivery points into zones:
Geographically contiguous areas
Information requirements for operations
Location in relation to infrastructure (e.g. compressor stations)
Individual points on Maui line to maintain revenue
Provide the basis for aligning pricing from an area
16 delivery zones:
Excludes points on supplementary agreements
4 individual points:
Bertrand Road (Methanex)
Faull Road (Methanex)
Huntly Power Station (Genesis Energy)
Ngatimaru Road (Delivery) (Methanex)

SLIDE 15

15

Delivery Zone Listing

GTAC Zone Delivery Points Te Tai Tokerau (Northland) Marsden 2, Waitoki, Warkworth, Wellsford, Whangarei Tāmakimakaurau (Auckland) Alfriston, Drury 1, Flat Bush, Glenbrook, Greater Auckland, Harrisville 2, Hunua, Hunua (Nova), Hunua 3, Kingseat, Pukekohe, Ramarama, Tuakau 2 Waikato ki te Raki (Waikato North) Cambridge, Horotiu, Kiwitahi 1 (Peroxide), Kiwitahi 2, Matangi, Morrinsville, Morrinsville DF, Tatuanui DF, Waitoa Kirikiriroa (Hamilton) Te Kowhai, Templeview Te Rohe Pōtae-Taupiri (King Country- Taupiri) Huntly, Ngaruawahia, Otorohanga, Pirongia, Te Awamutu DF, Te Kuiti North, Te Kuiti South Waikato ki te Tonga (Waikato South) Greater Kihikihi, Kinleith, Kinleith (CHH mill), Lichfield 2, Lichfield DF, Okoroire Springs, Putaruru, Tirau, Tirau DF, Tokoroa, Waikeria Tauranga Greater Mt Maunganui, Greater Tauranga, Rangiuru, Te Puke Central Plateau Broadlands, Kawerau, Kawerau (ex-Caxton), Kawerau (ex-Tasman), Reporoa, Rotorua, Taupo Whakatane Edgecumbe, Edgecumbe DF, Te Teko, Whakatane Te Tai Rawhiti (Eastland) Gisborne, Opotiki Taranaki ki Uta (Inland Taranaki) Ballance 8201, Ballance 9626, Eltham, Inglewood, Kaimiro, Kaponga, Kapuni (Lactose et al), KGTP Delivery, Kupe Delivery Point, New Plymouth, Stratford, Waitara Taranaki ki Tai (Coastal Taranaki) Oakura, Okato, Opunake, Pungarehu No 1, Pungarehu No 2 Aotea (South Taranaki-Whanganui) Hawera, Hawera (Nova), Kaitoke, Manaia, Matapu, Mokoia, Patea, Waitotara, Wanganui, Waverley Tararua (Manawatu-Horowhenua) Ashhurst, Feilding, Flockhouse, Foxton, Kairanga, Kakariki, Kuku, Lake Alice, Levin, Longburn, Mangatainoka, Marton, Oroua Downs, Pahiatua, Pahiatua DF, Palmerston North Kahungunu (Hawkes Bay) Dannevirke, Hastings, Hastings (Nova), Mangaroa, Takapau Whanganui- a- tara / Kapiti (Kapiti- Wellington) Belmont, Greater Waitangirua, Otaki, Paraparaumu, Pauatahanui 2, Tawa A, Tawa B (Nova), Te Horo, Waikanae 2

SLIDE 16

16

Calculating our prices

SLIDE 17

17

Transmission Pricing Methodology Outline

.

Methodology Objectives:

Minimise price shock between VTC/MPOC and GTAC by ensuring that a consistent amount of revenue

is collected from each zone/individual point under both codes

Ensure that adjacent areas pay similar pricing
Ensure that locations further away from Taranaki pay more to allow for greater system usage

Forecast flows for GY20 Scope

verruns/underruns

and allocate categories Establish the DNC Target Revenue Allocate DNC revenue to zones and points Calculate Base DNC Fees Adjust for geographic parity

1 2 3 4 5 6

SLIDE 18

18

Other Pricing Assumptions

Priority Rights charges
No forecast is required for priority rights revenue as this is rebated to shippers within the year it is

earned

Congestion Management Charges
No forecast required as the charges are recovered from shippers as they are incurred
Peaking charges
The revenue for peaking charges was assumed to be the equivalent to that from overrun/underrun

charges and therefore no specific forecast was generated.

Auto-nomination charges
Proportion of specified/non-specified shipper load for each zone calculated by looking at GAR060 data
The percentage of mass market load was separated out for each zone
Average of the underrun/overrun for the remaining load over the network was calculated and applied to

the mass market load

Over-flow charges
No forecast required as not expected for GY20

SLIDE 19

19

1. Forecast Flows for GY2019/20

Zone Names GY18 Total Deliveries* (GJ) Forecast GY20 (GJ) Variance Comments Te Tai Tokerau (Northland) 613,222 619,451 1% Additional 42 TJ Tāmakimakaurau (Auckland) 6,767,877 17,109,046 2% Additional 290 TJ load Waikato ki te Raki (Waikato North) 2,051,144 2,164,317 6% Additional 200 TJ load Kirikiriroa (Hamilton) 1,634,566 1,684,009 3% Te Rohe Pōtae-Taupiri (King Country-Taupiri) 693,907 739,578 7% Waikato ki te Tonga (Waikato South) 4,322,826 4,663,448 8% Tauranga 1,092,948 1,100,247 1% Central Plateau 1,704,100 1,713,175 1% Whakatane 2,135,321 2,301,862 8% Te Tai Rawhiti (Eastland) 474,641 476,533 0% Taranaki ki Uta (Inland Taranaki) 8,423,864 8,628,604 2% Taranaki ki Tai (Coastal Taranaki) 20,265 21,564 6% Aotea (South Taranaki-Whanganui) 1,381,276 1,428,390 3% Tararua (Manawatu-Horowhenua) 2,548,188 2,667,748 5% Kahungunu (Hawkes Bay) 2,201,639 2,289,125 4% Whanganui- a- tara / Kapiti (Kapiti-Wellington) 4,075,924 4,164,973 2% Huntly 24,731,288 22,000,000

11%

Bertrand Rd 15,433,180 16,000,000 4% Faull Rd 7,669,072 14,000,000 83% Plant turnaround GY 2017/18 Ngatimaru Rd (Delivery) 38,669,546 44,000,000 14% Total DNC Flows 136,031,573147,152,619 9%

*includes increases for known large loads

Independent

estimate of quantities

Peer reviewed

internally

Growth in existing

loads

Known new loads

coming onto the system

All gas enters in

the GTAC receipt zone - no requirement examine receipt point production

SLIDE 20

20

2. Estimating Scale of Overruns/Underruns
Two step approach:
Estimated the potential range of overrun/underrun
Assigning each delivery zone and individual delivery point an overrun/underrun category
Potential scale of underrun/overrun over a year, used proxy data:
VTC system: Data from BPP pool receipts in relation to deliveries;
Maui system: Data from intra-day 4 nominations in relation to actual flows.

Overrun/underrun Category Underrun Overrun Low 1.00% 1.00% Low / Medium 2.00% 2.30% Medium 4.00% 4.60% Medium / High 5.00% 5.75% High 6.00% 6.90%

SLIDE 21

21

2. Assignment of Overruns/Underrun Category
Overruns assigned based on:
Locations with large volumes/number of users assumed to have a lower overrun/underrun category due

to the portfolio effect of multiple end users;

Locations with low volumes assumed to have a higher overrun/underrun category due to variable and

seasonal loads across a small amount of end users;

Locations with large maximum and minimum 95% monthly confidence intervals (CI) around the forecast

were assumed to have a higher overrun/underrun category, since the higher variability of loads would be harder for shippers to forecast;

Locations with small 95% monthly CIs from the forecast were assumed to have a lower overrun /

underrun categories as the lower variability of loads would be easier for shippers to forecast

Locations with a high mass market load would have harder to forecast and therefore have a higher
verrun/underrun category.

SLIDE 22

22

2. Overrun and Underrun Classification per Zone

GTAC Zone Forecast Volumes (GJ) Max 95% CI Min 95% CI MM load (%) Overrun/ Underrun Category Comments Te Tai Tokerau (Northland) 339,986 30% 18% 45% M Low volume, high MM load Tāmakimakaurau (Auckland) 16,403,213 8% 6% 35% L Large, stable TOU load Waikato ki te Raki (Waikato North) 2,164,317 41% 20% 7% MH Large 95 % CI and volume Kirikiriroa (Hamilton) 1,684,009 +26%

15%

62% H Large volume, high MM load Te Rohe Pōtae-Taupiri (King Country-Taupiri) 739,578 +105%

35%

5% H Large 95% CI, low volume Waikato ki te Tonga (Waikato South) 4,663,448 +25%

20%

2% MH Large volume, low MM load Tauranga 1,100,247 +9%

7%

47% L Small 95% CI, low volume Central Plateau 1,713,175 10% 7% 24% L Small 95% CI, low volume Whakatane 1,351,862 59% 17% 2% MH Large 95 % CI and volume Te Tai Rawhiti (Eastland) 476,533 15% 14% 39% M Low volume, high MM load Taranaki ki Uta (Inland Taranaki) 8,628,604 8% 7% 3% LM Low volume, low MM load Taranaki ki Tai (Coastal Taranaki) 21,564 77% 43% 1% MH Low volume, low MM load Aotea (South Taranaki-Whanganui) 1,428,390 23% 14% 29% MH Large 95 % CI and volume Tararua (Manawatu-Horowhenua) 2,667,748 30% 18% 36% MH Large volume, high MM load Kahungunu (Hawkes Bay) 2,289,125 10% 7% 18% LM Large, stable TOU load Whanganui- a- tara / Kapiti (Kapiti-Wellington) 4,164,973 15% 12% 83% LM Large volume, low MM load Bertrand Road (Waitara Valley) 16,000,000 n/a n/a 0% L Large, stable TOU load Faull Road 14,000,000 n/a n/a 0% L Large, stable TOU load Huntly Power Station 22,000,000 n/a n/a 0% L Large, stable TOU load Ngatimaru Rd (Delivery) 44,000,000 n/a n/a 0% L Large, stable TOU load

SLIDE 23

23

3. Establishing the DNC Target Revenue
Forecast Allowable Revenue minus Revenue from:
Supplementary Agreements
Interconnection Agreements
Remainder to be recovered through DNC fees and Incentive fees from
16 Delivery Zones
4 Individual Delivery Points

SLIDE 24

24

4. Allocate DNC revenue to zones and points
The revenue for each Delivery Point and Zone allocated based on:
Forecast VTC charges for each DP based on capacity, throughput and overrun charges
Forecast MPOC revenue from small Welded Points, dedicated Delivery Points and TP Welded Points
MPOC TP Welded Point MPOC charges allocated proportionally to forecast flows for each point on the

non-Maui system

Initial Target Revenue for each Delivery Zone/Point
Adjustment made based on:
Comparison of the unit price based on forecast flows and previous year’s capacity booking
Changes in supplementary agreement revenue between
Charges totalled per Delivery Zone or Delivery Point to give the Target Revenue for that location

SLIDE 25

25

5. Calculate Base DNC Fees
DNC fee calculated for each Delivery Zone or Point based on the following:

DNC Fee = DNC Target Revenue / (Throughput Quantity + Overrun Quantity x F + Underrun Quantity x (F-2)) where F is 1.5 Gives the base DNC Fee prior to any adjustments

SLIDE 26

26

6.Adjust for Geographic Parity

Adjust base DNC Fees for geographic parity:
Fees increase with distance from the Receipt Zone
Adjacent areas pay similar fees
Watch for unintended outcomes
Changes in revenue per zone limited to +/-10%
Allowance for changes in charging methodology from capacity reservation to daily capacity
Overall revenue remains the same
an upward adjustment in one area lead to a decrease across the network

SLIDE 27

27

Pricing Outcomes

SLIDE 28

28

Forecast Throughput and Revenue Allocation

339,986 16,403,213 2,164,317 1,684,009 739,578 4,663,448 1,100,247 1,713,175 1,351,862 476,533 8,628,604 21,564 1,428,390 2,667,748 2,289,125 4,164,973 16,000,000 14,000,000 5,530,000 44,000,000

DNC Throughput (GJ)

Te Tai Tokerau (Northland) Tāmakimakaurau (Auckland) Waikato ki te Raki (Waikato North) Kirikiriroa (Hamilton) Te Rohe Pōtae-Taupiri (King Country-Taupiri) Waikato ki te Tonga (Waikato South) Tauranga Central Plateau Whakatane Te Tai Rawhiti (Eastland) Taranaki ki Uta (Inland Taranaki) Taranaki ki Tai (Coastal Taranaki) Aotea (South Taranaki-Whanganui) Tararua (Manawatu-Horowhenua) Kahungunu (Hawkes Bay) Whanganui- a- tara / Kapiti (Kapiti-Wellington) Bertrand Road (Waitara Valley) Faull Road Huntly Power Station Ngatimaru Rd (Delivery)

$762,290 $32,278,153 $4,572,524 $2,344,029 $1,502,681 $9,986,134 $2,480,117 $3,860,142 $3,281,744 $1,404,846 $3,532,636 $9,147 $2,588,379 $4,976,178 $4,407,577 $8,479,168 $2,747,200 $989,800 $3,183,621 $4,888,400

DNC Revenue Allocation

SLIDE 29

29

Comparison with GY19 Revenue per Location

Flows Revenue Delivery Zone/Point GY19 GY20 % Change GY19 GY20 % Change Te Tai Tokerau (Northland) 333,757 339,986 1.9% $733,473 $762,290 3.9% Tāmakimakaurau (Auckland) 15,772,044 16,403,213 4.0% $29,309,748 $32,278,153 10.1% Waikato ki te Raki (Waikato North) 1,846,992 2,164,317 17.2% $3,774,047 $4,572,524 21.2% Kirikiriroa (Hamilton) 1,634,566 1,684,009 3.0% $2,073,699 $2,344,029 13.0% Te Rohe Pōtae-Taupiri (King Country-Taupiri) 693,907 739,578 6.6% $1,625,115 $1,502,681

7.5%

Waikato ki te Tonga (Waikato South) 4,440,103 4,663,448 5.0% $10,255,589 $9,986,134

2.6%

Tauranga 1,093,835 1,100,247 0.6% $2,423,921 $2,480,117 2.3% Central Plateau 1,704,100 1,713,175 0.5% $3,828,582 $3,860,142 0.8% Whakatane 1,204,658 1,351,862 12.2% $2,897,755 $3,281,744 13.3% Te Tai Rawhiti (Eastland) 474,641 476,533 0.4% $1,445,843 $1,404,846

2.8%

Taranaki ki Uta (Inland Taranaki) 7,696,563 8,628,604 12.1% $3,078,745 $3,532,636 14.7% Taranaki ki Tai (Coastal Taranaki) 17,868 21,564 20.7% $9,717 $9,147

5.9%

Aotea (South Taranaki-Whanganui) 1,376,070 1,428,390 3.8% $2,544,199 $2,588,379 1.7% Tararua (Manawatu-Horowhenua) 2,445,961 2,667,748 9.1% $4,789,062 $4,976,178 3.9% Kahungunu (Hawkes Bay) 2,189,248 2,289,125 4.6% $4,198,059 $4,407,577 5.0% Whanganui- a- tara / Kapiti (Kapiti-Wellington) 4,075,924 4,164,973 2.2% $8,354,701 $8,479,168 1.5% Bertrand Road (Waitara Valley) 17,000,000 16,000,000

5.9%

$2,776,967 $2,747,200

1.1%

Faull Road 12,000,000 14,000,000 16.7% $896,253 $989,800 10.4% Ngatimaru Rd (Delivery) 43,000,000 44,000,000 2.3% $4,647,639 $4,888,400 5.2% Totals 119,000,237123,836,772 4.1%$89,663,113 $95,091,146 6.1%

SLIDE 30

30

Comparison with GY19 Prices

Hypothetical unit price GTAC Zone GY19 GY20 % Change Te Tai Tokerau (Northland) $2.20 $2.24 1.8% Tāmakimakaurau (Auckland) $1.86 $1.97 5.9% Waikato ki te Raki (Waikato North) $2.04 $2.11 3.4% Kirikiriroa (Hamilton) $1.27 $1.39 9.4% Te Rohe Pōtae-Taupiri (King Country-Taupiri) $2.34 $2.03

13.2%

Waikato ki te Tonga (Waikato South) $2.31 $2.14

7.4%

Tauranga $2.22 $2.25 1.4% Central Plateau $2.25 $2.25 0.0% Whakatane $2.41 $2.43 0.8% Te Tai Rawhiti (Eastland) $3.05 $2.95

3.3%

Taranaki ki Uta (Inland Taranaki) $0.40 $0.41 2.5% Taranaki ki Tai (Coastal Taranaki) $0.44 $0.42

4.5%

Aotea (South Taranaki-Whanganui) $1.85 $1.81

2.2%

Tararua (Manawatu-Horowhenua) $1.96 $1.87

4.6%

Kahungunu (Hawkes Bay) $1.92 $1.93 0.5% Whanganui- a- tara / Kapiti (Kapiti-Wellington) $2.05 $2.04

0.5%

Bertrand Road (Waitara Valley) $0.16 $0.17 6.3% Faull Road $0.07 $0.07 0.0% Ngatimaru Rd (Delivery) $0.11 $0.11 0.0% Totals $0.75 $0.77 1.9%

Hypothetical Unit Price

GY19 based on VTC / Maui

Charges divided by the throughput

GY20 based DNC Fee

revenue plus overrun / underrun revenue divided the throughput

SLIDE 31

31

Proposed Pricing

Delivery Zone/Point DNC Fee ($/GJ) Te Tai Tokerau (Northland) $2.19 Tāmakimakaurau (Auckland) $1.96 Waikato ki te Raki (Waikato North) $2.00 Kirikiriroa (Hamilton) $1.36 Te Rohe Pōtae-Taupiri (King Country-Taupiri) $1.90 Waikato ki te Tonga (Waikato South) $2.02 Tauranga $2.25 Central Plateau $2.24 Whakatane $2.29 Te Tai Rawhiti (Eastland) $2.87 Taranaki ki Uta (Inland Taranaki) $0.40 Taranaki ki Tai (Coastal Taranaki) $0.40 Aotea (South Taranaki-Whanganui) $1.74 Tararua (Manawatu-Horowhenua) $1.80 Kahungunu (Hawkes Bay) $1.89 Whanganui- a- tara / Kapiti (Kapiti-Wellington) $2.04 Bertrand Road (Waitara Valley) $0.17 Faull Road $0.07 Huntly Power Station $0.57 Ngatimaru Rd (Delivery) $0.11 $1.96 $1.36 $2.00 $2.25 $2.24 $0.40 $1.74 $1.80 $2.04 $1.89 $2.02 $2.29 $2.87 $1.90 $2.19

SLIDE 32

32

Changes from 2018 estimates

2018 Estimate Draft TPM Zone Overrun/ Underrun Category DNC Fee Estimate ($/GJ) Overrun/ Underrun Category DNC Fee ($/GJ) Delivery Zones Te Tai Tokerau (Northland) MH $2.33 M $2.19 Tāmakimakaurau (Auckland) MH $1.80 L $1.96 Waikato ki te Raki (Waikato North) MH $1.87 MH $2.00 Kirikiriroa (Hamilton) MH $1.35 H $1.36 Te Rohe Pōtae-Taupiri (King Country- Taupiri) MH $1.87 H $1.90 Waikato ki te Tonga (Waikato South) H $1.85 MH $2.02 Tauranga H $2.15 L $2.25 Central Plateau H $2.24 L $2.24 Whakatane H $2.36 MH $2.29 Te Tai Rawhiti (Eastland) H $2.40 M $2.87 Taranaki ki Uta (Inland Taranaki) M $0.38 LM $0.40 Taranaki ki Tai (Coastal Taranaki) M $0.38 MH $0.40 Aotea (South Taranaki-Whanganui) M $1.67 MH $1.74 Tararua (Manawatu-Horowhenua) M $1.71 MH $1.80 Kahungunu (Hawkes Bay) M $1.75 LM $1.89 Whanganui- a- tara / Kapiti (Kapiti- Wellington) M $2.05 LM $2.04 Delivery Points Bertrand Road (Waitara Valley) L $0.16 L $0.17 Faull Road L $0.08 L $0.07 Huntly Power Station L $0.46 L $0.57 Ngatimaru Rd (Delivery) L $0.12 L $0.11

$1.96 $1.36 $2.00 $2.25 $2.24 $0.40 $1.74 $1.80 $2.04 $1.89 $2.02 $2.29 $2.87 $1.90 $2.19

0.12

+0.16 +0.01 +0.03 +0.02 +0.17

0.15

+0.07 +0.47 +0.07 +0.09

0.01

+0.14

0.00

SLIDE 33

33

Understanding Incentive Fees for each Shipper

Exercise undertaken to gain understanding of incentive fees

exposure for each shipper

Undertook assessment of fees per shipper based on:
Prior year’s deliveries to each zone/point
Prior year’s specified shipper deliveries at each zone/point
The incentive charges for each of the shippers is a relatively small

proportion of the overall charges.

The incentive charges are also relatively similar for all of the

shippers.

Shipper charges and changes relative to GTAC are driven by

customer mix. Estimates would change if the customer mix changes.

Shipper Net % Incentive charges Shipper A 1.6% Shipper B 1.5% Shipper C 2.4% Shipper D 1.6% Shipper E 2.1% Shipper F 4.4% Shipper G 1.7% Shipper H 1.0%

SLIDE 34

34

Conclusions

Consistency of pricing zones to shippers to avoid price and revenue shock.
We believe that keeping unit prices per zone ($/GJ transported) within 10% of last year’s prices

achieves this objective.

Ensure geographic consistency so that users further from sources of gas pay more than those located

closer to gas sources.

Underlying assumptions underpinning the TPM will be tested and revised with operating experience.

A full review of the inputs from first principles in 2020 will ensure we have a pricing methodology that improves as the information available to us increases.

SLIDE 35

35

Consultation Process

SLIDE 36

36

Consultation process

Timeframe Detail August 2016 to October 2018 The GTAC Framework developed and pricing structure / charges were determined. February 2019 Final Assessment Paper was released from the Gas Industry Company (GIC) approving the GTAC 19 April 2019 to 17 May 2019 Draft Gas Transmission Pricing Methodology and provisional prices released to stakeholders for consultation and feedback. 1 May 2019 Gas Transmission Pricing workshop held to discuss the Draft Transmission Pricing Methodology document. 31 May 2019 First Gas publish a summary and response to submissions by interested parties on the draft TPM and draft prices. Any agreed changes to TPM or prices will be made accordingly. 30 June 2019 First Gas will notify stakeholders of final TPM and Prices

SLIDE 37

37

Wrap up

SLIDE 38

38

Takeaway points

Submission on the TPM close on 17 May
For our TPM to be successful we would like feedback on the following:

Have we achieved an outcome that achieves the objectives we set out to achieve?

Fairness in terms of distance from the Receipt Zone
Minimising price shock for users