1. Analysis of NZ electricity company sale prices in relation to ODV Prepared by Utility Consultants August 1999

2. This presentation is confidential to the intended recipient and may not be divulged to any other parties without the explicit written permission of Utility Consultants.

3. This presentation is for promotional purposes only. Utility Consultants accepts no liability for any action or inaction arising from its use.

4. This presentation is copyright, and may not be reproduced in whole or in part without explicit written authority from Utility Consultants Ltd.

5. Contents Objectives. Background. ODV multiples. Data analysed. Conclusions. Recommendations. Appendix - analysed data.

6. Objectives Summarise the sale prices of recent electricity business transactions into a concise form. Identify the ODV multiple paid for the lines business component of each transaction. Determine the correlation between the degree of competition for ownership and the ODV multiple of the successful bidder. Determine the correlation between the date of transaction and the ODV multiple of the successful bidder.

7. Objectives Determine the correlation between the growth prospects of the lines business and the ODV multiple of the successful bidder. Determine the correlation between the customer base and the ODV multiple of the successful bidder. Attempt to develop some indicative ODV multiples that can be used in future advice.

8. Background Legislation over the last 8 years has transformed electricity supply in NZ from a public-service orientation to an aggressive and dynamic industry. Many former electric power boards and municipal electricity departments have been acquired and sold (some more than once). Legislation introduced in 1998 requiring the sale of either the lines or energy business has resulted in the sale of a few lines businesses.

9. ODV multiples ODV is a method of valuing an electricity lines business that provides for a consistent valuation basis nation-wide. Key features of the ODV methodology are…. The requirement to optimise out any inefficiencies or anomalies using prescribed methods which includes using modern equivalent components and construction techniques. The requirement to depreciate all components at prescribed rates.

10. ODV multiples In the case of each sale, an ODV multiple can be calculated, which is generally much greater than 1. A key driver of this multiple appears to be the amount of competition for ownership. This report seeks to identify any correlation between the multiple paid and the assessed competition for ownership, or any other drivers that may emerge.

11. Data analysed The following transactions have been examined, and the the degree of competition for ownership assessed… Purchase of Central Electric lines by DE. Purchase of western BOP lines by United. Purchase of Wellington lines by United. Sale of Infratil stake in CentralPower. Offers for CentralPower and Powerco by GPU. Purchase of Wairarapa lines by Powerco. Purchase of ElectroPower by CentralPower.

12. Data analysed

16. Conclusions Sample is too small to draw statistically significant conclusions. Sale and offer prices of CentralPower shares appear to be constant over the time considered. Samples examined support the intuitive conclusion that the ODV multiple reflects the degree of competition. Samples do not indicate any obvious link between ODV multiple and growth prospects.

17. Conclusions Samples do not indicate any obvious link between ODV multiple and customer base (ie. available scale).

18. Recommendations Indicative ODV multiples that could be used to set initial estimate of sale prices… Small lines business (eg. Buller Electricity, ScanPower, Centralines)… 1.2 to 1.4 Medium lines business (eg. MainPower, Hawkes Bay)... 1.45 to 1.75

19. Recommendations Other issues to be considered in estimating likely ODV multiples…. Aggression of potential buyers (DE appeared to be quite aggressive in their bid for Centrals lines business, and could be expected to be just as aggressive in bidding for Otago or Waitaki). Reason for purchase (off-shore utility seeking learning experience, or local lines business seeking merger). Degree of cost savings likely from a merger. Potential for on-sale at a profit.

20. Appendix