Assessment of the GTAC: Nova’s perspective 27 March 2018

Overview Nova largely in agreement with GIC on major impediments to adopting the GTAC First Gas acknowledged those points in its submission and has offered solutions Presentation focuses on points of difference GTAC is a package No benefit in trying to upgrade VTC or MPOC as an alternative

Nova’s position on key topics Agree with GIC analysis Disagree Agree with First Gas revised position Outstanding issues

Nova’s position on key topics Agree with GIC analysis Disagree Agree with First Gas revised position Overrun / Underrun charges Liabilities Regime Interconnection Agreements Park & Loan (approved ERM) Supplementary Agreements Deemed non-RPO provisions Workload on nominations Outstanding issues

Nova’s position on key topics Agree with GIC analysis Disagree Agree with First Gas revised position Overrun / Underrun charges Liabilities Regime Interconnection Agreements Park & Loan (approved ERM) Supplementary Agreements Deemed non-RPO provisions Workload on nominations Investment costs in forecasting DNC Priority rights ERM charges Outstanding issues Hourly overrun charges Rebates Taranaki Target Pressure

Forecasting DNC – resources required GIC position May cost millions Need for investment driven by excessive penalties Potential to centrally determine non-TOU demand forecasts Nova’s position Cost of penalties to be corrected ( F-1 => F-2 ) Reduces expected cost of penalties Net cost of Penalties, after Rebates, not excessive Resourcing invested in forecasting DNC unlikely to be excessive No central forecasting needs to be considered at this stage But could be added later Better forecasting of DNC should lead to better line-pack management, Benefits in terms of TTP & provision of Park & Loan

Rebates are a useful part of the mix GIC Neutral Marginal cost of penalties with different market shares: mathematically correct, but significance overstated Without Rebates: Beneficiaries of lower DNC charges in future years likely to differ from today’s payers. Focus on gross cost of penalties => more money gets spent on forecasting DNC than the alternative Full cost of penalties to be passed through, either in transmission charges or gas price Difficult & expensive for Shippers to allocate penalty costs to different market groups => inefficient pricing Lacks transparency With Rebates Shippers only need to recover net costs of penalties Major Gas Users may opt to provide nominations, pay penalties, and receive rebates => incentive to improve accuracy of their nominations Transmission charges likely to include only a small component to cover net penalty costs Would facilitate downward pressure on prices

Priority Rights a positive Major gas users Need to assess marginal value of gas versus of security of supply Reduce probability of Critical Contingency Event through demand response Complex for Shippers with a wide mix of customers, each with a different marginal value of gas SAs & IAs Could be made subject to GIC approval to protect 3rd party interests Mass Market (Non-TOU) Shippers Protected within Critical Contingency Regulations Is this an incentive to not hold PRs? Nothing to prevent Shippers from securing adequate PRs, either Bid above expected clearing price, or Change rules to receive automatic allocation at clearing price No validity in mass market Shippers being disadvantaged

ERM Charges An improvement on MPOC MBB cash-outs Initial settings should not be an issue in assessing GTAC Tolerances need resolution

Hourly overrun charges Concern over impact on marginal costs of electricity generation Manageable with more nominations cycles: 4-hourly 2 a.m., 6 a.m., 10 a.m., 2 p.m., 6 p.m., 10 p.m. Do not need to be updated by users every cycle Less likely to require emergency cycles

Taranaki Target Pressure Amending clause defining First Gas TTP obligations unlikely to make a difference Financial incentive would need to be part of Commerce Commission regulation GTAC better than MPOC & VTC because: Better alignment of nominations and demand 4-hourly nominations cycles would also improve control over TTP