1 Workshop Number 9 ____________________________________________________________ Sami Hasani WWRO Head of Tariffs 28 August, 2008 Asset Management Planning – Update on tariff review 2009 to 2011

2 Tariff philosophy Very significant change from annual cost recovery basis to Regulatory Capital Value and return, over three yearsVery significant change from annual cost recovery basis to Regulatory Capital Value and return, over three years There have been no significant tariff increases over the last three years – the new basis will significantly increase tariff levelsThere have been no significant tariff increases over the last three years – the new basis will significantly increase tariff levels The intention is to provide cash flow for investment in the networks, in order to enhance levels of serviceThe intention is to provide cash flow for investment in the networks, in order to enhance levels of service The new basis will also increase regulatory certainty, and thus enhance licensees’ borrowing capacity.The new basis will also increase regulatory certainty, and thus enhance licensees’ borrowing capacity.

3 Tariff review process With rare exceptions, submissions have been late, incomplete and clearly not reviewed by senior managementWith rare exceptions, submissions have been late, incomplete and clearly not reviewed by senior management Management must review and understand the tariff implications of their submissions – this is a major opportunity!Management must review and understand the tariff implications of their submissions – this is a major opportunity! Commentary is needed to explain trendsCommentary is needed to explain trends Only one company has taken up WWRO’s offer of assistanceOnly one company has taken up WWRO’s offer of assistance The 1 September deadline for most companies is now critical – otherwise the Regulator will impose tariffs.The 1 September deadline for most companies is now critical – otherwise the Regulator will impose tariffs.

4 Business Plans Capital plans are largely “wish lists” – WWRO needs detail, justification and prioritisation of plansCapital plans are largely “wish lists” – WWRO needs detail, justification and prioritisation of plans Business Plans need a robust financial framework – Balance Sheets, Income Statements and Cash Flows – to provide credibility Business Plans need a robust financial framework – Balance Sheets, Income Statements and Cash Flows – to provide credibility Cash Flow planning and control will assume far greater importance in the new tariff regimeCash Flow planning and control will assume far greater importance in the new tariff regime WWRO will be issuing a Business Plan template.WWRO will be issuing a Business Plan template.