1. Transmission Pricing Webinar 12 October 2015

2. 2 Agenda for Webinar Introductions Purpose Potential Areas of Change – Overview –Revenue Proposal –Business as Usual Questions Next Steps

3. 3 Purpose Identify where Powerlink can provide more value to customers and consumers Receive input on potential changes Note: –ultimately the outcome of any changes will result in winners and losers, with each connection point impacted differently depending on its load profile –transitional impacts will need to be considered –initially discussed with Powerlink’s Customer & Consumer Panel

4. 4 Revenue Proposal Must be lodged with the AER by end January 2016 Revenue Proposal must include proposed Pricing Methodology If considered of value by customers and consumers, a number of the potential changes could be put forward in Revenue Proposal

5. 5 Tariff Reform Recent years – greater focus on clearer pricing signals and consumer choice Rule change in November 2014 –primarily focused on restructuring DNSP tariffs –was not directed at transmission charges However: Many tariff reform principles already apply to transmission pricing –Cost reflective signals –Demand based charges Key outcome from DNSP Rule change - DNSPs must use the Long Run Marginal Cost (LRMC) to determine tariffs –transmission charges are calculated using Cost Reflective Network Pricing methodology (CRNP) or Modified CRNP

6. 6 Feedback Revenue Proposal for 2018-22 Regulatory Period

7. 7 What is Cost Reflective Network Pricing (CRNP)? Methodology in Rules for allocating locational revenue requirements For each connection point, the cost of using the shared network is calculated –outcome reflects peak utilisation of the shared network –this use is converted to a $ amount based largely on historic asset costs –locational prices target collection of this amount

8. 8 From CRNP to Modified CRNP CRNP and Modified CRNP are the only two methodologies allowed under current Rules Modified CRNP: –very similar to CRNP –incorporates additional utilisation signal to derive locational costs –discounts locational price relative to peak utilisation of transmission assets –increases non-locational bucket Pricing Signal: Locations with lower utilisation will have a relatively lower locational price (Encourages more efficient locational decisions)

9. 9 Long Run Marginal Cost (LRMC) LRMC bases charges on future investment costs DNSPs are required to use LRMC to calculate network tariffs LRMC methodology is not currently within Rules for calculating transmission prices –will require a Rule change Due to the lumpy nature of transmission investment, is this appropriate for transmission pricing? Pricing Signal: Prices that provide a stronger signal to customers of future network costs

10. 10 Alternative Locational Pricing Split Currently revenue allocated to TUOS services is split evenly between Locational and Non-Locational charges If Modified CNRP is used it will result in a higher Non-Locational bucket An alternative % allocation can place more weighting on locational prices Pricing Signal: Higher locational charges based off actual network usage and reduced Non-locational charges (postage stamped)

11. 11 Demand based charges Rules require locational charges to be Demand based Demand sends a signal which better reflects the costs of providing a transmission network to meet peak demand –Current locational charges are based evenly on Nominated/Contract Demand and Average Demand –Shifting to Nominated/Contract Demand only locational charges sends a stronger signal Requires consideration of impacts to Avoided TUOS payments Pricing Signal: Locational prices that are more reflective of the impact that demands places on the transmission network (Links to CRNP allocation principle of peak utilisation)

12. 12 Feedback Business as Usual (outside revenue reset timeframe)

13. 13 Greater Price Predictability For direct connect customers Can help consumers with internal business planning, budgeting and investment horizons Option: –investigate potential to fix/limit price changes for x-years –establish arrangements for recovery of movements within/outside pre-established marks –potential non-prescribed service (contractual arrangements) Would this provide value to customers?

14. 14 Summary Possible Changes to Pricing Methodology

15. 15 Consultation Paper Questions

16. 16 Questions?

17. 17 Next Steps Consultation Paper on Transmission Pricing –submissions close Friday 16 October –please identify if any information is confidential Feedback will: –inform finalisation of Revenue Proposal –inform future business as usual interactions with customers