1. Nominations James Mellsop Director 4 December 2012 Presentation to PEA

2. 1 Presentation outline  Maui nominations and applicability to Vector  Nominations and price rationing

3. Maui nominations and applicability to Vector

4. 3 Strengths and weaknesses of the Maui nominations regime Strengths Facilitates maximum use of capacity Provides prior indication of constraints Provides invoicing base Weaknesses/costs No significant weaknesses identified, but there are some costs Requires a process to monitor nominations/manage system Requires a mechanism to incentivise accurate nominations (Maui balancing regime provides this)  Have tried to identify strengths/weaknesses independent of the common carriage regime

5. 4 Benefits and costs of a nominations regime on the Vector pipeline Benefits Would provide information to better manage peaks and anticipate capacity constraints Would allow better management of interruptible contracts Would allow use-it-or-lose-it rules to be implemented Might facilitate secondary trading Might assist coordination between Maui and Vector pipelines Costs Increased operational costs – requires a good pipeline model to identify constraints (Vector pipeline more complex than Maui, as more potential sources of constraints) MRP argues that would require daily allocation process for mass market customers Incremental costs for shippers would be small, as already nominating on Maui

6. Nominations and price rationing

7. 6 Recap of PEA’s July paper  Introduce nominations regime on Vector system  If nominations exceed capacity, either –Scale back nominations in excess of firm capacity by pre- determined rules; or –Ration nominations in excess of firm capacity by price mechanism  First option would rely on secondary trading  Second option would rely on TSO-instituted auction

8. 7 Submissions  Few submissions were against a nominations regime –Greater transparency –Help with physical constraints –But desire for more detail, and some questions about why not just go to common carriage  Not much comment on specific proposals for dealing with physical constraints –Due to coincident demand, Genesis not convinced that secondary trading would “ignite”

9. 8 Updated views (no real change)  For both pipelines: –Nominations regime –Simple auction mechanism at time of physical constraints, utilizing adaption of existing bulletin board  To discuss: –Sufficient time to run auction? –Is there a cost effective auction platform if only used rarely? –What to do with rents?

10. Contact Us Name James Mellsop NERA—Auckland +64 9 928 3290 James.Mellsop@nera.com © Copyright 2012 NERA Economic Consulting Limited All rights reserved.