NEW ZEALAND GAZETTE

No. 174

ELECTRICITY CORPORATION OF NEW ZEALAND LIMITED

NOTES TO THE FINANCIAL STATEMENTS

24. LONG TERM CONTRACTS

Gas Purchase Contract

ECNZ has entered into a contract with Contact under which ECNZ is entitled to purchase specified annual gas quantities from 1 October 1996 to 30 September 2006. Each year ECNZ is required to pay an amount based on the quantity of gas available to ECNZ in that year but not taken, calculated as provided in the contract. Subject to the terms of the contract as to availability, ECNZ is entitled to take such gas in subsequent years without further payment, apart from an amount relating to the Energy Resources Levy. An amount on account of gas paid for but not taken at the completion of the contract will be refunded to ECNZ. The maximum amount payable under the contract up to 30 September 2006 is $391 million.

25. MEMORANDUM OF UNDERSTANDING (MoU)

The MoU was signed by ECNZ and the Crown on 8 June 1995. Pursuant to this ECNZ agreed to:

a) sell 8 power stations to Contact (note 26). These stations accounted for 29% of ECNZ’s generating capacity as at the MoU date;

b) revalue its assets by 1 February 1997 (note 27);

c) sell 8 hydro stations subject to appropriate consultation by the Crown with Maori as to any Treaty of Waitangi issues. The stations involved are Cobb, Coleridge, Highbank, Matahina, Mangahao, Tuai, Piripaua and Kaitawa. These stations accounted for 4.5% of ECNZ’s generating capacity as at the MoU date.

ECNZ and the Crown agreed on four additional constraints on ECNZ. These constraints cease to apply in the event that ECNZ’s total New Zealand generating capacity (measured in MW) falls below 45%. The constraints are:

(a) Cap on ECNZ providing additional generating capacity

ECNZ can only provide up to 50% of additional generating capacity. This constraint excludes:

i) refurbishments and modifications to existing hydro stations, provided that the additional energy is created from existing catchment areas;

ii) new plant using cogeneration or non-traditional renewable resources.

This constraint includes:

i) any refurbishments and modifications to Meremere, Marsden A or Marsden B;

ii) any increase in Huntly’s capacity above 1,000 MW.

(b) Ring-fencing of additional generating capacity

Additional generating capacity provided by ECNZ in New Zealand will be ring-fenced where:

i) the additional capacity is more than 10 MW

ii) ECNZ would have control over the development and sale of the additional capacity

The objective of ring fencing is to ensure that any additional capacity undertaken by ECNZ is conducted without any cross-subsidisation.

(c) Contract offer mechanism

ECNZ will offer on at least an annual basis sufficient contracts to ensure that customers have the opportunity to contract ECNZ revenue up to at least the level specified in the following table:

| Years ahead | Percentage of firm capacity |
|-------------|-----------------------------|
| 1           | 87                          |
| 2           | 70                          |
| 3           | 50                          |
| 4           | 40                          |
| 5           | 30                          |

The initial offer is being made by way of tender in five tranches at monthly intervals. Each tranche consists of a combination of year 1, year 2, year 3, year 4 or year 5 blocks. The minimum block size is 1000 GWh and the maximum block size 5000 GWh. The nominal reserve prices offered by tender have been set in consultation with the Crown for the tenders offered prior to 30 September 1996, as follows: