1774 NEW ZEALAND GAZETTE, No. 68 20 JUNE 2007

2. REGULATION 15: FINANCIAL AND EFFICIENCY PERFORMANCE

2.1 Definition of Maui Pipeline Notional Entity

The Maui pipeline is owned by the Maui Mining Companies (an unincorporated joint venture). As the joint venture’s services company, Maui Development Limited holds the pipeline assets as a bare nominee. Given this ownership situation, the best and most practical method of calculating the financial performance and efficiency measures was to calculate stand-alone accounts for the Maui pipeline business and derive the measures required from them. This approach has the advantage of being consistent with the ACAM requirements being considered for introduction in the future.

The Maui Pipeline notional accounts were constructed as follows:

• Income was derived from the tariff income for shipments through the pipeline. This includes tariffs charged for the shipment of gas sold under the Maui Gas Contract (Legacy Gas).

• Expenses were derived from the expenses charged by the Commercial, Technical and System Operators, including the cost of services provided to them, together with the expenses charged by the Balancing Agent and the Incentives Pool Trustee who operate under the terms of the MPOC. These were all considered to be pipeline related.

• Assets include any assets owned by MDL and used for pipeline related purposes, but also include the ODRC value of the Maui pipeline assets.

• Depreciation is charged on the MDL assets and the pipeline ODRC values. The depreciation rate used for the pipeline and other pipeline assets is that determined by the ODRC valuation report.

• Tax is charged at the normal company rate. This is assumed to be equal to the “Cash Tax” amount used for the purposes of calculating the accounting rate of profit.

• The notional entity has no debt. Any debt held in the individual Maui Mining Companies is unable to be directly or indirectly attributed to the Maui pipeline.

The notional accounts do not include provision for the following costs:

• Costs associated with the governance of Maui Development Limited’s pipeline business by the Maui Mining Companies. These governance services are currently provided at no charge. These costs are unlikely to significantly affect the results given below.

• Costs associated with the provision of Balancing Gas Services for the Maui pipeline. This service is currently provided by the Maui Mining Companies at no charge to Maui pipeline users and recovery of the cost of Balancing Gas Services is not provided for in the tariffs currently charged. It is unlikely that free Balancing Gas Services will be available long term. The future cost of providing Balancing Gas from other sources cannot be reliably estimated at this point, but is likely to be significant.

A consequence of constructing the notional accounts in this way is that there are no indirect costs (as defined in the Regulations).

2.2 Estimates, Assumptions and Adjustments

• An ODRC pipeline value as at 1 October 2005 was estimated using the ODRC values prepared by Maunsell Limited for 31 December 2006 and 31 December 2006. The method used was to project the trend in the December valuations back 3 months.