23 NOVEMBER 2012 NEW ZEALAND GAZETTE, No. 140 4113

TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS

Pursuant to the Master Trust Deed, Transpower has given a negative pledge that while any unsubordinated notes are outstanding it will not (and its subsidiaries will not), subject to certain exceptions, create or permit to subsist any charge or lien any of their respective assets to secure payment of debt securities.

Euro medium term notes
Under the euro medium term note (EMTN) programme, Transpower Finance has previously issued notes guaranteed by Transpower. Transpower New Zealand rather than Transpower Finance, now issues notes under this program. Transpower New Zealand Limited has given a negative pledge covenant that while any of the notes issued under the EMTN programme remain outstanding it will not (and its subsidiaries will not), subject to certain exceptions, create or permit to exist any charge or lien over any of its respective assets to secure payment of certain indebtedness.

Australian medium term notes
Under the Australian medium term note programme, Transpower Finance may issue notes guaranteed by Transpower. There were no notes issued at balance date (2011: none).

US private placement - issued by Transpower Finance Limited
Bonds are issued by Transpower Finance under a note and guarantees agreement dated 27 September 2004. The Bonds are guaranteed by Transpower (the "Guarantor"), Halfway Bush Finance Limited and TB and T Limited (the "Subsidiary Guarantors"). The Guarantor and Subsidiary Guarantors have unconditionally guaranteed payment of the principal, interest and other amounts owing under the Agreement.

US private placement - issued by Transpower New Zealand Limited
Notes ("Transpower USPP Notes") have been issued by Transpower under a note purchase agreement dated 13 October 2011. The Transpower USPP Notes are guaranteed by Transpower Finance, Halfway Bush and TB and T (together, "Subsidiary Guarantors"). Each Subsidiary Guarantor has unconditionally guaranteed payment of the principal, interest and other amounts owing under the note purchase agreement for the Transpower USPP Notes.

(iii) Economic gain (loss) account

Transpower operates its revenue setting methodology within an economic value ("EV") framework that analyses economic gains and losses between those attributable to shareholders and those attributable to customers. The balance of the accumulated gain (loss) from monopoly activities attributable to customers ("the EV balance") has been passed on to or claimed from customers over time.

The net balance of the EV account at 30 June 2012 was $\$20.9 million to the credit of customers (2011: \$24.3 million to the credit of customers). The AC balance of \$88.7 million is to be returned to customers, and the HVDC balance of \$109.6 million is to be recovered from customers over two regulatory control periods ending 30 June 2020.

(iv) Regulated rate of return

On 23 December 2010 the Commerce Commission (CC) announced the new regulatory framework that applies to Transpower and which has been brought into effect by the Commerce Act (Transpower Individual Price-Quality Path) Determination 2010 and the Commerce Act (Transpower Input Methodologies) Determination 2010. Under this framework the CC has determined a regulated rate of return for Transpower of 7.19%, which is materially below a level that the directors and their specialist advisors consider appropriate.

The process leading to this decision has been subject to judicial review. The High Court released its judgment on this review on 21 December 2011. The Court found that the CC had erred in that part of the process that related to the leverage rate used to calculate Transpower’s regulated rate of return. The Court ordered the CC reconsult on its leverage assumptions. Transpower has also appealed the merits of the rate of return decision itself. The appeal is likely to be heard in late 2012. As a result of these actions it is possible (but by no means certain) that the regulated rate of return may be changed retrospectively. An increase in the regulated rate of return of 10 basis points approximates to revenue of \$4m per annum.