3 August Ms. Anna McKinlay Regulation Branch Commerce Commission PO Box Wellington Dear Anna,

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1 Maui Development Limited PO Box Wellington August 2012 Ms. Anna McKinlay Regulation Branch Commerce Commission PO Box 2351 Wellington 6140 Telephone: (04) Fax: (04) commercial.operator@mauipipeline.co.nz Dear Anna, Please regard this letter as our submission to the Commerce Commission ( the Commission ) on the Update Paper for Technical Consultation regarding Information Disclosure Requirements for Electricity Distribution Businesses and Gas Pipeline Businesses. In this letter we will use MDL to refer to the Gas Transmission Business (GTB) of Maui Development Limited. We will start by responding to issues identified by the Commission in the Update Paper itself. The issues for which we have comments (referenced by the same numbers as in the Update Paper) are set out below. Issue # and topic MDL comments 1) Analytical ratios We have no objection in principle, but we will review the spreadsheets in detail to ensure appropriate parameters are used for MDL. We will submit on that by 17 August. 2) Related party transactions: open tender 3) Related party transactions: additional valuation options 4) Related party transactions: costs and margins 5) Related party transactions: sales to related party We have not been able to find the term certified tender in the GTB draft decision. (We assume the reference to clause was meant to be ) We do not understand 2.3.7(2)(e)(vi). We are not sure why it is a condition for a tender process. The text appears garbled. We cannot find 2.3.6(1)(g) referred to in the Update Paper. We are not sure what this refers to. The sections and referenced in the Update Paper do not exist in the Draft Decision. We expect clause 2.3.7(2)(b) to be irrelevant to a GTB. Assuming it can be removed, a definition for mark-up is unnecessary. Section referenced in the Updated Paper does not exist in the Draft Decision. If it was intended to refer to section then we have no problems.

2 6) Related party transactions: MDL We are grateful for the Commission s intention to exempt routine transactions of MDL. Unfortunately, we have not been able to find such an exemption or limitation in the Draft Decision. We have been able to find a new definition for routine transaction and we expect this will be useful for drafting of the Commission s intended provision. 7) Return on Investment The Commission s draft decision to have an ROI formula based on IRR is bad. It is not supported by anyone outside the Commission and has been objected to by everyone within the regulated industries. Even MEUG insisted that ROI must be published using the standard approach. The Commission s draft decision to require an alternative calculation of ROI based on an IRR of monthly notional cash flows is even worse. It is impossible to guarantee that such a calculation has a single solution. This problem is particularly acute for monthly cash flows at GTBs, where the value of commissioned and disposed assets in a month can exceed revenues and expenses. This means cash flows during a year can be positive as well as negative, and a single IRR solution will not exist. Unless the Commission is also able to prescribe in advance which solution should be used when multiple solutions exist, a regulated entity would not be able to certify its disclosure as correct. In light of these technical problems, as well as for all the reasons we and others have submitted before, we strongly submit that section and part 3(iii) of Schedule 3 should be deleted. 9) Application of regulatory tax to MDL We appreciate that the Commission has recognised MDL s circumstances as not actually being subject to tax. We support use of the statutory tax rate as value for our notional corporate tax rate. The rate of tax, however, was the least of our concerns. The compliance costs for MDL to compile information on permanent and temporary tax differences are not low. It requires substantial efforts and expense from MDL to retain a third party that can confidentially collect and collate tax information from each of MDL s six shareholder companies. MDL has no power to require its shareholders to participate in such efforts and provide the requested information. Moreover, because MDL s shareholders do not share their individual tax or financial records with each other or with MDL, MDL s directors have no way of personally certifying the tax information as correct. 10) Level of disaggregation and consistency with CPP IM 22) Notice of price changes Because Vector is the Technical Operator for MDL s pipeline operations we will defer to their submission on the level of disaggregation for technical categories and sub-categories. From a commercial perspective, MDL has no objection to the Commission s draft decision. We greatly appreciate the choice provided by the Commission. Maui Development Limited Page 2 of 5

3 23) Schedules: Information on quantities and revenues billed 24) Network assets and associated network drivers. 30) Disclosure of Transmission Pipeline Capacity Schedules 8a and 8b will need to be amended for MDL along similar lines as the revised Schedule C in the reissued Section 53ZD notice to MDL of 25 July The problems are the same as those that led to the reissue. MDL s consumers and source of revenue are shippers of gas. These shippers need not be users of gas, and may not even have a welded point on the Maui pipeline. We will review the categories in detail for our submission on the spreadsheet templates by 17 August We should point out now that we expect the quantities of gas reported in schedules 8 and 9 to be different from each other. The revenues of MDL are based on Scheduled Quantities (SQ) from Approved Nominations by Shippers under the Maui Pipeline Operating Code (MPOC). Therefore, we expect to use SQ in schedules 8. For pipeline data we expect the Commission will want to see Metered Quantities (MQ) from Welded Points, if only to maintain consistency with the previous GIDR. Therefore, we expect to use MQ in schedules 9. The MPOC requires Physical Point Welded Parties to use reasonable endeavours to manage the flow of gas so that Running Operational Imbalance between MQ and SQ at each Welded Point tends towards zero over a reasonable period of time. In light of physical limitations, however, it would only be a coincidence if MQ and SQ were exactly the same. We appreciate the Commission s revised approach to disclosure of pipeline capacity. Because Vector is the Technical Operator for MDL s pipeline operations and performs all our capacity calculations we will defer to their submission in relation to section and the AMP. We can point out that MDL does not have a September flow year. MDL s historical capacity disclosures under the GIDR have been for a December year end. Nevertheless, we have no objection to implementing a September flow year for capacity disclosure if that is what the Commission prefers. In contrast to Vector, MDL does not have a capacity reservation system or regime in place. Sections and of the draft decision will not be applicable for MDL and we have no opinion to express on those. The Commission may want to qualify those sections by adding the phrase if applicable. 31) Asset Management Plan Templates Because Vector is the Technical Operator for MDL s asset management we will largely defer to their submission on this topic. However, we do have some concerns we would like to mention. We assume the Commission will want MQ for quantities entering the system per month and week in Schedule 9c. We do not know how to calculate Gas conveyed for persons not involved in the GTB on Schedule 9c. We can think of two different approaches to this. Maui Development Limited Page 3 of 5

4 a) MDL conveys gas for Shippers. We can provide annual SQ (Shippers do not have MQ) from Approved Nominations by Shippers that are related parties of MDL. b) MDL s shareholders include producers of gas. We can provide annual MQ (or SQ if desired) of Welded Points owned by related parties of MDL. We expect this second option, using MQ, to be the most useful. With respect to Schedule 9d we need to repeat that MDL s customers for Transmission Services are Shippers of gas. Shippers do not have connections and we do not know how to break them out by type. The MPOC requires MDL to treat all Shippers the same. The last point is also relevant for the AMP in general. MDL s consumers are Shippers of gas; not users of gas. The MPOC does not allow MDL to differentiate between the consumers of its gas transmission services. If the Commission wishes to receive information on Welded Points in Schedule 9d we suggest making that explicit. In that case we also suggest MQ as the most relevant quantities. (Shippers would only have SQ.) For a breakout by Welded Party type we suggest the same categories as we have used in the reissued Schedule C from our section 53ZD notice of 25 July The last point also applies to part (iii) of Schedule 11a and to Schedule 12b. 35) Disclosure years for GPBs We deeply appreciate and support the Commission s draft decision to set MDL s disclosure year for a period ending in December. We support the definition of Disclosure year of MDL in the draft decision, but note that it is different from the definition in the December 2010 IM. That IM for MDL stated "disclosure year followed by a specified calendar year means the preceding calendar year to that specified. As we experienced while responding to the current section 53ZD notice, that definition created confusion and errors; both for us and for the Commission. Therefore, we greatly prefer a definition in which 2013 disclosure year would actually pertain to the year ending For the text of the definition in section of the draft decision the word proceeded should be replaced with preceded. For greater flexibility we suggest the term proceeded by a year be replaced by combined with a year. 39) Timing of initial disclosures We have no objection to making initial disclosures by 30 June Maui Development Limited Page 4 of 5

5 41) Form of transitional AMPs 42) Continuity of information 43) Commencement of ongoing pricing disclosures: GPBs We are grateful for the option to provide a transitional form of AMP. We suggest that the requirement for an AMMAT Report relating to such a transitional AMP be removed as well. This would mean the deletion of (2)(e). We agree that the combined results of our disclosures under the GIDR and the section 53ZD notice should eliminate the need for a limited transitional disclosure by MDL. We have no objection to this. We remain surprised, however, that part (d) of the definition of publicly disclose requires use of proprietary file formats (without version reference) that are not in the public domain and for which compatibility can only be assured by use of proprietary Microsoft products. As a general comment, we trust the dates in the schedules for MDL will be amended where necessary to reflect MDL s December year end. We would also like to remind the Commission that we have previously submitted a Request for Amendment of clause 3.1.3(1)(c) of the Gas Transmission Services IM in order to ensure that the definition for balancing gas can apply to MDL as well. We may have included comments above that go beyond the scope of issues for which the Commission was seeking substantive consultation. We make no apologies for that but have attempted to (mostly) restrict such comments to issues that are important to us. We will proceed with a detailed review of the spreadsheet templates for the schedules which were published by the Commission on 20 July If this were to lead to additional comments we will include those in our submission on the templates by 17 August We are not submitting a marked-up version with changes to the draft ID determination. However, we are willing to assist Commission staff in the drafting of any changes and we invite the Commission to freely liaise with us for any clarifications that may be helpful. We have appreciated the opportunity to provide this submission. For any additional issues please do not hesitate to contact us. Yours sincerely, Jelle Sjoerdsma Commercial Operator, Maui Pipeline for Maui Development Limited Maui Development Limited Page 5 of 5