Investor Presentaiton

Regulatory key drivers The regulatory framework is incentive-based, meaning that the regulator allows Ausgrid to outperform the regulated rate of return by pursuing desirable objectives Value Driver Opex Capex Debt pricing Gearing STPIS Income tax Description AER determines an efficient level of opex by reference to peer benchmarking and a range of other factors Provided a business is 'efficient', AER typically adopts a 'base-step-trend' approach in setting the opex allowance, which relies on escalation of actual opex in a base year The EBSS rewards opex underspend and penalises opex overspend against the regulatory allowance AER determines an efficient level of capex, typically based on a bottom-up assessment and trend analysis of historical expenditure The CESS rewards capex underspend and penalises capex overspend against the regulatory allowance AER can challenge any capex above the capex allowance on the basis it is imprudent or inefficient In determining regulatory WACC, the AER assumes a cost of debt by reference to a benchmark basket comprised of 2/3 efficient entities with a BBB+ rating and 1/3 efficient entities with an A rating issuing 10 year debt In determining regulatory WACC, the AER consistently assumes a gearing ratio of 60% for all electricity utilities AER offers incentive payments / penalties based on performance against reliability targets relating to length and frequency of outages and telephone response times AER assumes Ausgrid pays a corporate tax rate of 30% in determining the regulatory tax allowance Outperformance potential The EBSS entitles Ausgrid to retain approximately 30% of any opex underspend against the opex allowance EBSS will apply in the FY20-24 regulatory period The CESS entitles Ausgrid to retain approximately 30% of any underspend against the capex allowance Underspend also removes the risk of the AER challenging the prudency/efficiency of any capex if there is an aggregate capex overspend across the regulatory period Regulated returns are improved by achieving borrowing costs below the AER benchmark for example by: • • Targeting a weighted average debt tenor shorter than the benchmark Active treasury management to achieve more attractive pricing than the benchmark Hedging current debt book at current rates (whereas the AER uses a 10- year trailing average approach which includes higher historical debt costs) Regulated returns are improved by targeting higher gearing than the AER assumption of 60% Exceeding performance and reliability targets will result in additional incentive payments to Ausgrid Ausgrid's regulatory tax allowance will exceed actual tax paid where Ausgrid's effective tax rate is less than 30% Better Ausgrid Together 39

View entire presentation