Statement of Corporate Intent 1 July 2020 Contents

D.17 Statement of Corporate Intent 1 July 2020 Contents 1. Role and objectives 3 1.1 Transpower’s Role 3 1.2 Transpower’s Objectives 3 2. Transpower’s strategy and business environment 5 2.1 Purpose 5 2.2 Our Strategic and Performance Framework 5 2.3 Key Assumptions 7 3. Performance measures and targets 9 3.1 Safety and Our People Performance Targets 9 3.2 Service Performance Targets 10 3.3 Assets Health Target 10 3.4 Financial Performance Targets 11 3.5 Sustainability Targets and Actions 11 4. Capital investment and dividend policy 13 4.1 Capital Structure and Investment 13 4.2 Dividend Policy and Estimates 14 5. Commercial valuation 16 6. Other matters 18 6.1 Information to be provided to Shareholding Ministers 18 6.2 Procedures for Share Subscriptions or Purchases 19 6.3 Activities for which Compensation is sought 19 6.4 Accounting Policies 19 6.5 Other Matters Agreed by the Shareholding Ministers and the Board 19 Appendix 1: Subsidiary companies 20 7.1 Our Current Subsidiaries 20 7.2 Functions of Subsidiary Companies 20 Appendix 2: Updates to performance targets for 2019/20 21 8.1 Safety Performance Targets 21 8.2 Operational Performance Targets not included in SCI 21 8.3 Financial Performance Targets 21 8.4 Sustainability Targets 22 8.5 Capital Structure and Investment Estimates 22 Appendix 3: Definitions 23 9.1 Definition of Safety Performance Targets 23 9.2 Definition of Operational Performance Targets 23 9.3 Definition of Financial Performance Targets 23 9.4 Definitions Relating to Capital Investment 23 Appendix 4: SOE portfolio measures 24 STATEMENT OF CORPORATE INTENT // 1 JULY 2020 TRANSPOWER NEW ZEALAND LIMITED 1 This Statement of Corporate Intent sets out Transpower’s activities, objectives and performance targets for three years from 1 July 2020. This Statement of Corporate Intent (SCI) is COVID-19 CONTEXT: submitted by the Board of Directors of This SCI was prepared Transpower New Zealand Limited, in prior to COVID-19. The accordance with Section 14 of the State- situation remains Owned Enterprises Act 1986 (the Act). It sets uncertain however we out the Board’s overall intentions and will continue to monitor objectives for Transpower New Zealand and report performance Limited and its subsidiary companies (the Transpower Group)1 for the year against these targets. commencing 1 July 2020 and the following two financial years up to 30 June 2023. The Transpower Group is referred to as “Transpower” throughout this SCI. 1 . Role and objectives 1 The companies that comprise the Transpower Group are listed in Appendix 1. STATEMENT OF CORPORATE INTENT // 1 JULY 2020 TRANSPOWER NEW ZEALAND LIMITED 2 STATEMENT OF CORPORATE INTENT // 1 JULY 2020 TRANSPOWER NEW ZEALAND LIMITED 3 1 . Role and objectives 1.1 Transpower’s Role Transpower is central to the New Zealand electricity industry, connecting New Zealanders to their power system through safe, smart solutions for today and tomorrow. Our principal commercial activities are: l As grid owner, to reliably and efficiently transport electricity from generators to distributors and large users; and l As system operator, to operate a competitive electricity market and deliver a secure power system. 1.2 Transpower’s Objectives Our principal objective, as set out in Section 4 of the State-Owned Enterprises Act (1986), is to operate as a successful business. SECTION 4 OBJECTIVE OUR OPERATIONS As profitable and efficient as comparable l Within regulatory and commercial parameters: businesses that are not owned by the Deliver and operate a safe, reliable, cost efficient transmission Crown grid that meets New Zealand’s needs now and into the future. Deliver an efficient system operator service that supports competition and provides a reliable and efficient supply of electricity. l Pursue business opportunities based on the capabilities and expertise developed through our core business activities. A good employer l Promote a high level of safety, taking all practicable steps to provide safe working conditions. l Maintain a well-qualified and motivated workforce that we treat fairly and properly in all aspects of recruitment, retention and employment. An organisation that exhibits a sense of l Build and maintain effective relationships with landowners, social responsibility by having regard to the occupiers and other community representatives and interest interests of the community in which it groups affected by our activities. operates and by endeavouring to l Transpower is committed to the principles of Te Tiriti o Waitangi accommodate or encourage these when in our operations as an SOE and as a company owned by the able to do so Crown as Treaty partner. We seek to build and maintain effective relationships with Māori, including acknowledging their interests in land l Work in partnership with communities to plan, deliver, and operate efficient and effective infrastructure while managing adverse social and environmental impacts of our activities. STATEMENT OF CORPORATE INTENT // 1 JULY 2020 TRANSPOWER NEW ZEALAND LIMITED 4 STATEMENT OF CORPORATE INTENT // 1 JULY 2020 TRANSPOWER NEW ZEALAND LIMITED 5 2 . Transpower’s strategy and business environment 2.1 Purpose Consistent with the above statutory objectives, we define our purpose as: We connect New Zealanders to their power system, through safe, smart solutions for today and tomorrow. 2.2 Our Strategic and Performance Framework We have a company-wide strategic and performance framework that links our why and values to our strategic priorities plans and performance measures. This is shown below: Our Strategy and Performance Framework OUR CONTEXT OUR PLANS OUR PERFORMANCE Safety AT E G I C P R S T R I O R I T I E S active role in e an nab lay land’s ener lin Business P Zea gy f g w utu Plan Relationships Ne re & B E H A s U E S V I O s A L U R e V S n S r e NZ L v for Clar ic u u i re ity s o t he W e Transformation c e e t ’r d n a e e e o c i t f W n Customers f c e a l e y e r it v o l l U R W H e t e i Y o u l O r, a b a s r e i o n t m c n s o p p i o c u l t o y e c A c a r c i s a a i A t Tū mai l n e Integrated a C g o Aotearoa r Transmission l e l r a o Environment a b c Plan o r h a it t w io n rk o T w he e E p W v ow y Innovation o e er r of eliv re lv us D e tu o c c ru u u t e Financials r s m st se ra ti o r nf r m vic r i e e es ou ov rs’ to ch d ne mee Mat ee ed t to n s SO ICT Roadmap People STATEMENT OF CORPORATE INTENT // 1 JULY 2020 TRANSPOWER NEW ZEALAND LIMITED 6 2. Transpower’s strategy and business environment Whakamana Te Mauri Hiko describes our changing context, with climate change and other key trends creating the foundation for a scenario-based view of New Zealand’s Energy Future. Transmission Tomorrow – Our Strategy2 builds on this context to describe our business choices and identifies our five key strategic priorities: l Evolve our services to meet customers’ needs; l Play an active role in enabling New Zealand’s energy future; l Sustain our social license to operate; l Match our infrastructure to need over time; and l Accelerate our organisational effectiveness. Transmission Services The Commerce Commission regulates grid services, which account for over 90% of our revenue, under Part 4 of the Commerce Act (1986). Part 4 aims to ensure we: l have incentives to invest; l have incentives to innovate, to improve efficiency and to provide services at a quality that reflects consumer demands; l share the benefits of efficiency gains with consumers, including through lower prices; and l are limited in our ability to extract excessive profits. 2 transpower.co.nz/about-us/transmission-tomorrow STATEMENT OF CORPORATE INTENT // 1 JULY 2020 TRANSPOWER NEW ZEALAND LIMITED 7 2. Transpower’s strategy and business environment Under Part 4 arrangements, we publish an update of our asset management strategies and our service and expenditure plans each year3. In November 2018, we submitted a proposal for output targets and expenditure levels for the five years commencing 1 July 2020 (i.e. for our third regulatory control period – RCP3). Overall, we are on a path of improving network performance and efficiency and managing increasing reinvestment pressures for lines built during a period of grid expansion from the 1950s to 1980s. New grid connections are typically funded directly by the connecting customer under an access regime governed by the Electricity Authority and account for less than 4% of our revenue. System Operator Services The Electricity Industry Act (2010) requires the Electricity Authority to contract with Transpower for operation of the New Zealand power system. Our System Operator Service Provider Agreement (SOSPA) provides a fixed fee for most of these services and includes mechanisms for agreeing funding for service enhancements and for setting annual performance and delivery incentives. System operator services account for 4% of our revenue. The fixed fee component currently covers the period 2016 to 2021 and this will be reset for 2022. 2.3 Key Assumptions Our financial plan is based on the following key assumptions: l Our operating expenditure will be $297 million in 2020/21; l Renewal capex will average $293 million across the next three years; l Grid development capex will average $130 million across the next three years; and l Regulatory allowances are adjusted for the latest CPI information.

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