EGL62400 - Significant minority shareholders in group companies: additional examples for surrenders in respect of significant minority shareholders

The EGL legislation provides a mechanism, in certain cases, for a shortfall arising in one undertaking to be surrendered to a related undertaking in respect of an overlap period. EGL63200 explains the basic framework and EGL63300 details the limitations on the amounts that can be surrendered.

The following examples illustrate how these limitations apply in respect of significant minority shareholders.

Example 1

Assume X holds 20% of SubCo, which is an 80% subsidiary of ParentCo. They all have the same accounting period, meaning an overlap period of a full 12 months.

In the period, SubCo sells its generation of 1,000 GWh to third parties and achieves an average price of £200 per MWh. ParentCo does not itself undertake any generation or hedging activities.

The ParentCo / SubCo group is therefore liable to EGL:

Receipts £200,000,000

Benchmark deduction (£75,000,000)

Allowance (£10,000,000)

__________________

Net receipts £115,000,000

EGL @ 45% £51,750,000

X has no other interests in generation but has entered into a hedging arrangement based on 200 GWh of generation at a market price of £160 per MWh, a loss of £40 per MWh.

Hedging loss (£8,000,000)

Allowance (£10,000,000)

__________________

Shortfall (£18,000,000)

The amount of X바카라 사이트™s shortfall of £18,000,000 that can be surrendered to ParentCo/SubCo is then restricted to the lowest of:

  • £8,000,000 under F(2)A23/S299(2) (being the amount of the shortfall that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £25,000,000 under F(2)A23/S299(3) (being the amount of the exceptional receipts of SubCo that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £18,000,000 under F(2)A23/S299(7) (being the total shortfall amount of X that relates to the overlap period, taking account of any other surrenders)
  • £115,000,000 under F(2)A23/S299(8) (while this is not a formal limit, there would be no value in ParentCo/SubCo claiming more than their total exceptional receipts)

As a result, X can surrender £8,000,000 to ParentCo / SubCo.

A surrender of this amount reduces ParentCo / SubCo바카라 사이트™s net exceptional receipts to £107,000,000 resulting in an EGL liability of £48,150,000.

Example 2

As with example 1, but now generating undertaking X also has its own generation activity with exceptional generation receipts of £12,000,000. This gives X a net shortfall of £6,000,000.

The amount of X바카라 사이트™s shortfall of £6,000,000 that can be surrendered to ParentCo / SubCo is then restricted to the lowest of:

  • £8,000,000 under F(2)A23/S299(2) (being the amount of the shortfall that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £25,000,000 under F(2)A23/S299(3) (being the amount of the exceptional receipts of SubCo that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £6,000,000 under F(2)A23/S299(7) (being the total shortfall amount of X that relates to the overlap period, taking account of any other surrenders)
  • £115,000,000 under F(2)A23/S299(8) (while this is not a formal limit, there would be no value in ParentCo / SubCo claiming more than its total exceptional receipts)

As a result, X can surrender £6,000,000 to Z.

A surrender of this amount reduces Z바카라 사이트™s net exceptional receipts to £109,000,000 resulting in an EGL liability of £49,500,000.

Example 3

As with example 1, but now generating undertaking X has taken out hedging arrangements which fix the price realised to £65/MWh. This gives X a net shortfall of £37,000,000.

The amount of X바카라 사이트™s shortfall of £37,000,000 that can be surrendered to ParentCo/SubCo is then restricted to the lowest of:

  • £27,000,000 under F(2)A23/S299(2) (being the amount of the shortfall that directly relates to X바카라 사이트™s share of the generation of Z)
  • £25,000,000 under F(2)A23/S299(3) (being the amount of the exceptional receipts of SubCo that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £37,000,000 under F(2)A23/S299(7) (being the total shortfall amount of X that relates to the overlap period, taking account of any other surrenders)
  • £115,000,000 under F(2)A23/S299(8) (while this is not a formal limit, there would be no value in ParentCo / SubCo claiming more than its total exceptional receipts)

As a result, X can surrender £25,000,000 to ParentCo / SubCo.

A surrender of this amount reduces ParentCo / SubCo바카라 사이트™s net exceptional receipts to £90,000,000 resulting in an EGL liability of £40,500,000.

Example 4

As with example 1, but now both ParentCo and X have taken out hedging arrangements which fix the price realised to £65/MWh over their respective 800GWh and 200GWh interests in the share of the generation of SubCo.

ParentCo / SubCo바카라 사이트™s EGL calculation, before any claim from X, is as follows:

SubCo바카라 사이트™s receipts £200,000,000

ParentCo바카라 사이트™s net loss (£108,000,000)

Benchmark deduction (£75,000,000)

Allowance (£10,000,000)

__________________

Net receipts £7,000,000

EGL @ 45% £3,150,000

As with example 3, X has a shortfall of £37,000,000

The amount of X바카라 사이트™s shortfall of £37,000,000 that can be surrendered to ParentCo / SubCo is then restricted to the lowest of:

  • £27,000,000 under F(2)A23/S299(2) (being the amount of the shortfall that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £25,000,000 under F(2)A23/S299(3) (being the amount of the exceptional receipts of SubCo that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £37,000,000 under F(2)A23/S299(7) (being the total shortfall amount of X that relates to the overlap period, taking account of any previous surrenders)
  • £7,000,000 under F(2)A23/S299(8) (while this is not a formal limit, there would be no value in ParentCo / SubCo claiming more than their total exceptional receipts)

As a result, X would only surrender £7,000,000 to ParentCo / SubCo.

This reduces ParentCo / SubCo바카라 사이트™s net exceptional receipts to £nil resulting in an EGL liability of £nil.

Example 5

As with example 1, but now SubCo only achieves an average market price of £68/MWh. As a result, X achieves a profit of £72/MWh on its hedging arrangement.

ParentCo / SubCo바카라 사이트™s shortfall is as follows:

Receipts £68,000,000

Benchmark deduction (£75,000,000)

Allowance (£10,000,000)

__________________

Net shortfall (£17,000,000)

X바카라 사이트™s exceptional receipts before any claims from ParentCo / SubCo, will be as follows:

Hedging profit £14,400,000

Allowance (£10,000,000)

__________________

Exceptional receipts £4,400,000

EGL of £1,980,000

The amount of ParentCo / SubCo바카라 사이트™s shortfall of £17,000,000 that can be surrendered to X is then restricted to the lowest of:

  • £1,400,000 under F(2)A23/S299(5) (being the amount of the shortfall of ParentCo / SubCo that directly relates to X바카라 사이트™s share of the generation of SubCo)
  • £14,400,000 under F(2)A23/S299(6) (being the amount of the exceptional receipts of X that directly relate to X바카라 사이트™s share of the generation of SubCo)
  • £17,000,000 under F(2)A23/S299(7) (being the total shortfall amount of Z that relates to the overlap period, taking account of any previous surrenders)
  • £4,400,000 under F(2)A23/S299(8) (while this is not a formal limit, there would be no value in X claiming more than its total exceptional receipts)

As a result, ParentCo / SubCo can surrender £1,4000,000 to X.

A surrender of this amount reduces X바카라 사이트™s net exceptional receipts to £3,000,000 resulting in an EGL liability of £1,350,000.