6. PRINCIPLES RELATING TO THIRD PARTY INCOME125

For the purposes of calculating the financial adjustment in relation to Third Party Income pursuant to the provisions of this Schedule 19 (Revision of Base Case and Custody), the following principles shall be applied:

6.1. If the Relevant Event arises from a Qualifying Change in Law (or any event that this Contract deems to be a Qualifying Change in Law), subject to paragraph 6.1.1 the adjustment to the Unitary Charge due in respect of the resulting lost Third Party Income (the "Qualifying Change in Law TPI Adjustment"), shall compensate the Contractor for the Third Party Income that would otherwise have been receivable but for the occurrence of a Qualifying Change in Law;

6.1.1. when taken together with all other Third Party Income receivable by the Contractor, the Qualifying Change in Law TPI Adjustment:

(a) where prior to the occurrence of the Qualifying Change in Law the Contractor has been generating Third Party Income at levels equal to or in excess of those forecast in the [original] Base Case shall not result in the Third Party Income exceeding the levels forecast in the [original] Base Case; and

(b) where the Contractor has been generating Third Party Income at levels below those forecast in the [original] Base Case, shall not result in Third Party Income exceeding an amount equal to the lower of:

(i) the Contractor's share of the Third Party Income forecast in the [original] Base Case; and

(ii) the TPI Average as defined in paragraph 6.6 below;

6.2. If the Relevant Event arises from a Compensation Event [(or an event the Contract deems to be a Compensation Event)], subject to paragraph 6.2.1 the adjustment to the Unitary Charge due in respect of the resulting lost Third Party Income [(the "Compensation Event TPI Adjustment"):

[EITHER

shall when taken together with all other Third Party Income receivable by the Contractor, put the Contractor in a no better, no worse position in respect of Third Party Income than would otherwise have been received but for the occurrence of the Compensation Event;]

[OR126

[subject to paragraph 6.5, shall compensate the Contractor for the Third Party Income that would otherwise have been received but for the occurrence of the Compensation Event;

6.2.1. When taken together with all other Third Party Income receivable by the Contractor, the Compensation Event TPI Adjustment:

(a) where prior to the occurrence of the Compensation Event the Contractor has been generating Third Party Income at levels equal to or in excess of those forecast in the [original] Base Case, shall not result in the Third Party Income exceeding the levels forecast in the Base Case; and

(i) the Contractor's share of the Third Party Income forecast in the [original] Base Case; and

(ii) the TPI Average as defined in paragraph 6.6 below;

6.3. If the Relevant Event arises from an Authority Change the adjustment to the Unitary Charge shall take in account the resulting lost Third Party Income and any net change in the cost of generating such Third Party Income such that when taken together with all other Third Party Income receivable by the Contractor and the net cost of generating such Third Party Income, put the Contractor in a no better, no worse position;

6.4. If the Authority issues a notice to continue in accordance with Clause 69.7 (Notice to Continue), subject to paragraph 6.4.1 the adjustment to the Unitary Charge due in respect of the resulting loss in Third Party Income (the "Force Majeure TPI Adjustment"), shall compensate the Contractor for the Third Party Income that would otherwise have been receivable but for the occurrence of the Force Majeure Event;

6.4.1. When taken together with all other Third Party Income receivable by the Contractor, the Force Majeure TPI Adjustment:

(a) where prior to the occurrence of the Force Majeure Event the Contractor has been generating Third Party Income at levels equal to or in excess of those forecast in the [original] Base Case, shall not result in Third Party Income exceeding the levels forecast in the [original] Base Case; and

(i) the Third Party Income forecast in the [original] Base Case; and

(ii) the TPI Average as defined in paragraph 6.6 below.

6.5. Where pursuant to Clause 33.4 the Authority steps in circumstances where the Contractor is not in breach, the Contractor's compensation for lost Third Party Income will be amount equal to the higher of

(a) The amount of Third Party Income actually received by the Authority as a result of taking the Required Action and

(b) An amount relating to the period of the Required Action calculated on the basis of the lower of

(i) the Third Party Income forecast in the [original] Base Case; and

(ii) the TPI Average as defined in paragraph 6.6 below

6.6. The TPI Average shall be calculated as

(a) Where the Relevant Event or Step In occurs more then twenty-four 24 months since the Services Commencement Date, the TPI Average shall be the average Monthly Third Party Income received by the Contractor on a monthly basis over the [twenty-four (24) Month] period immediately prior to the occurrence of the Relevant Event; or

(b) Where the Relevant Event or Step In occurs where there have been more than six (6) months but fewer than twenty-four (24) months since the Services Commencement Date, or the parties otherwise agree that there is insufficient data for an average monthly Third Party Income to be calculated over twenty-four months (24 months), the applicable period shall be reduced to such reasonable period as the parties may agree. If subsequently the actual Third Party Income received during the period from six (6) to twenty-four (24) months since the Services Commencement Date is calculated as being less than the amount compensated, the amount by which the Third Party Income received is less than the amount compensated shall be deducted from the Contractor's share of any future excess Third Party Income; or

(c) Where the Relevant Event or Step In occurs prior to or fewer than six (6) months since the Services Commencement Date, the amount of any Third Party Income compensated shall be as forecast in the Base Case. If subsequently the actual Third Party Income received during the period prior to or fewer than six (6) months since the Services Commencement Date is calculated as being less than the amount compensated, the amount by which the Third Party Income received is less than the amount compensated shall be deducted from the Contractor's share of any future excess Third Party Income;

6.7. Compensation for lost Third Party Income shall always be less the Authority's share of such income.

6.8. The TPI Adjusted Base Case Equity IRR

[Insert the project specific mechanism to adjust the Base Case Equity IRR to reflect the capping of the Third Party Income. For example, the TPI Adjusted Base Case Equity IRR is the real post tax blended equity IRR (pre-tax with respect to Shareholders in the Contractor, post-tax with respect to the Contractor) that is calculated by replacing the TPI assumptions in the Base Case with the TPI Average. For the avoidance of doubt, the TPI Adjusted Base Case Equity IRR shall never be higher than the Base Case Equity IRR given the capping of the Third Party Income at Base Case levels.]

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125 Provisions reflect the principles in Section 4 of the Defra Derogations Guidance.

126 Please see Section 4.5.2 of the Defra Derogations Guidance for rationale for the choice.