For discussion
on 19th April 1977
REQIVED M
REGISTRY NO. 51
3 MAY 1977
SECRET
XCS(77)2 Copy No.... of 24
MEMORANDUM FOR EXECUTIVE COUNCIL
SCHEME OF CONTROL FOR THE ELECTRIC POWER COMFANIES
615
35)
10KK 164/1.
Introduction--
On 17th November 1964, Honourable Members considered
A. memorandum XCC(64)111 (copy at Annex A) and advised that the control
arrangements set out in that memorandum should be approved.
B
2
Briefly, the principles underlying the present Scheme of Control for the China Light and Power Company and the Peninsula Electric Power Company (hereafter the initials CLF will be used to mean both companies) are:
(a) a basic tariff within which CLP must work, except
to the extent of agreed increases caused by changes in the cost of plant and of equipment and in local costs. Charges may be adjusted automatically with changes in the price of fuel;
(b) a permitted return of up to 134% on "average net
assets" defined as capital investment less deprecia - tion at Inland Revenue agreed rates (which are shown in Annex B);
(c) the setting aside of the surplus, after meeting costs.
including depreciation, taxes and the agreed return on average net assets, in a Development Fund used either for capital expenditure or for reducing or avoiding increases in the tariff;
(d) interest at 8% per annum on the Development Fund, the amount concerned being deducted from the per- mitted return as calculated at (b) above, and passed on to consumers in the form of a rebate;
(e) restrictions on the distribution of dividends whenever
the Development Fund amounts to a significant propor- tion of total capital investment. If at a year's end the Development Fund amounts to less than 10% of the net fixed assets of CLF, no dividend restriction applies. But if it is 10% or above, then the payout is restricted to the following percentages of earnings:
Development Fund/Assets % 10%-25%
25% - 35% 35% or above
Maximum dividend payout as a
percentage of profits
Cumulative
60%
50%
50%
In any single year
70%
60%
50%
SECRET