C.S. 166
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XCC(77)8€
(c) Flexible Return (paragraph 27 of Annex A)
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As no accurate method of determining genuine cost savings related to improved efficiency could be devised, it was eventually agreed with CLP that the proposal should be dropped for the time being. The possibility can be considered again if any new ideas emerge from the discussions with Hongkong Electric Company Limited (HEC).
(d) Development Fund and Balancing Fund
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(paragraphs 28-29 of Annex A)
The proposed quantification of appropriations to the Develop- ment Fund forms an integral part of the tariff adjustment procedure, which is summarised in (e) below and set out fully in Annex I to Annex B. The idea of a Balancing Fund was abandoned after lengthy discussion as being over-complicated in practical application and essentially un- necessary. This accords with the Government side's brief (Annex A).
(e) Tariff Adjustments (paragraphs 30-34 of Annex A)
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In the end a rather different approach to that in the brief (Annex A) was agreed between the two sides in order to reconcile CLP's desire for a measure of certainty about future tariff increases and the brief to the Government side that the principle of full automaticity was unacceptable. The procedure agreed is set out in Annex I to Annex B.
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In short, 'Financing Reviews' covering a period of at least 5 years will be conducted jointly by the Government and CLF in order to establish agreement on the projected tariffs, and the degree of future participation by consumers in the financing of capital expenditure. The results of such reviews would then put to the Executive Council for advice.
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In addition there would be annual 'Auditing Reviews' (also conducted jointly) to compare the actual results (of the previous year) with the corresponding estimates at the most recent Financing or Auditing review, whichever has occurred later. Where necessary demand forecasts and operating expenditure estimates would be revised, and the projected tariff increases and Development Fund additions would be adjusted accordingly. Depending upon the degree to which the adjusted tariffs are at variance with the original projections in the Financing Review then either:
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