CONFIDENTIAL #
機密
- 11
XCS(77)2
yield to reflect retained earnings. The projections also show that the compound growth in dividends could be higher than 10% without having to increase the permitted return of 13%, although this would be at the expense of retained earnings and thus would result in greater recourse to the Development Fund and so lead to increases in tariffs. On the other hand, if the assumption of 8% for inflation proves too high, there would not be a need to increase dividends by as much as 10% compound annually. So more of shareholders' funds could be available for financing capital expansion, thus reducing the need to increase tariffs.
26
The main increase in the risk for investors referred to in paragraph 20(c) is the consequence of the expiry of the New Territories lease in 1997, CLP argue that this increased risk must be recognised by lifting the limit on the permitted return to shareholders. The weakness in this argument would seem to be that the risk is now no greater than it has ever been. Nevertheless, the shareholders may think that the risks will increase as 1997 draws closer. If CLP is to continue to expand, shareholders' belief in the increased risk will have to be recognised through higher dividends. This may require the dividend restrictions to be lifted; and ultimately, if the risks are judged to be very high, it may be necessary to adjust the limitation on the permitted rate of return.. But such high risks would also be felt throughout the economy and therefore result in a reduced demand for electricity. This in turn would reduce the need for expansion and thus the need to reinvest earnings. These earnings could then be distributed. This argument leads to the conclusion that there is no case for lifting the limitation on the rate of return now; but there is a case for keeping it under review.
(c) Flexible Return
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While some method of encouraging efficiency is desirable and could certainly benefit the company and consumers, the system suggested by CLP is considered unworkable, being too reliant on accurate budgetting. There appears to be no way of determining whether a cost saving is the result of an overstated budget rather than of improved efficiency. This point will need to be pursued further with CLP; and the Government will need to be fully satisfied that any sophisticated procedure to determine improved efficiency is in practice workable.
C.S. 166
CONFIDENTIAL
機密