5.
11
4.2.4 It may be concluded that the rates of return over the
period, in averaging out at 18.9%, are only
-
marginally in excess of the upper limit of the public
utilities benchmark (15% 18%) of reasonableness set
by the HKG. Whilst the average exceeds the 16.5%
suggested as reasonable in para. 4.1.7 by 2.4% it
should be borne in mind that an average calculated
from an earlier point in time would probably be
considerably lower. Consequently it can be claimed
that the accumulated cash surplus is primarily if not
wholly the result of not extracting available
"reasonable surplus" as community dividend in the
past rather than the result of generating excessive
rates of return. The major part of the cash may
therefore be taken to represent retained surplus
which could, at any time, be distributed as community
dividend.
Recommendations
5.1
It is recommended that:
(a) a reasonable target rate of return on ANFA employed in
the business (based upon the historic cost convention)
be set at 16.5% with effect from 1.4.87;
(b)
(c)
in common with most profit control schemes of Hong Kong
public utilities the target rate of return should be
after tax but before interest charged or earned;
the target rate of return should not be rigidly applied
in any given year in the determination of charge levels
rather it should be the aim to obtain an average return
of 16.5% over a number of years;