XN000022-1991-11-13 — Page 7

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6

ch

WEDNESDAY, NOVEMBER 13, 1991

ON RETURN

INVESTMENT IS "GUARANTEED"

FIRST, THERE IS THE CONCERN THAT THE PERMITTED UNDER THE SCHEME IS TOO HIGH AND THAT IT IRRESPECTIVE OF THE ACTUAL PERFORMANCE OF CLP.

AS I POINTED OUT TO MAXIMUM

PANEL MEMBERS ON MONDAY ALTHOUGH THE CURRENT SCA PROVIDES FOR LEVELS OF RETURN OF 13+ PER CENT ON ASSETS FUNDED BY BORROWINGS AND 15 PER CENT ON ASSETS FUNDED OUT OF SHAREHOLDERS' EQUITY, IN PRACTICE DUE TO VARIOUS COMPULSORY DEDUCTIONS FOR INTEREST ON LOANS ETC. THE ACTUAL OVER RETURN RECEIVED BY EXXON/CLP SHAREHOLDERS HAS AVERAGED ONLY 11%

OF THE PERIOD OF THE CURRENT SCA. THIS LEVEL IS SOMEWHAT BELOW THAT OTHER PUBLIC UTILITIES WHICH ARE NOT SUBJECT TO REGULATORY CONTROL AND ΤΟ WE DO NOT BELIEVE IT TO BE EXCESSIVE, PARTICULARLY HAVING REGARD THE FACT THAT ELECTRICITY RELATED ASSETS HAVE LIFE SPANS OF 20 TO YEARS, MUCH LONGER THAN IN MOST INDUSTRIES.

3D

THE

THE

ANOTHER CONCERN OF WHICH WE WERE AWARE WAS THAT BY LINKING RATE OF PERMITTED RETURN TO THE AVERAGE VALUE OF NET FIXED ASSETS

I BELIEVE THIS CONCERN IS SCA APPEARS TO REWARD OVER-INVESTMENT. MISPLACED FOR, UNDER THE TERMS OF THE SCA THE COMPANIES ARE REQUIRED THEIR TO JUSTIFY TO GOVERNMENT IN GREAT DETAIL THE ASSUMPTIONS BEHIND DEMAND FORECASTS AND THE DEVELOPMENT PLANS THEY CONSIDER NECESSARY MEET THAT DEMAND. THESE PLANS ARE VERY CAREFULLY SCRUTINIZED NOT ONLY CONSULTANTS BY GOVERNMENT OFFICIALS, BUT ALSO BY INDEPENDENT OVERSEAS TO ENSURE THAT THE MOST COST-EFFECTIVE AND ECONOMICAL GENERATING IS SELECTED. NEVERTHELESS, AS A FURTHER SAFEGUARD THE NEW

THAT WHICH HELP TO ENSURE INCORPORATE AMENDMENTS REPLACED PREMATURELY AND THAT ALTERNATIVES SUCH AS EXTEND THE LIFE OF ASSETS ARE FULLY CONSIDERED.

■

PLAN

SCA WILL

ARE ASSETS

NOT REFURBISHMENT ΤΟ

SHOULD ACTUAL

AN ALTERNATIVE PRICE INDEX AS

WE ALSO CONSIDER WHETHER THE BASIS OF ASSESSING PROFIT BE CHANGED. BUT CONCLUDED THAT IN THE LIGHT OF EXPERIENCE AND PERFORMANCE, THE PRESENT BASIS REMAINED APPROPRIATE. SUCH AS PRICE-CAPING BY REFERENCE TO THE CONSUMER SUGGESTED BY ONE MEMBER WILL CERTAINLY NOT HAVE RESULTED IN A 40 CENT REDUCTION IN THE REAL COST OF ELECTRICITY.

PER

WE REFLECTED TO THE ANOTHER AREA OF PUBLIC CONCERN WHICH

EMISSIONS FROM THAT

POWER COMPANIES WAS THE

GIVEN ENVIRONMENT,

ΤΟ THE SO-CALLED ARE THOUGHT TO BE A MAJOR CONTRIBUTOR

THE POWER GASES WHICH

GLOBAL WARMING. ARE LINKED TO

ΤΟ ARE

ENVIRONMENTAL SUBJECT

GOVERNMENT'S

GENERATION

GREENHOUSE

COMPANIES

CONTROLS SUCH AS THE AIR POLLUTION ORDINANCE.

A

LICENCE TO OPERATE. CONDITIONS

ON THE

THIS LICENCE COMPANIES

AS WELL AS BEING

MUST

MORE

THE

ΤΟ

SUBJECT TO THE PROVISIONS OF THIS ORDINANCE THE POWER COMPANIES GENERALLY IMPOSES OBTAIN

BY THAN ARE IMPOSED STRINGENT

PRACTICAL MEANS ORDINANCE, SUCH AS THE NEED TO ADOPT THE BEST MINIMISE EMISSIONS.

AGREEMENT, THEY THE PEAK ENERGY

UNDER THE TERMS OF THE NEW SCHEME OF CONTROL WILL ALSO BE REQUIRED TO PROPOSE STRATEGIES FOR REDUCING LEVELS OF DEMAND FOR POWER AND RESTRAINING GROWTH IN DEMAND BY SAVING THEREBY PUTTING OFF THE NEED TO BRING NEW GENERATING PLANT INTO OPERATION.

/MR. DEPUTY