XN000022-1996-01-24 — Page 71

Reply:

(a)

End

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(b)

(c)

The Government is aware of the statistical methods used by the two electricity companies to project demand for electricity over the longer term.

The China Light and Power Company's demand forecast is produced by analysing the historical data on the pattern of electricity consumption and the outlook for economic development. Projections on sales are derived from micro analysis of electricity consumption in 22 different customer classes. Each class is analysed through a combination of econometric and time-series techniques to establish the long-term relationship between electricity consumption in that class and the underlying economic and social factors. The results are cross- checked against a macro analysis, which relates overall electricity consumption with gross domestic product and the price of electricity. The Hongkong Electric Company's demand forecast is obtained from the joint application of three forecasting methods. The main method used is the trend of demand over time, supplemented by a sectional method which forecasts demand in the domestic, commercial and industrial sectors and an econometric method which correlates demand growth with economic indicators such as gross domestic product.

Projections of demand for electricity submitted by the electricity companies in support of proposals for financing of new capital expenditure are examined by the Government having regard to the reasonableness of the forecasting methodology and input assumptions and the Government's own forecasts. The companies' forecasts of demand are monitored continuously by the Government on a yearly basis through the financial monitoring and auditing arrangements provided for under the Scheme of Control Agreements to ensure that they remain realistic.

The basic tariff that the companies may charge over the life of their current financing plan is determined when the plan is approved by the Government. Every year, when the companies submit their forecasts for the annual auditing review, the Government conducts an assessment of the impact on tariffs of any deviations in the company's projections. The Scheme of Control Agreements also provide for the companies to submit a new financing plan for the Government's approval whenever variations in the projections are such as to increase basic tariffs significantly above those previously approved.