TNAG-0635-FCO40-783-Supplies-of-electricity-for-Hong-Kong-1977 — Page 65

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XCS(77)2

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Provided that, within these forecasts, all the necessary requirements of the Scheme have been adhered to (in respect of depreciation rates, borrowing pattern, dividend policy etc), the cash balance for each of the 5 years in the cash flow statements would indicate the extent of the adjustments necessary to tariffs.

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Then, by comparing different tariff adjustment patterns (using CLP's financial models), it should be possible to assess the appropriate level of tariff adjustments that would eliminate any pro- fitability problems and, at the same time, effectively remove the resultant peaks and troughs in the cash balances.

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Thereafter, by mutual agreement (and care would have to be taken in wording the Scheme of Control to make sure that CLP had no unilateral right to raise tariffs), any necessary tariff increases for the coming year would be implemented. Any increases considered necessary for future years would be used for forward projections and possibly as the basis for a publicity campaign; but would only be implemented after similar succeeding reviews,

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Under such an arrangement, it would not seem necessary to adjust tariffs quarterly as CLP propose. To do so would involve an unnecessary amount of paper work, particularly as the largest element in likely future tariff increases would be automatic anyway through the fuel escalation clause.

(f) Interest rate on the development fund

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Over the next 10 years or so consumers will have to contribute increasing sums of money to the Development Fund with very little likeli- hood of these sums being refunded to them (via reduced tariffs) in the foreseeable future. Consequently, as explained in paragraphs 12-15, the consumer's role is a changing one, with them taking on, to the extent of the balance in the Development Fund, the status of shareholders.. This raises a number of questions:

(a)

(b)

(c)

should consumers, whenever their shareholding becomes significant, have, like shareholders, a say in the running of the company “?

is the present rate of interest (8% per annum) that is levied on the Development Fund balance adequate?

would it be more appropriate to retain such interest within the business, to aid cash flow, rather than paying it out to consumers as rebates, only to recover it again through higher tariffs ?

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