TNAG-0638-FCO40-786-Supplies-of-electricity-for-Hong-Kong-1977 — Page 107

C.S. 166

CONFIDENTIAL #

XCC(77)86

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Enfranchisement of the power companies

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CLP has indicated that it would not be opposed to an agreed franchise but would baulk at an imposed one. It is proposed

that the Schemes of Control for CLP and HEC be settled before this matter is discussed further; and any decisions on enfranchisement will have to take into account the present position and future of the Cheung Chau Electric Company. A further point still to be pursued is the possibility of HEC's future generating expansion being met through a common generating facility with CLP. Exploratory talks with both companies have shown there are considerable difficulties.

Public relations implications

There are three presentational difficulties:

the proposed increase in the permitted return;

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(a)

(b)

annual tariff increases; and

(c)

using consumers' money for capital which,

in the public mind, will imply using their money to make profits which will go to share- holders.

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It is expected that there will be public criticism of an increase in the level of permitted return even if confined to addi- tional shareholders' funds. It will be necessary for the reasons for this to be carefully explained.

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Tariff increases (including fuel escalation) are likely to average about 9% a year from 1980 onwards, This would include going to consumers for capital financing, as a last resort. Both an increase of this magnitude and the use of consumers funds should be acceptable to the public provided that:

(a)

(b)

they are presented well in advance by means of a carefully prepared publicity programme; and

consumers have some say in the running of the company, and a return on their investment on the lines suggested in paragraph 14 above. CLP have not objected in principle to consumers being represented on the board of CLP once the use of

CONFIDENTIAL ##