Here is what it means. ROIC stands for return on invested capital and WACC stands for weighted average cost of capital. Both are expressed in terms of percentages and my formula says that the maximum annual return on invested capital that the utilities will be permitted is 3 per cent over their weighted average cost of capital.

Right, boss, I've solved it. Can I take the rest of the day off now?

Okay, okay, I hear you. Hot air first.

It should be pretty clear by now that CLP Power and Hongkong Electric are not going to get a continuation of the present scheme that allows them a basic 13.5 per cent return annually on their average investment in net fixed assets.

This is not because it is a bad scheme. Actually, it is a rather good one. It has brought us top-notch reliability in electricity supply at tariffs that a recently published government consultation paper rates as competitive with comparable cities.

But other studies have pointed out that it has also given the two companies much higher returns on equity or assets than power utilities enjoy elsewhere and legislators are in no frame of mind to see this continue after 2008.

It is also a particularly bad time for the power companies to try to keep the scheme going in its present form because of one critical flaw in it. That 13.5 per cent is a fixed number. It stays at 13.5 per cent irrespective of whether the general level of return on other investments in our economy goes up or down.

The chart shows you what this means. Back in 1981 a return of 13.5 per cent was hardly attractive when, to use a simple benchmark, HSBC's best lending rate went as high as 20 per cent. That rate is now 5 per cent and effectively even lower as many borrowers pay a good deal less.

It makes a 13.5 per cent return look very lucrative at the moment, better than it has ever really been over the past 25 years and now is thus not an opportune time for arguments to keep it. No, the utilities will not get 13.5 per cent.

Radically different proposals are also unlikely to be adopted. One suggested formula that appears to have been scrapped, and quite rightly so, is CPI - X, in other words increases in tariffs to be kept below the overall rate of consumer price inflation by a set margin.

It might work in the United States or even Britain but to tie our utilities to the rate of consumer price inflation in Hong Kong dollars when almost all their costs are denominated in foreign currencies will never work.

A much better idea will similarly get short shrift. It is to merge the two firms' transmission and distribution networks into one separate listed company operating under a scheme of control and then invite all qualified comers to supply power to this grid if they can sign up customers at the rates they charge.

I still say it is a superb idea but it is definitely a radical one and ours is not a government that favours radical change. This, above all, is why it is likely that we will in the end get something close to what we already have.

And my ROIC - WACC formula is just that. Only one change is really needed. It is to base the return on WACC (weighted average cost of capital, just to remind you) rather than average investments in fixed assets.

Not only is WACC a more appropriate measure of investment costs but it is a variable one and will thus make the nominal rate of return a floating one. This gets rid of the flaw of fixed rate of return in the present scheme.

All that then remains is to determine by how much the ROIC (reminder - return on invested capital) should exceed WACC and my 3 per cent is the obvious answer. The government has already adopted it by ruling that the MTR Corp show a return of up to 3 per cent over cost of capital on new projects.

There you go, all settled. We may move that 3 per cent up or down a notch but, however much hot air we generate in coming months, I think this is the basic formula we will get.