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Following is a question by the Hon Daniel Lam and a written reply by the Secretary for the Environment, Mr Edward Yau, in the Legislative Council today (February 27):
Question:
The Government already entered into the new Scheme of Control Agreements with the two local power companies respectively, with their permitted rate of return being adjusted downwards to 9.99%. However, while the authorities stated that electricity tariffs would hopefully be adjusted downwards by about 10% in future, the two power companies immediately responded that the rate of downward adjustment of electricity tariffs could only be determined having regard to the impact of various factors, and refused to undertake that the rate of electricity tariffs reduction would be equivalent to that estimated by the Government. The two power companies even took the lead at the end of last year to announce an upward adjustment of electricity tariffs for this year. Some members of the public have relayed to me that under the circumstances of high inflation at present, electricity tariffs going up instead of going down has seriously affected the livelihood of the disadvantaged. In this connection, will the Government inform this Council:
(a) what counter measures the Government has in place to deal with the situation that the two power companies refuse to reduce electricity tariffs on various grounds, or nominally reduce electricity tariffs by a small amount only; and
(b) whether the Government will reconsider studying the introduction of competition to the electricity market as soon as possible, so as to provide more room for the downward adjustment of electricity tariffs?
Reply:
Madam President,
(a) Under the new Scheme of Control Agreements (SCAs), the permitted rate of return of the two power companies will be reduced from the existing 13.5% to 15% on the Average Net Fixed Assets (ANFA) down to 9.99%. Based on 2006 figures, the reduced rate of return will cut the annual earning of the two power companies by around $5 billion. The extent of reduction in basic tariff (excluding fuel cost adjustments) should reach double-digit. The actual reduction in basic tariff however will depend on the ANFA of the two companies and their operating cost on the commencement of the new Agreements. The Government will ensure that the power companies stringently follow the terms of the new SCAs in proposing the new tariff level.
(b) Opening up the electricity market involves a considerable amount of legal issues (including how to deal with the generating facilities and power grids which are assets of the two power companies), important and complex matters like regulatory arrangements, organisational structure, and market demand and supply, etc. The Government has already announced the plan to carry out all the necessary preparations during the next regulatory period with a view to introducing competition to the electricity market of Hong Kong. These include determining the open market model and options for regulatory and technical matters, such that competition can be introduced expeditiously when the requisite market conditions are present.
Ends/Wednesday, February 27, 2008
Issued at HKT 15:45
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