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Government's approval of CLP's 2008 Development Plan
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     The Executive Council approved CLP Power Hong Kong Limited's (CLP)  Development Plan covering the period October 1, 2008, to December 31, 2013 (hereafter referred to as 2008 Development Plan) today (September 23).

     According to the 2008 Development Plan, CLP will reduce its average Basic Tariff (not including fuel cost adjustment) by 10% (or 8.6 cents) from October 1,  2008.  The reduction has been agreed after protracted discussions with CLP pursuant to the new Scheme of Control Agreement (SCA) signed in January this year.  As the change in fuel cost is not to be taken into account in the determination of the Basic Tariff, the Net Tariff paid by customers will be adjusted in accordance to changes in fuel cost incurred by CLP.

     "With the assistance of an independent energy consultant, the Government has spared no effort in performing its gate-keeping function when reviewing the 2008 Development Plan.  We have critically reviewed the need, timing and budget of the capital projects proposed by CLP and demanded revisions.  After protracted discussions, CLP agreed to substantially reduce its originally proposed capital expenditure in the Development Plan period by 30% to $39.9 billion.  Taking into account inflation, the annualised capital expenditure in the 2008 Development Plan is broadly on par with that under the last Financial Plan [Note]," said the Secretary for the Environment, Mr Edward Yau.

     With the lowering of the permitted rate of return from the previous 13.5%-15% to 9.99% under the new SCA, there is room for reduction of the Basic Tariff.  The current reduction in the Basic Tariff is in line with the estimate made by the Government when the new SCA was announced early this year.

     Pursuant to the SCA, CLP has the right to adjust its Fuel Clause Charge from time to time to reflect the changes in the cost of fuels for electricity generation.  With the increase in prices of coal and natural gas, CLP will increase the Fuel Clause Charge by 5.9 cents/kWh on October 1, 2008, to avoid accumulating a large deficit in its Fuel Clause Account.  As the increase in the Fuel Clause Charge will partly offset the reduction in the Basic Tariff, the average Net Tariff, which includes the Fuel Clause Charge, will be reduced by 2.7 cents/kWh, from the current rate of 91.1 cents/kWh to 88.4 cents/kWh, representing a reduction of 3% from its current level.  Details are set out in the table attached.

     CLP projected that the average annual increase in the Basic Tariff over the Development Plan period would be below the forecast inflation in the Government's medium-range forecast.

     Mr Yau said the Government, in addressing public concern, has successfully persuaded CLP to draw down its Tariff Stabilisation Fund balance in order to reduce tariffs in the Development Plan period.  CLP projected that its Tariff Stabilisation Fund balance in the Development Plan period would fall by more than 90% from $2.1 billion in end 2007 to a low not seen in more than two decades.

     "The Government will monitor the performance of CLP through the annual Auditing Review and Tariff Review to ensure that the public can continue to enjoy a reliable, safe and efficient electricity supply at reasonable cost," said Mr Yau.

[Note] Financial Plan under the current SCA is called Development Plan under the new SCA

Ends/Tuesday, September 23, 2008
Issued at HKT 16:59

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