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The Executive Council today (December 16) approved the Hongkong Electric Company Limited (HEC)'s Development Plan covering the period January 1, 2009, to December 31, 2013.
According to the 2009-2013 Development Plan, HEC will reduce its average Basic Tariff (not including fuel cost adjustment) by 19.2% (or 22.4 cents) from January 1, 2009. The reduction has been agreed after protracted discussions with HEC 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 with changes in fuel cost incurred by HEC.
"With the assistance of an independent energy consultant, the Government has spared no effort in performing its gate-keeping function when reviewing the 2009-2013 Development Plan," the Secretary for the Environment, Mr Edward Yau, said. "We have critically reviewed the need, timing and budget of the capital projects proposed by HEC and demanded revisions. After protracted discussions, HEC eventually agreed to substantially reduce its originally proposed capital expenditure in the development plan period by about 30% to $12.3 billion. Taking into account inflation, the total capital expenditure in the 2009-2013 Development Plan is in real terms lower than that under the last Financial Plan (Financial Plan under the current SCA is called Development Plan under the new SCA)."
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 Basic Tariff. The current reduction in Basic Tariff is in line with the double-digit estimate made by the Government for Basic Tariff reduction when the new SCA was announced early this year.
Pursuant to the SCA, HEC has the right to adjust its Fuel Clause Charge (FCC) from time to time to reflect the difference between the projected cost of fuels and the actual cost of fuels incurred by HEC. During the 2008 Tariff Review carried out by the end of last year, HEC projected that the average coal price in 2008 would be about US$86/tonne. With this coal price projection, HEC's FCC from January 1, 2008 was set at 10.5 cents/kWh. However, with the continuing increase in coal price in 2008, the FCC level was not sufficient to cover the actual fuel cost incurred by HEC. As a result, the Fuel Clause Account is expected to accumulate a deficit balance of about $1 billion by the end of 2008.
HEC projects that the average coal price in 2009 will be US$137/tonne. To avoid accumulating an even larger deficit balance in its Fuel Clause Account, HEC will increase the FCC by 14.9 cents/kWh on January 1, 2009. As the increase in FCC will partly offset the reduction in Basic Tariff, the average Net Tariff, which includes the FCC, will be reduced by 7.5 cents/kWh, from the current rate of 127.4 cents/kWh to 119.9 cents/kWh, representing a reduction of 5.9% from its current level. Details are set out in the table below:
(Cents/kWh)
Basic Decrease Fuel Net Decrease
Tariff (%) Clause Tariff (%)
Charge
2008
Tariff 116.9 - 10.5 127.4 -
2009
Tariff 94.5 -22.4 25.4 119.9 -7.5
(-19.2%) (-5.9%)
HEC projected on average a decrease in Basic Tariff per annum over the Development Plan period as compared with current level.
Mr Yau said the Government had successfully persuaded HEC to draw down its Tariff Stabilisation Fund balance in order to reduce tariffs in the Development Plan period.
"The Government will monitor the performance of HEC through the annual Auditing Review and Tariff Review to ensure that the public can continue to enjoy reliable, safe and efficient electricity supply at reasonable costs," he said.
Ends/Tuesday, December 16, 2008
Issued at HKT 17:43
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