****************************************************
Following is a question by Hon Jeffrey Lam and a written reply by the Secretary for the Environment, Mr Edward Yau, in the Legislative Council today (June 10):
Question:
According to the new Scheme of Control Agreements which the Government signed with CLP Power Hong Kong Limited and Hongkong Electric Company Limited (the two power companies) respectively, the basic tariff of the two power companies was lowered from October last year and January this year respectively. Yet, the fuel clause charge included in the tariff of the two power companies was raised. In this connection, will the Government inform this Council:
(a) of the respective monthly prices (including the free-on-board prices, the cost-insurance-and-freight prices and the freight charges involved) of the fuel costs of the two power companies last year;
(b) given the decrease in the international coal prices in the past six months, whether the Government will discuss with the two power companies how to adjust the fuel clause charge in a more timely manner;
(c) whether it knows if there will be room for reduction in the fuel clause charge next year as estimated by the two power companies; if there will be room for reduction, of the extent; and
(d) of the authorities' new measures to monitor the fuel clause charge and tariff adjustments of the two power companies effectively, as well as those to enhance the transparency of the tariff mechanism?
Reply:
President,
(a) & (b) The new Scheme of Control Agreements (SCAs) with CLP Power Hong Kong Limited (CLP) and the Hongkong Electric Company Limited (HEC) came into effect on October 1, 2008 and January 1, 2009 respectively. The two power companies also lowered their average Basic Tariffs by 10% and 19% respectively on the same dates as the commencement of the SCAs and agreed to substantially reduce their Tariff Stabilisation Fund balances within this year.
On the other hand, as the average coal prices in the market rose in 2008 and were significantly higher than those projected by the two power companies during the 2008 Tariff Review carried out at the end of 2007, the Fuel Clause Accounts of CLP and HEC accumulated deficit balances of about $800 million by the end of September 2008 and $1 billion by the end of December 2008 respectively. To avoid accumulating even larger deficit balances in the Fuel Clause Accounts, CLP increased its Fuel Clause Charge (FCC) by 5.9 cents/kWh to 11.8 cents/kWh on October 1, 2008 while HEC raised its FCC by 14.9 cents/kWh to 25.4 cents/kWh on January 1, 2009. As regards the actual free-on-board prices, the cost-insurance-and-freight prices and the freight charges of the fuel used by the two power companies in last year, the data involved are commercially sensitive information to the two power companies and hence the companies have indicated that the information cannot be disclosed to the public.
International coal prices have fallen in the past six months. Nevertheless, as the current deficit balances in their Fuel Clause Accounts still remain at a high level, the two power companies may not be able to lower their FCCs in the near future.
(c) Regarding the FCC levels of the two power companies for next year, the Government will continue to monitor the respective companies' updated projections of coal prices and Fuel Clause Account balances during the annual Tariff Review to be conducted by the end of this year. If there is indeed room for FCC reductions, the Government will discuss with the two power companies regarding the magnitude of such adjustments.
(d) Pursuant to the SCAs, the two power companies cannot make any extra profit or return under the Fuel Clause Account mechanism. The SCAs stipulate that fuel cost is to be borne by consumers. Basic Tariff includes a standard fuel cost as agreed between the Government and the two power companies. The power companies have the right to recover from or return to the consumers, by means of a charge or a rebate from time to time, the difference between the actual fuel cost and the standard fuel cost. The Government has been closely monitoring coal price movement in the market and its consequential impact on the Fuel Clause Account balances of the two power companies. In the annual Tariff Review, the Government will also engage an independent energy consultant to review the respective companies' fuel price projections to ensure that they are in line with the trend movement of fuel prices in the international market and that the projections are set at a reasonable level. Through the above mechanism, the Government can ensure that the FCC levels of the two power companies are reasonable.
As regards the monitoring of electricity tariffs, pursuant to the SCAs, the Government will review carefully the data provided by the two power companies in the annual Tariff Review. The Government will take into account a number of factors including electricity demand and sales, operating costs, fuel prices, capital investments, measures to control cost and increase productivity, updated balances in the Fuel Clause Accounts and Tariff Stabilization Funds, affordability of the consumers and permitted return etc. to ensure that the public can enjoy reliable, safe and efficient electricity supply at reasonable costs.
In addition, the two power companies will brief the Energy Advisory Committee and the Panel on Economic Development of the Legislative Council on their proposed tariff adjustments, and provide explanations and justifications for the changes in each tariff component. If required, the two power companies will also provide necessary supporting data, for example projected coal prices and Fuel Clause Account balances for the next year, so as to enhance transparency and ensure that the public understand the reasons and justifications for the tariff adjustments.
Ends/Wednesday, June 10, 2009
Issued at HKT 18:50
NNNN
