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LCQ3: Scheme of Control Agreements
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     Following is a question by the Hon Sin Chung-kai and a reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (November 6):

Question:

     Regarding the interim review of the Scheme of Control Agreements (SCAs) and the tariff review conducted by the Government with CLP Power Hong Kong Limited (CLP) and The Hongkong Electric Company Limited (HEC) in 2013, will the Government inform this Council:

(a) as it has been reported that CLP has over-estimated the fuel cost for the first half of this year and has thus overcharged its customers with respect to the fuel clause surcharge, whether the authorities know the total amount of the fuel clause surcharge overcharged by CLP in the first 10 months of this year; whether the Government will request CLP to refund to its customers the overcharged amount; if it will, of the details; if not, the reasons for that;

(b) as it has been reported that CLP has planned to suspend the construction of offshore wind farms, whether the Government has sought the reasons for the suspension and the latest construction schedule from CLP; in view of the fact that the two power companies have included certain fixed assets (including the transmission and distribution facilities for the Hong Kong-Zhuhai-Macao Bridge, MTR Shatin to Central Link and Kai Tak Development Area, etc.) in their accounts and the rising price of natural gas, which may result in the rate of tariff increase for the coming year higher than the approved projected basic tariff rate by 5%, whether it has assessed if it is necessary for the Executive Council to request the two power companies to conduct another Development Plan Review for reassessing the rate of tariff increase; if the assessment result is in the affirmative, of the criteria to be adopted by the Executive Council for examining the outcome of the review; if the assessment result is in the negative, the reasons for that; whether there are measures in place to ensure that the two power companies will improve the efficiency and quality of their electricity supply services by 2018; if so, of the details; if not, the reasons for that; whether it has assessed the feasibility of opening up the electricity market after 2018; and

(c) some green groups have pointed out that by implementing the energy saving measures under the SCAs, CLP and HEC saved merely 12GWh and 3GWh of electricity respectively in 2011, which accounted for less than 0.04% and 0.03% of the electricity sales of the two power companies in that year and helped little in reducing carbon emission and addressing climate change, whether the authorities have put in place any measure to raise the energy saving targets of the two power companies; if they have, of the details; if not, the reasons for that?

Reply:

President,

     Electricity supply is an important infrastructure to society and a necessary service in the public's daily life. Electricity tariff also has an impact on the development of industries and businesses in Hong Kong as well as the daily expenses of domestic households. The SAR Government will therefore perform its gate-keeping role stringently under the framework of the Scheme of Control Agreements (SCAs) in dealing with any electricity-related investment or tariff review proposals.

     My reply to the Hon Sin Chung-kai's question is as follows:

(a) The Fuel Clause Recovery Account (FCA) balance as at the end of October 2013 is not available from CLP Power Hong Kong Limited (CLP) at the moment. The FCA balance as at June 30, 2013 was $711 million. The positive FCA balance was mainly due to the lower than anticipated local electricity sales in the first half of 2013, thus enabling CLP to consume less natural gas from the Second West-East Natural Gas Pipeline which is more costly than the existing gas supply from Yacheng. Furthermore, international coal price has been dropping since early 2013. The fuel expense in coal was thus lower than anticipated. The actual FCA balance by end 2013 is subject to the future fuel market situation and electricity sales.

     According to the SCAs, the difference between the actual fuel cost and fuel charge in a year will be returned to or recovered from the consumers by adjusting the future Fuel Clause Charge to arrive at a balance position. Such an adjustment is reflected in the future tariff. In other words, if there is a positive balance in FCA in 2013, it will be used to offset the tariff increase in 2014. We have to stress that fuel costs are passed through to consumers on the basis of actual spending. The two power companies will not benefit from any positive balances in the FCAs. The relevant arrangements are clear, transparent and effective, and there will be no question of "over-collection" of tariffs.

     We also have been closely monitoring the actual fuel expenses of the two power companies and requesting them to minimise the fuel costs wherever possible. However, the international fuel prices are influenced by various factors and subject to considerable fluctuations. Depending on the users' demand, the fuel consumption may also differ from the original forecast. There were both positive and negative balances in the actual FCAs of the two power companies in the past. We will continue to carry out regulatory monitoring of the two power companies consistently in accordance with the SCAs and strike a reasonable balance among the energy policy objectives of safety, reliability, reasonable price and environmental-friendliness, with a view to safeguarding the interests of electricity consumers.

(b) Prevailing Development Plans (DPs) of the two power companies will expire by end 2013. According to the SCAs, the two power companies in general should submit to the Government once every five years the proposed DPs relating to the provision and future expansion of the electricity supply system of the companies and the projected Basic Tariff Rate for the coming five years. We are reviewing the 2014-18 DPs of the two power companies. They cover revenue and capital budgets, estimated operating expenditure, projected annual Basic Tariff Rate adjustments, etc. for the coming five years. The specific capital projects and the tariff adjustments for 2014 are included in the scope of DP Review. The review is expected to be completed by the end of this year and we will brief the Legislative Council and the public on the outcome.

     Regarding efficiency and quality of service, the two power companies are obliged to provide efficient and high quality electricity supply service under the current SCAs. The SCAs also set out the performance indices as well as the mechanism for financial incentives and penalties.

     On the feasibility of opening up the electricity market after 2018, as stipulated in the SCAs, before implementing any changes to the regulatory regime, the Government will take into account all relevant factors and discuss with the power companies market readiness and potential future changes to the electricity supply regulatory framework and transition issues before 2016. We are undertaking preparatory work for the electricity market review, including studying and analysing possible models for market liberalisation and changes to the regulatory framework.

(c) Over the past five years, the Gross Domestic Product of Hong Kong has increased by 19.6%, while the increase in electricity consumption over the same period was 5.1%. Comparing with 8.1% over the first five years in 2000s, the growth rate of electricity consumption has shown an obvious decelerating trend.

     The current SCAs signed between the Government and the two power companies provide the two power companies with financial incentives in respect of energy saving and energy audits, in order to encourage them to enhance energy efficiency performance. Regarding energy saving, the power companies are eligible for an incentive payment if they achieve specified targets in a particular year. The existing energy saving targets have been drawn up after discussion with the two power companies in the past, striking a balance among various objective considerations including power companies' forecast, market reaction and cost effectiveness.

     We understand that the public are concerned about the energy efficiency performance of the power companies and have included this as part of the scope of the mid-term review. We are currently carrying out the review with the two power companies. We expect to complete the review by the end of this year and will brief the Legislative Council and the public on the outcome.

     Thank you, President.

Ends/Wednesday, November 6, 2013
Issued at HKT 16:07

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