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LCQ14: Interim review of the Scheme of Control Agreements

     Following is a question by the Dr Hon Kenneth Chan and an written reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (October 17):


     As the electricity tariffs charged by the Hongkong Electric Company Limited (HKE) have remained higher than those charged by the CLP Power Hong Kong Limited (CLP) for years, with a difference amounting to 30%, the burden of electricity tariffs on the residents and small and medium-sized enterprises (SMEs) on Hong Kong Island is higher than that on the residents and SMEs in other districts.  Next year, the Government will carry out an interim review of the Scheme of Control Agreements (SCAs) signed with the two power companies.  In this connection, will the Government inform this Council whether it will:

(a)  commence discussions with the two power companies to request them to revise the mechanism for calculating electricity tariffs, so as to encourage their customers to reduce electricity consumption, enhance energy efficiency and reduce expenditure on electricity tariffs at the same time; if it will, of the details; if not, the reasons for that;

(b)  consider reviewing the current level of permitted rate of return that the two power companies are entitled to and the methods of calculating such rate when carrying out the interim review of SCAs, so as to reduce the permitted return of the two power companies and alleviate the tariff increase pressure; if it will, of the details; if not, the reasons for that; and at the same time, whether the Government will consider establishing a stronger link between the emission performance of the two power companies and their permitted rate of return, so as to raise the existing requirements on the emission performance of the two power companies; if not, of the reasons for that;

(c)  consider studying specific measures immediately with a view to narrowing the difference between the electricity tariffs of HKE and CLP and take the initiative to discuss with the two power companies on such matter; if it will, of the specific details of the efforts to be made in this respect; if not, the reasons for that;

(d)  consider commencing policy studies immediately on opening up the electricity market, so as to prepare for the introduction of more participants into the electricity market upon the expiry of the current SCAs, and materialize the segregation of the generation sector from the network sector; if it will, of the details; if not, the reasons for that; and

(e)  consider adjusting the mechanism for calculating the permitted return when carrying out the interim review of SCAs, so as to provide more incentives for the two power companies to use more renewable energy sources and waste-to-energy technology in electricity generation; if it will, of the details?



     The Scheme of Control Agreements (SCAs) stipulate clearly that the two power companies and the Government shall have the right during 2013 to request modification of any part of the current SCAs, and mutual agreement is needed before implementing any proposed modification.  The Government is making preparation for a mid-term review of the SCAs with the two power companies respectively in early 2013 in accordance with the SCAs.  We have no fixed views on any modification proposals, and will listen to the views of Members of the Panel on Economic Development of the Legislative Council before the mid-term review formally commences.

     Our reply to specific parts of the question is as follows:

(a)  The Administration has received the 2013 tariff adjustment proposals from the two power companies and is conducting tariff reviews with them in accordance with the SCAs. We will perform the gate-keeping duties with our best endeavour to ensure a right balance among the objectives of electricity supply in Hong Kong, i.e. reliability, safety, environmental-friendliness and reasonable prices, in order to safeguard the interests of the public. We have also requested the two power companies to study how to promote energy conservation and reduce electricity demand through the change in electricity tariff structure, and to consult stakeholders and forge consensus in the community before formulating their proposals.  We will continue to explore ways to further promote energy conservation and enhance energy efficiency.

(b)  In the current SCAs signed by the Government with the two power companies in 2008, the permitted rate of return of the two power companies was lowered significantly from 13.5%-15% on Average Net Fixed Assets (ANFA) to 9.99%.  As a consequence, the two power companies revised downwards their Basic Tariff rates in 2009 by 10% and nearly 20% respectively, equivalent to an annual saving of over $5 billion in electricity charges otherwise borne by the public. On emission performance, while emissions of power plants are already regulated by the Air Pollution Control Ordinance, the permitted rate of returns of the power companies is also linked to their emission performance under the current SCAs.  The Government or the two power companies may initiate discussion on any proposal to review the SCA in accordance with the arrangements stipulated in the SCAs.  However, implementation of any modification within the tenure of the SCA requires mutual agreement.

(c)  The two power companies charge different electricity tariff levels due to differences in electricity supply area, customer size and mix, mode of operation, operating cost and sales volume.  The tariff level in each year is affected by many factors, including sales forecast, operating cost, fuel prices, capital investments, balances in the Fuel Clause Recovery Account and Tariff Stabilisation Fund, etc.  The Government will continue to perform its gate-keeping role and conduct tariff reviews with two power companies in accordance with the SCAs.

(d)  The current SCAs signed between the Government and the two power companies in 2008 will expire in 2018.  As stipulated under the SCAs, the Government will review with the two power companies the electricity supply regulatory framework before 2016.  We are now conducting preparatory work for the review, including studying and analysing possible models for market liberalisation and changes to the regulatory framework, such as segregation of electricity generation from the power grids and strengthening interconnection between the power grids.

(e)  To encourage the two power companies to develop renewable energy (RE) generation facilities, the SCAs stipulate a higher rate of return for investment in RE facilities (at 11% on their ANFA).  One of the power companies has already installed photovoltaic systems at its power plants, which generates 620 000 kWh electricity annually.  Both power companies are also studying the feasibility of developing offshore wind farms.  Furthermore, the Government promotes turning waste to energy.  The sludge treatment facility under construction, for instance, will be equipped with facilities to turn thermal energy generated from incineration into electricity.  Apart from meeting the electricity demand of the treatment facility, the surplus electricity will be uploaded to the power grid.

Ends/Wednesday, October 17, 2012
Issued at HKT 13:07


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