Utility Supply Utility Companies get a reasonable deal from the Hong Kong Government

April 25th, 2017 Utility Supply

Back in 2015, we analysed the situation facing consumers and Utility companies in Hong Kong regarding the renewal of the Scheme of Control, the regulation governing the supply of Electricity to the S.A.R. Today, the Hong Kong Standard reported the outcome of the reappraisal of the Scheme of Control. The series of articles published back in 2015 can be found in earlier Blog posts.

Utilities were concerned that the review would lead to a substantial reduction in the guaranteed rate of return. The reduction from 9.99% to 8% will come as something of a relief. Hong Kong has one of the highest reserve percentages in the world, meaning the amount of available capacity to demand is very high. Some would argue necessary to maintain supply reliability for such a 3 dimensional city. Utility companies also argued that to maintain investment in cleaner forms of energy, the return % would need to be maintained. Hopefully this agreement continues to encourage cleaner air in Hong Kong. 

The Standard reported .... "Electricity consumers will benefit from a 5 percent reduction in tariffs from next year after the government today agreed with the two dominant privately-held companies Hongkong Electric and CLP Power to trim the annual rate of return to 8 percent from 9.99 percent under a new scheme of control that will be applicable for 15 years.

The current regulatory framework that monitors the two power monopolies ends in 2018. The contract with CLP Power ends in September 2018, while the deal with Hongkong Electric ends in December 2018.

The Secretary for the Environment, Wong Kam-sing, said the reduced rate of return "should help relieve the public's spending on electricity bills.''

Wong said electricity bills will be reduced respectively from October 1, next year and January 1, 2019. "The reduction in tariffs is expected to be above 5 percent while all other relevant factors remain unchanged, though the actual reduction will depend on factors including the balance of the average net fixed assets of the two power companies and their operating costs.''

Hongkong Electric supplies power to Hong Kong Island, Ap Lei Chau, and Lamma Island, while CLP Power serves Kowloon, the New Territories and Cheung Chau.

The scheme of control is a contact under which their earnings are linked to investment and emission reduction targets. It has been criticized by the Hong Kong Consumer Council.

A report by the watchdog in 2014, described the power suppliers CLP Power and Hongkong Electric as two vertically integrated monopolies.

The scheme of control is not transparent and does not have consumer participation, the consumer council observed.

CLP Power and HK Electric are vertically integrated in that they own and operate their respective electricity supply chains, including generation plants, transmission and distribution networks.

Last year, CLP Power charged an average tariff of 113.2 HK cents per unit, while Hong Kong Electric charged 133.4 HK cents a unit."