Power companies have social responsibilities

The electricity business is a public utility, and electricity has an impact on Hong Kong’s economy and people’s livelihood, so it should assume greater social responsibility. CLP and HEC, under the agreements between them and the HKSAR Government, are permitted to enjoy a rate of return (RoR) of up to 8%. Hence, electricity tariffs will inevitably fluctuate greatly so long as the permitted RoR is not exceeded. The Government should take some action before the setting of electricity tariffs. In particular, CLP and HEC wanted to earn the maximum permitted RoR of 8% after the pandemic, which made people's lives even more difficult. The HKSAR Government should review the regime for regulating the two power companies, and consider gradually liberalizing the electricity market to stabilize electricity tariffs.

Suggestions for interim review of SCAs with the power companies

The Government regulates and monitors the operations of CLP and HEC through the Scheme of Control Agreements (SCAs) it has signed with them, and it has indicated its plan to conduct an interim review of the agreements with the two power companies this year. In my view, there are four aspects that can be improved in this regard.

The first is the fuel cost component in electricity tariffs. Electricity consumers are charged based on the actual cost of fuel, but CLP and HEC do not have to bear the risk of global fluctuations in fuel costs. Therefore, in my view, in the interim review, the Government should require CLP and HEC to share the costs of energy and assume greater social responsibility.

The second is the increase in investment in fixed assets for the development of clean energy technology by CLP and HEC, which will put further upward pressure on electricity tariffs. Of course, I am very supportive of the development of clean energy, but in the long run, the Government should consider whether it is reasonable to use average fixed assets to calculate the permitted RoR, as well as whether the permitted RoR of 8% should be lowered.

The third is the Customer Performance Incentive/Penalty Mechanism. Regarding CLP's cable bridge fire incident last June and HEC's recent power outage incident, the two power companies were able to obtain an additional 0.015% permitted profit under the SCAs because power supply was restored within 70 minutes after the incidents. This showed up a loophole in the current incentive and penalty mechanism. In my view, for power outages occurred due to man-made reasons, the power companies should not receive any incentive even if they have managed to restore power supply within a short period of time.

Transmission of electricity from Mainland to reduce electricity tariffs

Finally, the Government should start preparations to liberalize the electricity market so that the public can have choices and benefit from increase in competition. With the Mainland now ranking first in the world in the scale of renewable energy development and utilization, and lower clean energy prices, increasing the transmission of clean electricity from the Mainland will help reduce electricity bills in the long run.

Looking ahead, the Government wants to greatly increase the supply of electricity from the Mainland from the current 25% to 70% by 2035. It must play a leading role in discussing with the Mainland to explore mutually beneficial electricity supply cooperation solutions to ensure a diverse electricity supply mix for Hong Kong so that Hong Kongers no longer need to pay expensive electricity bills. However, it should be noted that over-reliance on the Mainland for electricity may result in serious problems in the event of power grid failure. Therefore, the Government has to ensure stable electricity supply so that all Hong Kongers can enjoy high-quality services at reasonable prices.

This is a free translation. For the exact meaning of the article, please refer to the Chinese version.

Should you have any comments on the article, please feel free to contact Mr Martin Liao.
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