Strong and effective government monitoring
I would like to comment on Richard Hardy's letter headlined, 'Companies' 'green' levy is unjustifiable' (South China Morning Post, December 2).
Promoting the Efficient Use of Energy. The Government and power companies are often criticised for building to supply peak demand rather than considering how peak demands can be managed so that there is less need for new facilities. This is the concept of Demand Side Management (DSM). At China Light & Power (CLP), we have been organising pilot DSM programmes since 1993. This February, we signed a DSM agreement with the Government for the introduction of a more substantial three-year programme to promote energy efficiency through public education and various rebate programmes that offer incentives to customers for the use of energy-efficient applicants.
We need to determine the response of our customers to the DSM incentives and to explore different means of promotion. In the longer term the DSM programmes, if successful, will reduce the investment opportunities of the power companies under the existing regulatory framework. The DSM agreement with the Government therefore includes an incentive to the companies to compensate partly for this lost opportunity. However, the companies also risk not recovering all costs of the DSM initiatives if their success does not reach target expectations. This is a reasonable and balanced approach.
Tariff Setting Mechanism and Government Monitoring. The Scheme of Control (SoC) provides for strong and effective government monitoring of the power companies. Both technical and financial performance is reported in great detail through an annual auditing review. The objective is to ensure a reliable electricity supply at reasonable prices for the community.
Our tariff requirements are projected in investment plans submitted to the Government which, with consultants, examines our proposals in great detail. Only when these plans are approved by Exco will the power companies be able to implement them and charge the requisite tariffs. In addition, every time a tariff increase is needed, we discuss with the Government and attempt to reach agreement before making a public announcement. We also brief the Energy Advisory Committee, the Legco Economic Services Panel and our own customer consultative committees. Any suggestion of 'no control' over electricity price increases is groundless and simply not true.
In response to another of Mr Hardy's comments, let me point out that we do not use oil as a primary fuel for power generation. Therefore, the current downward trend in oil prices has little effect on our cost of supply. Over the past 15 years, CLP's tariff increase has been the lowest among public utilities in Hong Kong. Our tariff now is some 40 per cent cheaper in real terms than it was 15 years ago. We also announced recently the intention not to increase our tariff in 1999.
Rate of Return. The power companies' profits are calculated with reference to their net fixed assets and are capped under the SoC. For CLP, the rate of return on its average net fixed assets in 1998 was 11.9 per cent, which places us on the lower end of the scale in this regard amongst public utilities in Hong Kong.
The nature of our business is perhaps more long term than others. It must be noted, though, that our earnings are held back in economic boom times when other companies are making much larger profits.
Bi-monthly Billing. CLP introduced bi-monthly billing in January 1998. The key advantages are convenience, cost savings of around $60 million per year, all of which benefits customers rather than shareholders, and environmental benefits. The block tariff structure was doubled in the bi-monthly system, so that whereas 200 units were on the lowest block in the monthly billing system, 400 units are now on the lowest block.
There is no question of the 'low-cost portion of units' having been expanded by 'less than twofold'.
CHRIS W. H. CHAN, Communication Resources Manager, China Light & Power