CLP Group

CLP tariff rise gets a close look

PUBLISHED : Thursday, 08 December, 2011, 12:00am
UPDATED : Thursday, 08 December, 2011, 12:00am

The environment chief pledged to carefully scrutinise CLP Power's need for capital spending, after the utility said it was facing 'unprecedented pressure' to raise its tariffs.

Edward Yau Tang-wah, secretary for the environment, said tariff talks with CLP and Hongkong Electric were continuing, and he was scheduled to report to the legislature next Tuesday on the fee increase.

Yau is thought to have cancelled his trip to the global climate-change talks in Durban, South Africa, this week to handle unfinished business in the negotiations. There is speculation that CLP is seeking a substantial rise in tariffs. CLP Power increased its charges by 2.8 per cent this year, blaming higher fuel costs.

Earlier, a person familiar with the talks said both the basic tariff, which reflects the overhead costs of power generation and transmission, and the fuel charge would have to be raised. CLP's managing director, Richard Lancaster, has said the firm is under unprecedented pressure to increase its charges.

Some lawmakers fear the government will have little room to prevent the increase, which is expected to have knock-on inflationary impacts across the economy. In response, Yau pledged he would carefully examine both the level and timing of CLP's capital spending now and in years to come.

Yau conceded that there was a need for the power firm to build a pipeline to transport gas from the mainland so it could generate more power from gas.

'We will carefully scrutinise if these expenditures are appropriate and necessary - in particular, if there are other viable alternatives so we can minimise the need for such investment,' Yau told lawmakers in a session yesterday.

'The spending level of every item and when these expenditures have to be booked will also be closely studied.'

Apart from capital expenditure, the tariff level will also be affected by the growth in power sales. In 2008, CLP projected average annual sales growth of 1.9 per cent until 2013. But sales grew by just 1.6 per cent in 2009 and about 1 per cent last year.

In 2008, the two electricity suppliers' maximum permitted rate of return was cut from 13.5 to 9.99 per cent, leading to a reduction in their basic tariffs of about 12 per cent for CLP and 22 per cent for Hongkong Electric. But these reductions have been offset by increases in additional fuel levies.