Take the shock out of electricity bills
The sharp rise in electricity tariffs announced by the two power companies this week will hit the community hard at a time of relatively high inflation and economic uncertainty. The increases of 9.2 per cent for CLP Power and 6.3 per cent for Hongkong Electric are very steep. But there is little the government can do except issue a plea to the social conscience of the companies. The agreement struck with each of them guarantees a return of nearly 10 per cent on their investment. Businesses and households must steel themselves for higher bills.
According to CLP, the adjustments will see 70 per cent of households paying HK$50 more in each bill. This is not comforting news for low-income earners and people whose wages have yet to catch up with inflation. Businesses are also going to be hit. There will no doubt be a knock-on effect for the economy, with operating costs rising. CLP has structured the tariffs in a way which encourages energy conservation. This, at least, is to be welcomed. Starting from January 1, all households will receive a reduction in the basic tariff for the first 400 units, while a new tier at a higher rate will apply to heavy users. The current reductions for high consumption commercial users will also be scrapped. All these are positive steps to encourage responsible energy use. Unfortunately, they have been overshadowed by the high increase and criticised as cosmetic changes.
Clean energy comes at a price. Higher fuel prices and growing use of natural gas to meet stringent emission reduction targets by 2015 are valid reasons for an adjustment, although whether it was necessary to increase tariffs so much remains open to question. Without a transparent tariff policy and detailed figures, users are not in a position to judge whether or not the increases are justified. The government is powerless to intervene. It can only raise the pressure for lower increases through public opinion. This results from the scheme of control agreed between the power companies and the government. It was renewed, with amendments, in 2008 - the rate of return being reduced from 13.5 per cent to 9.99 per cent. But as we have seen, that leaves plenty of room for significant tariff increases.
The scheme that links profits with investment has served Hong Kong well over many years. There was a need to guarantee steady energy supply to meet a booming economy and to provide the power companies with an assurance that long term and heavy investment would be worthwhile. But that can, surely, be achieved without the rigid and outdated structure imposed by the scheme of control.
It will be another seven years before the scheme of control comes up for renewal again. The time should be used to further review the system and devise a better way of regulating the power companies.