CLP Group

CLP could ease rate rises more: minister

PUBLISHED : Thursday, 22 December, 2011, 12:00am
UPDATED : Thursday, 22 December, 2011, 12:00am

Despite this week's partial backdown on its proposed tariff increase, CLP Power could reduce it even further by using its multimillion-dollar tariff stabilisation fund, the environment minister said yesterday.

Edward Yau Tang-wah told lawmakers that CLP had not exhausted all options for minimising the tariff increase: it could still use the balance in the tariff stabilisation fund as a cushion to ease the rate rise.

'In the midst of economic uncertainties and inflation pressure, the fund will provide a stabilising function... That's why we believe there is still room to lower the increase,' he said during a question and answer session in the legislature on power tariffs.

The fund's main purposes are to limit tariff increases or enable tariff reductions where appropriate. It is a reserve for excessive profits, which can be used to make up the shortfall when the utility fails to achieve its maximum allowable return on equity. At the end of last year the fund had a balance of HK$1.5 billion, but that shrank to HK$666 million by the middle of this year.

Yau did not say how much further the fund could alleviate the rate increase. CLP said last week that the fund was forecast to drop to HK$300 million by the end of next year - the lowest level in 25 years - and therefore could not be used to ease the tariff increase. But Yau retorted that CLP had underestimated the fund's balance in eight out of the past 10 years.

He said up to 80 per cent of the net proceeds from electricity sales to the mainland could be transferred to the fund, but CLP asserted there would be no such sales next year. Last year, cross-border sales accounted for 7.7 per cent of total sales.

Another option the minister highlighted was for CLP and Hongkong Electric to offer rebates to customers as soon as possible, in light of the latter's court victory in June.

The Court of Final Appeal ruled in favour of Hongkong Electric then, saying it did not have to pay government rates on properties under construction. As a result, the utility is expected to get a refund of HK$140 million, plus HK$30 million in interest, for excessive charges in 2004-2005 alone. CLP is expected to receive similar treatment.

Yau also attacked CLP's drastic increase in operating costs - 11.2 per cent - for next year. He questioned the firm's explanation that the increase was due to higher costs this year, saying wages and administration costs were also involved.

CLP claims to have spent HK$9 billion to install scrubbers to meet air quality targets, and says related costs will push the total higher. But Yau said these expenses played only a minor part in the tariff hike proposal.

Yau wondered if CLP had made unnecessary and untimely expenditures. He highlighted spending to prepare for raising generation capacity for the rest of this decade, which he said was not related to expansions to date.

Yau, in turn, was questioned by lawmakers asking if the government was trying to divert public attention from its powerlessness on the issue. Under the existing regulatory regime, the government cannot veto a tariff increase if the utility did not significantly deviate from the five-year development plan approved by the Executive Council.

Lawmakers asked whether the council had actually approved the plan along with the projected tariff rises back in 2008, when a new regulatory regime came into force. Last week, CLP said its 9.2 per cent proposed tariff hike was lower than the development plan's projection.

But the commercially sensitive data contained in the plan means the public will have no access to crucial information badly needed to judge whether the proposed tariff hikes by the two power firm was justified.

Democratic party lawmaker Fred Li Wah-ming proposed invoking the lawmakers' privilege to seek detailed information of the two utilities' development plans. The Economic Development panel will discuss the proposal on Friday.

Lawmakers stressed the need to review the existing regulatory framework before it expired in 2018.

Others called for speeding up liberalisation of the market and separation of the power generation and transmission businesses.