CLP Group (its holding company is CLP Holdings Ltd) is an electricity company in Hong Kong with businesses in a number of Asian markets and Australia. Incorporated in 1901 as China Light & Power Company Syndicate, its core business remains electricity generation, transmission, and retailing.
Hong Kong needs to rethink power company's sweet deal
The warning of hefty tariff increases by the city's top energy supplier is a case of déjà vu. After imposing a 5.9 per cent tariff increase early this year, CLP reiterated that electricity prices could rise 40 per cent within a few years, saying the switch to natural gas has pushed up fuel costs. The gloomy picture should not come as a big surprise. The power giant first sounded the warning last year after being forced to cut back its annual increase substantially. The rhetoric is nothing new but it is guaranteed to generate outrage, coming from a monopoly that earned HK$8.3 billion last year.
It does not take an expert to tell that clean energy comes at a price. For the sake of a better environment and public health, households and businesses should be prepared to pay more under the user-pays principle. The company is perhaps just being frank about rising costs as it uses more natural gas. Tariff increases appear to be inevitable. The question is how much more people are willing to pay, and whether there is an effective mechanism to ensure the company is not charging more than it should.
Regrettably, energy users are not in a position to tell whether the increase sought by the utility every year is justified or not. A deal with the government currently guarantees CLP and Hongkong Electric a 9.9 per cent rate of return annually on their investment. The so-called scheme of control, a colonial legacy in which utilities are promised hefty profits in return for reliable services, will stay at least for another five years. It is difficult to see how such a sweet deal can be preserved amid growing pressure for tighter government monitoring of public utilities.
Announcing an 11 per cent drop in profits, the company vowed not to accept any "unfair or one-sided" changes to the agreement. It is true that the political environment has put CLP and other public utilities in an increasingly difficult position. But the days of lucrative business deals have long gone. While the company is entitled to reject unfair terms, the public is also unlikely to swallow deals that put commercial gains ahead of public interest.
The century-old company prides itself on being socially responsible. It should take into account the affordability of its services when adjusting tariffs. A strong balance sheet and good business prospects mean the company is in a position to adopt measures to ease the impact on users. Officials are also expected to play a better gate-keeping role on adjustments.