Hong Kong’s two electricity suppliers can afford to be more generous with tariff cuts

Fuel prices have plunged in the past year, yet CLP and HK Electric are only reluctantly offering a 1 per cent cut in power bills

PUBLISHED : Wednesday, 16 December, 2015, 11:06pm
UPDATED : Wednesday, 16 December, 2015, 11:06pm

Millions of households and businesses are understandably dismayed by the announcement on Tuesday that the city’s electricity suppliers, CLP and HK Electric, will cut tariffs by a miserly 1 per cent despite the dramatic fall in fuel prices over the past year. With the two power companies still making billions of dollars in profits each year, the tariff reductions are little more than a drop in the ocean.

Equally disappointing is the government’s failure to defend consumers’ interests. Speaking at the Legislative Council economic development panel on Tuesday, Secretary for the Environment Wong Kam-sing revealed that the two companies originally only intended to freeze their tariffs. The reductions, 0.9 per cent for CLP customers and 1.1 per cent for HK Electric clients, only came after the government intervened. It is regrettable that Wong considered the outcome acceptable. He let down those who legitimately expected steeper concessions.

To those who have become used to ever-increasing energy bills in recent years, the cuts, albeit modest, are a small step in the right direction. According to the companies, the tariff levels are expected to be frozen in 2017 if fuel prices stabilise.

But whether the cuts are deep enough is open to discussion. Lawmakers from across the political spectrum have rightly questioned whether there was still room for further reductions. The actual savings for most CLP and HK Electric customers come to only HK$4.40 and HK$7.50 a month, respectively. Given fuel prices have dropped significantly and that the power giants made HK$10 billion and HK$3.2 billion in profits last year, respectively, the public is entitled to ask why the cuts cannot be deeper.

The criticisms levelled at the government are justified. Under the scheme of control agreement with the two power firms, each of them is entitled to 9.99 per cent return on investment. The guaranteed profits means officials can only seek to influence tariff adjustments. Officials did not try hard enough to push for more concessions. The cuts fall short of the expectations of lawmakers and the community.

It is difficult to see how the scheme of control can continue in its present form. The lack of competition and guarantee of handsome returns have put customers in a disadvantaged position. A public consultation on the energy market has opened the door for changes when the scheme expires in 2018. Officials should seize the opportunity to put in place a better regime.