Legco and CLP's power struggle is over reputation, not rates

After a bitter tariff war last year, CLP Power and lawmakers have taken a more tactical approach to negotiating rates while avoiding a bad press

PUBLISHED : Monday, 24 December, 2012, 12:00am
UPDATED : Monday, 24 December, 2012, 4:58am

Power firms going to the legislature to table their proposed electricity rates for the next year, after reaching a non-binding consensus with the government, has always been a formality.

They go to the meeting, give a briefing about their tariff plans, get scolded for being too greedy and hiding crucial information, and then walk away with what politicians say is a fat purse.

This year is no exception, except for the way the hot potato has been handled.

Last year, relations between the government and CLP Power turned sour after their consensus building system broke down in the wake of a proposed 9.2 per cent tariff rise. The disagreement was brought in front of the lawmakers - and, crucially, the public.

Though it was eventually settled by CLP bowing to public pressure, the dispute was a painful ordeal. The power firm's image as a socially responsible public utility was tarnished, while the government's ability to regulate the firm was challenged.

A year on, both parties have learned their lesson and want to avoid repeating history.

For the administration, the top priority is to prevent the tariff talks from evolving into another governance crisis, while CLP wants to minimise public hatred ahead of next year's interim review of its regulatory and profit regime.

In May, CLP's top executive and its major shareholder warned of drastic tariff increases in the years ahead - a move regarded as a step to manage public expectations.

Internally, the firm reshuffled its embattled public affairs team and hired a top gun from a local airline with a record in dealing with flight attendant strikes.

This year the talks also began earlier than usual in mid-October, giving ample time for the review.

Recognising that the review is also a publicity war, the power firm held workshops to help the media understand - at least, from the perspective of CLP - the tariff-setting process. It also put ads in local newspapers explaining why it has to pay for more expensive gases.

When the big day came on December 11, and CLP's plan to lift tariffs by an average of 5.9 per cent was made public, its senior executives made a last-ditch effort to steer media reports.

It disclosed to the media before even meeting lawmakers that it would not change its basic tariff, so hundreds of thousands of its customers would not be affected. Some critics also noted that keeping the tariff increase at 0.9 per cent will make it more acceptable to the public psychologically.

There has been an improvement this year in the amount of information released to back CLP's tariff plan.

Last year, the lawmakers tried in vain to invoke its privilege to access sensitive information.

This year, the two power firms offered explanatory notes breaking down tariff changes and prepared in advance confidential and commercially sensitive documents that enlightened lawmakers on how proposed increases are reached.

The only grudge the lawmakers had was they didn't really have time to digest the information. While some critics have questioned if CLP is playing a numbers games in tariff setting through adjustments to the levels of its reserves, rebate offerings and delayed payment, there is no doubt it has avoided a controversy.

But whether these tricks will backfire is yet to be seen.

The road ahead will surely be bumpier for the power firms and government when they exhaust all the financial tricks to make the tariff look better.