Electricity giant CLP Power has warned that lowering the power companies' permitted return on investment risks dragging them into bankruptcy and forcing the government to bail them out. Managing director of CLP Power Betty Yuen said it would be inappropriate to lower the company's permitted return to 8-10 per cent, in line with some arrangements abroad. '[With the lower rate of return,] some overseas power companies have faced bankruptcy, forcing the government to inject money [into the companies]. This is damaging to the power industry and adds instability,' she said on RTHK yesterday. CLP Power and Hongkong Electric have a permitted rate of return of up to 15 per cent of their fixed asset value under the Scheme of Control Agreements, which will be subject to a medium-term review this year. Ms Yuen hinted there was no room for linking the rate of return to deflation. According to her, CLP Power imports most of the fuel for its power generation plants, so the company's operating cost has barely any relationship to local deflation. 'We have reduced tariffs by offering rebates,' she said, adding that the refunds of $910 million amounted to a tariff reduction of 3.7 per cent this year. The rebates last year were equivalent to a cut of 2.2 per cent in power charges, she said. Ms Yuen said bringing in another power company would not be conducive to maintaining a competitive environment. Judging from overseas experience, experts say at least five companies are needed to create a competitive environment. However, Hong Kong was too small to afford five power firms, Ms Yuen said. Democrat Fred Li Wah-ming disagreed with Ms Yuen's arguments. He said the rate of return of overseas power companies were linked not only to fixed asset values but also to operating costs, which have been falling. More than half of the fuel consumed by CLP Power for power generation was natural gas, whose price was fixed at the signing of a 20-year supply contract, Mr Li said. However, the price of coal, another fuel for power generation, fluctuates.