Hongkong Electric Holdings needs to raise tariffs at least 6 per cent next year to restore returns on its regulated electricity supply to the permitted levels, analysts say. The sole supplier of electricity to Hong Kong and Lamma islands failed to earn a permitted return last year for the first time in 24 years as the Sars outbreak hurt sales and tariffs were frozen. On December 16, Hongkong Electric and CLP Holdings are due to reveal their tariff plans for next year to legislators at a Legislative Council panel meeting. Electricity tariffs are a stinging issue at Legco, with legislators calling for the two firms to freeze tariffs even though Hongkong Electric was tipped to raise tariffs as much as 11 per cent and CLP was expected to scrap its one-off cash rebate. Analysts said cooler weather had brought poorer than expected electricity sales this year, leading to requests for higher tariffs. Macquarie Research estimated in a report that Hongkong Electric would need to lift tariffs 6 per cent next year to restore returns to the permitted levels, which vary between 13.5 per cent and 15 per cent on the average net value of fixed assets based on the regulatory scheme of control. It believed the tariff increase was too aggressive given Hong Kong's nascent economic recovery. Deutsche Bank analyst David Clark estimated a 5 per cent rise in Hongkong Electric's tariff bills next year would allow the company to earn the permitted return. UBS analyst Alice Hui Suk-fong had an even bolder projection: a maximum 11 per cent rise in tariffs next year to achieve the return. Some analysts believed Hongkong Electric was likely to miss the permitted return again this year following less than 1 per cent growth in electricity sales, barely changed capital expenditure on power assets, a thin development fund and frozen tariffs. The development fund, a consumer-owned cash reserve and part of the scheme of control with an aim to buffer any profit shortfall of the power firms, was empty at Hongkong Electric at the end of last year after the firm transferred the entire $139 million to its profit and loss account. CLP's development fund was $2.96 billion last year but the firm last month warned it might end the tariff freeze in place since 1998 and cash rebates given since 1999 as electricity sales had shrunk 0.1 per cent this year. 'We note that sales growth this year has been slower than expected, which could mean CLP taking a more conservative stance by eliminating the rebate to preserve the development fund,' Mr Clark said. A Thomson First Call survey showed Hongkong Electric's profit consensus was $6.47 billion this year and $6.8 billion next year.