Public consultation on the development of Hong Kong's electricity market will end this month. All along, the two existing power companies have tried to resist opening the market by emphasising that supply reliability and safety are more crucial to consumer interest than market competition.
Adding that people's current electricity bills only account for a very small part of residential household expenditure - and less than 10 per cent of the monthly operating costs for the majority of commercial users - they also claim to have served consumers well.
So far, there is no strong political pressure for drastic change. Only the Democratic Party advocates opening up, but in a phased manner over a 20-year period. Academic views are split. However, even though third-party entry into the market cannot be dictated by administrative fiat, neither could it be ignored forever.
Already, a Hong Kong-mainland joint-venture - China Hong Kong Power Development - has been incorporated locally, which aims to supply lower-cost electricity sourced from Guangdong province. Some analysts dismiss this initiative as 'all smoke, no heat'. Given the power shortages in the mainland, one might also wonder whether cross-border electricity supply is as stable and reliable as claimed, but the mainland factor is definitely going to be part of the future trend.
Thus, the government must take a broader medium-term view of the electricity industry, taking into account the closer mainland-Hong Kong economic interface, increased energy interconnection between the two sides, and the further inroads to be taken by local power companies into the mainland market. Preparations should be made for the ultimate opening up of the Hong Kong market, like enhancing interconnection and improving the technical support system for grid access for third-party users.
The existing scheme of control arrangement can be retained, but should be improved before any opening up, to ensure proper regulation and enhance consumer interest. The asset-based permitted rate of return should continue, but it should be reduced from the existing 13.5 per cent to, say, 8 or 9 per cent, which some experts find more justified, and be reviewed every three to four years.