HK Electric’s aim to provide long-term stable and reasonable tariffs
I refer to the letter by Simon Datta (“Surcharge out of order with oil price drop”, October 10).
HK Electric’s electricity tariff is in two parts – the basic charge and the fuel clause adjustment (FCA).
The basic charge already includes a small portion of the fuel cost, which was set decades ago based on the price of heavy oil which was used at the time. However, the level of this fuel cost component falls far short of the requirements now, as we switched to using coal, natural gas and ultra-low-sulphur diesel oil.
To make up for this shortfall between the fuel cost component in the basic tariff and the actual fuel cost incurred in the year, the FCA is required to reflect the total cost of fuel.
The FCA is not a “fuel surcharge” as suggested by your correspondent, nor is it solely determined by changes in the fuel market. It is calculated at the end of every year by referring to the forecasts on the quantity of each type of fuel and their purchase prices for the coming year, as well as the balance of the Fuel Clause Recovery Account.
Fuel prices are highly volatile. The low crude oil price of
US$29 per barrel mentioned in the letter only lasted briefly in January, followed by a rebound to more than US$50 per barrel. As the FCA is determined annually, it would be almost impossible to reflect such short-term erratic fluctuations.
I must stress that fuel cost is a “pass-through arrangement” and we have returned the benefit of lower costs to our customers. We have reduced the FCA by as much as 30 per cent in recent years, from 40.2 cents per unit of electricity in 2013 to 27.9 cents per unit in 2016.
Compared with many international cities, Hong Kong’s tariffs are highly competitive and affordable.
At HK Electric, our strategy is to provide customers with long-term stable and reasonable tariffs. We have pledged to freeze net tariffs for five years until the end of 2018 and, following lower than expected fuel costs, have even reduced tariffs by 1.1 per cent since January.
Though we expect total fuel costs to go up in the next few years as we increase natural gas use to 50 per cent of our total production by 2020, we will strive to minimise the impact of this on our customers.
Raymond Choi, general manager (customer services), HK Electric