Clear The Air Energy Blog Rotating Header Image

‘Rolls-Royce level’ costs put CLP in hot seat

Energy official calls power company’s operating costs too luxurious, driving up tariff levels much higher than rival supplier Hongkong Electric

South China Morning Post – Dec. 16, 2011

An administration official has criticised CLP Power (SEHK: 0002)’s ballooning operating costs – which he likened to “Rolls-Royce” levels – amid public outrage over the electricity firm’s more than 9 per cent tariff rise.

Energy Advisory Committee member Ronnie Hui Ka-wah said CLP had informed the body that its expenses had risen 11 per cent – more than double the 5.2 per cent inflation rate forecast this year. “Why does CLP have to be as luxurious as driving a Rolls-Royce when it comes to its spending level?” Hui asked on an RTHK programme yesterday.

He pointed out that the city’s other power supplier, Hongkong Electric (SEHK: 0006) (HKE), had imposed a much smaller increase. Hui said the rise in CLP’s operating costs pushed up its basic tariff, excluding fuel charges, by about 9 per cent compared to HKE’s basic price rise of less than 5 per cent.

Hongkong Electric serves Hong Kong and Lamma islands, while CLP supplies the rest of the city.

Officials said both tariff rises – an average 9.2 per cent for CLP Power and 6.3 per cent for HKE – were unacceptable, but the power suppliers insisted their prices were generally lower than many developed regions.

However, Hui questioned the “big discrepancy” between the two companies’ price rises even if both of them were required to meet the same emission-control targets. He said CLP’s HK$9 billion investment in a scrubber system for its coal-fired plant should not have pushed its costs significantly higher.

A CLP Power senior executive said on Wednesday that after deducting the operating costs of the emission-control devices, the actual tariff rise should be around 6 per cent.

Chief Executive Donald Tsang Yam-kuen has urged both power distributors to reconsider their moves and make a “wise decision” by the end of this year – a comment that was “liked” by almost 6,000 people on his Facebook page.

The dispute has also drawn attention to the control scheme governing power firms’ earnings, which allows the companies to make profits equal to 9.99 per cent of their net fixed asset value, but leaves the government no veto rights.

In addition to the costs, Hui said CLP Power seemed to be working on boosting its generation capacity – a move that he believed was in conflict with a government agreement. However, the adviser did not elaborate.

Hui’s contention could be related to a CLP study on the possible replacement of old coal-fired units with gas-fired ones, a person familiar with the situation said, but this was unlikely to have an impact on tariff levels.

CLP managing director Richard Lancaster had told lawmakers that the deficit in its fuel clause account would grow from HK$58 million this year to HK$840 million next year as gas expenses increased. But many groups, such as the Federation of Hong Kong Industries, opposed the tariff rise, saying it would drive businesses out of the city.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>