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Power Companies Agree To Reduce Tariffs

SCMP Lina Lim
7:00pm, Jan 07, 2008

The government on Monday entered an agreement with the territory’s power companies – in the wake of community concern about utility fee rises scheduled for early 2008.

The two power companies are the China Light Power Company and Hong Kong Electricity Company.

The government said that under the new agreement, the rate of return of the two utility companies would be reduced to below 10 per cent to ease the public’s monthly electricity bills.

Secretary for the Environment Edward Yau Tang-wah said the new agreement would help allay community concerns gathered from two public consultations in 2005 and 2006. The new agreement would also be in line with the government’s environmental policies.

“I firmly believe that the new agreements have achieved a reasonable balance. On the one hand, we have responded to public aspirations for reduced tariffs.

On the other hand, the permitted rate of return under the new agreements will provide sufficient incentive for the power companies to continue investing in the electricity supply,” Mr Yau said.

Under the new agreement, the permitted rate of return of the two power companies would be reduced from the existing 13.5 per cent to 15 per cent to 9.99 per cent.

Customers of China Light Power Company and Hong Kong Electricity Company would see reductions in basic tariffs from October 1 this year, and January 1, next year, respectively.

However, the reductions would depend on the balance of the average net fixed assets of the two companies and their operating costs upon commencement of the new agreements.

“Based on the balance of the average net fixed assets of the two power companies for 2006, the total reduction in electricity payments for residential and commercial customers can amount to HK$5 billion annually,” Mr Yau explained.

Emission reductions are also an aim of the new agreements. If the power companies exceed the emission cap for any pollutants agreed upon, their rate of return would be cut by 0.2 to 0.4 percentage points depending on their actual emission levels. A maximum penalty of HK$200 million to HK$300 million would also be imposed.

Mr Yau said the government would also offer incentives. If emissions by the companies were kept below the stated caps, then an increase of 0.05 to 0.1 percentage points would be awarded.

“This also strikes a balance between the environmental obligations of the power companies towards our air quality as well as providing them with a stable operating environment,” he explained.

The environment minister said the government wanted to expand the electricity market to encourage friendly competition.

Studies on open market models and the regulatory frameworks, as well as enhanced interconnection between the grids of the two power companies, would be carried out in the next regulatory term.

“On the preparation for an open market, the tenure of the new agreements will be reduced from the existing 15 years to 10 years,” Mr Yau said.

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