We may have to ac­cept higher elec­tric­ity tar­iffs in fu­ture

China Daily (Hong Kong) - - COMMENT - R AY M O N D S O

Last week, Hong Kong’s two power com­pa­nies an­nounced tar­iff ar­range­ments for the com­ing year. Those who fol­low an­nual tar­iff ad­just­ments know that these two com­pa­nies will make the an­nounce­ment on the af­ter­noon of the sec­ond Tues­day of ev­ery De­cem­ber. This ar­range­ment is to dove­tail with the meet­ing of the Leg­isla­tive Coun­cil’s Panel on Eco­nomic Devel­op­ment. This has been the norm for many years. This ar­range­ment gives law­mak­ers a chance to dis­cuss tar­iff ad­just­ments and en­ables them to per­form a mon­i­tor­ing role.

Tra­di­tion­ally, the an­nual power tar­iff ad­just­ment is big news as it will af­fect all so­ci­ety. But the com­mu­nity seems to be less con­cerned about the up­com­ing tar­iff ad­just­ment. This is prob­a­bly be­cause of the pric­ing strate­gies adopted by the two power com­pa­nies. For the com­ing year, the ba­sic tar­iffs have been in­creased by both com­pa­nies, but these in­creases are off­set by cor­re­spond­ing de­creases in fuel sur­charges or re­bates. Given that con­sumers will need to pay less for elec­tric­ity next year, the two power com­pa­nies are not un­der as much pres­sure from the LegCo and the me­dia as this year.

To the com­mu­nity, a lower tar­iff is al­ways wel­come news. How­ever, it is not ra­tio­nal to think that tar­iffs will al­ways re­main low in fu­ture. The tar­iff ad­just­ment is made ac­cord­ing to a com­pli­cated Scheme of Con­trol Agree­ment (SCA), and there are new poli­cies gov­ern­ing emis­sions. But this may mean that the com­mu­nity should brace for tar­iff in­creases in fu­ture.

Un­der the SCA, the power tar­iff is com­posed of two parts: the ba­sic tar­iff and fuel ad­just­ment. The ba­sic tar­iff is ac­tu­ally the price that the two power com­pa­nies can charge con­sumers and is a source of prof­its for the power com­pa­nies. The fuel ad­just­ment is levied on the con­sumers based on ac­tual us­age. When the ba­sic tar­iff is in­creased next year, the two power com­pa­nies are in fact rais­ing their prices. The con­se­quence of this is that the base of the power tar­iff will be in­creased. In fu­ture, given that the base has in­creased, a small per­cent­age in­crease in the tar­iff will trans­late into a high figure for tar­iff changes. Given that fuel prices will not stay cheap for­ever, fu­ture tar­iff in­creases are very likely. This is why the gov­ern­ment keeps try­ing to man­age pub­lic ex­pec­ta­tions by say­ing that the cur­rent de­crease in fuel sur­charge is a one-off and may not be sus­tain­able.

In fact, elec­tric­ity charges will rise as the two power com­pa­nies need to in­vest more in gas tur­bines. Two years ago Hong Kong had a con­sul­ta­tion on the fu­ture fuel mix. The com­mu­nity, in gen­eral, fa­vored us­ing nat­u­ral gas to pro­duce elec­tric­ity do­mes­ti­cally. To re­al­ize this op­tion, the gov­ern­ment needs to ap­prove the ac­qui­si­tion and build­ing of new in­fras­truc­ture for the two power com­pa­nies. Nat­u­rally, these as­sets will be in­cluded into the SCA. The two power com­pa­nies can le­git­i­mately earn higher prof­its. This is the choice of the com­mu­nity and we need to re­al­ize The au­thor is the dean of the School of Con­tin­u­ing Ed­u­ca­tion at Hong Kong Baptist Univer­sity.

When the ba­sic tar­iff is in­creased next year, the two power com­pa­nies are in fact rais­ing their prices. The con­se­quence of this is that the base of the power tar­iff will be in­creased. In fu­ture, given that the base has in­creased, a small per­cent­age in­crease in the tar­iff will trans­late into a high figure for tar­iff changes.”

that. Un­less fuel prices keep on drop­ping, fu­ture power tar­iffs will have a higher chance of stay­ing at higher lev­els.

There is some con­tro­versy in re­gard to fuel ac­count bal­ances. Peo­ple have ques­tioned the prac­tice of keeping a high bal­ance on the fuel ac­count so as to keep power tar­iffs high. But, we need to un­der­stand that bal­ances in the fuel ac­count are ac­tu­ally pre­pay­ments and the two power com­pa­nies can­not make prof­its out of it. In the past, there were cases in which neg­a­tive bal­ances were ob­served. The two power com­pa­nies then re­versed the neg­a­tive bal­ances by charg­ing higher fuel sur­charges. The amount of fuel sur­charges is de­ter­mined jointly by the two power com­pa­nies and the gov­ern­ment. The gov­ern­ment will also take ad­vice from in­de­pen­dent en­ergy con­sul­tants. It is pos­si­ble to change the cur­rent an­nual fuel ad­just­ment to monthly fuel ad­just­ment. How­ever, it may lead to the un­de­sir­able ef­fect of highly fluc­tu­at­ing power tar­iffs from month to month. Any changes to the cur­rent sys­tem will need care­ful con­sid­er­a­tion.

A new SCA will be ne­go­ti­ated and in­tro­duced in 2018. Clearly the tar­iff ad­just­ment mech­a­nism will be one of the fo­cal points. Other im­por­tant is­sues in­clude the per­cent­age of per­mit­ted returns, use of more re­new­able en­ergy, open­ing up of the power grid, etc. Given the pre­vi­ous ne­go­ti­a­tions 10 years ago, it can be an­tic­i­pated that there will be more dif­fi­cult chal­lenges ahead.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.