Consumer Council Submission on Stage II Consultation Future Development of Hong Kong Electricity Market - Executive Summary

The full text of the submission can be viewed on the Consumer Council website .

1. The Council welcomes the Government's proactive stance in reviewing the current arrangements for the Hong Kong electricity sector, and its commitment to maintaining robust oversight of the arrangements into the future. 
    
2. In this submission the Council is making a number of suggestions for the Government's consideration in areas that affect basic consumer rights. Those areas are:
   1. Reliability of service
   2. Reasonable prices and profits
   3. Need for an effective regulatory framework
   4. Calculating a reasonable return
   5. Encouraging the use of renewable energy
   6. Proposed interconnection with other suppliers
   7. Transparency

3. Electricity is a critical necessity for everyday living. Price and reliability of supply are of utmost concern to Hong Kong consumers. Consumers are generally satisfied with the reliability of supply. The Council expects that maintaining a high standard of reliability into the future will not incur costs, on a comparative basis, above the levels currently paid by consumers.
    
4. Consumers consider electricity tariffs to be high. They expect that the prices they pay for such a critical service should be substantially reduced and be as low as possible, given the fact that the electricity suppliers are operating in the privileged position of a de facto monopoly, and are currently not operating in what could be termed a 'normal' competitive environment faced by other Hong Kong businesses.
    
5. The electricity suppliers hold the view that electricity only represents a small share of an average consumer's bill within a household expenditure (1.7% ^{[ 1 ]} ). The companies also contend that comparisons with other jurisdictions demonstrate that prices in Hong Kong are not excessive. However, 89% ^{[ 2 ]} of low income families surveyed considered their utility bills to be high. These families have yet to benefit from Hong Kong's economic recovery.
    
6. Consumers are also aware of the very high profits the electricity suppliers currently enjoy and that comparative price studies are typically difficult to resolve with precision and must be viewed in the context of different operating environments. The point is often made by Government and industry alike that Hong Kong is a unique environment.
    
7. The Government has indicated it will continue with the current Scheme of Control (SOC) arrangements with modifications. While the SOC arrangements might have inherent problems of inflexibility, the Council supports the continued use of the SOC as a transitional measure that can be used, with appropriate terms and conditions, to reflect and provide a clear roadmap on what is expected from the industry as it moves towards market liberalisation, a cleaner environment, and improved performance.
    
8. The Council supports the Government's intention to take further steps in revising the regulatory arrangements in the future, and suggests that lessons can be learned, from mistakes made, and benefits achieved, from similar market liberalisation in other jurisdictions. For example, a legislative licensing scheme could be considered for the future, that would act as a mechanism to balance government power (representing the wider public interest) and the market power of the electricity supply companies.
    
9. The Government has indicated that there will be a designated agency overseeing the power sector in the future. The existence of such a regulatory agency is important to instill confidence in the public that the power sector as a whole is being fairly administered by an independent referee and that the Government is seen to be acting in the public interest in discharging its regulatory duties.
    
10. The Government has proposed a range of permitted rate of return of 7-11% on Return on Assets. The Council expects that an effective oversight of the companies' accounts would alleviate concern over the companies inflating their assets. The Council welcomes the safeguards in the new SOC for government to approve all development plans and tariff adjustments, and a review of the permitted rate of return every five years, to ascertain the need for adjustment.
     
11. The ultimate test is whether the signing of a new bilateral agreement between the Government and the two companies will bring about a reduction in consumers' electricity bill by a reasonable and substantial magnitude . There is also a need for transparency in calculating the return at the outset.
     
12. The Council welcomes the Government's initiatives in the area of Renewable Energy and its proposal to examine appropriate technical and regulatory measures in the future, to enable interconnection with competing electricity suppliers. While the Council supports the setting of clear objectives, it invites the Government to consider adopting the 1-2% target for Renewable Energy as a minimum rather than a firm maximum target, in view of the opportunities that could be afforded by ongoing technological advances. Furthermore, suppliers could be encouraged to compete towards achieving renewable energy goals and environmental measures as a form of self motivation. Whilst supporting the Government's proposals in providing financial incentives to encourage Renewable Energy, the Council would caution against approving the use of RE technology that is neither proven nor efficient, but merely contributes to an increased asset base.
     
13. The Council suggests that the new SOC should be drafted so as to place obligations on HEC and CLP to implement an interconnected power system, to achieve economic efficiency, and ensure emission reductions. With regard to interconnection with the Mainland, the Council suggests that there are some options that could be safely pursued now without jeopardising reliability. In the eventuality of new entrants supplying electricity generated in the Mainland to Hong Kong, the Government may need to specify identical environmental standards for the power generation plants in the Mainland.

- End of Summary -

The full text of the submission can be viewed on the Consumer Council website .

1. HKSAR Census and Statistics Department, 1999/2000 Household Expenditure Survey and the Rebasing of the Consumer Price Indices, Hong Kong Special Administration Region, 2001, p.88.
2. Society for Community organization  http://www.soco.org.hk/publication/publication_index.htm