Business Hong Kong

Power companies have gathered nearly HK$5.7 billion by overcharging – report

CLP Power Hong Kong Limited (CLP) and The Hong Kong Electric Company Limited have overcharged for electricity and fuel costs to the tune of nearly HK$5.7 billion, Apple Daily reported.

Excluding CLP’s special rebate of more than HK$1.2 billion in August this year, the two power companies still have more than HK$4.43 billion in Fuel Clause Recovery Accounts and Tariff Stabilization Funds – with Hong Kong Electric accounting for HK$2.1 billion and CLP for HK$2.3 billion. The surpluses could allow 320,000 Island customers and 420,000 Kowloon households to be supplied with free electricity for a year.

CLP Power

CLP Power Hong Kong Limited. Photo: Wikicommons.

Tariffs paid by customers are composed of the basic tariff based on a standard cost of fuel required for electricity supply, and a fuel cost adjustment to cover any fuel costs above or below the standard cost already included in the basic tariff. Fuel cost adjustments are proposed every year. If the power company overestimates the fuel cost and hence overcharges its customers, the surplus will automatically go into the Fuel Clause Recovery Account (FCA). For instance, CLP charges its customers 27 cents per unit this year. However, the actual fuel price was 24.6 cents in October. In other words, customers paid a surplus of 2.4 cents per unit.

Paul Poon Wai-yin, Managing Director of CLP Power, said in July that the FCA was designed to “mitigate the cost impact of significant fuel cost fluctuations” and “has served its purpose to stabilise tariffs” for customers.

Prentice Koo, Assistant Manager in Climate Policy and People of the World Wide Fund For Nature Hong Kong, told Apple Daily, “For every payment made per unit of energy, customers are actually contributing to the FCA.”

Prentice Koo

Prentice Koo. Photo: Apple Daily.

CLP has been overestimating the fuel cost since 2013. The FCA balance of CLP has HK$1.60 billion while that of Hong Kong Electric had HK$1.41 billion in June – highest in ten years.

Electricity in Hong Kong is supplied by two investor-owned companies – CLP and The Hongkong Electric Company Limited. The two power companies are currently regulated through Scheme of Control Agreements, giving neither of them any exclusive rights over the supply of electricity. The agreements will expire in 2018.

According to the agreements, the permitted rate of return of the power companies is 9.99% of their average net fixed assets. Any excess of revenue over the rate is transferred to a Tariff Stabilization Fund. Therefore, the fund serves as a buffer for the company’s return.

Hong Kong Electric had HK$678 million in its Tariff Stabilization Fund in June this year, while CLP had $HK$749 million.

Koo said, “For power companies, it is best if there is money in the fund. This is because when companies underestimate the fuel_ cost, money can be withdrawn to compensate for inadequate profits.” He also said that for Hong Kong Electric, the sum of money in both the FCA and Stabilization Fund is HK$2.08 billion in total. If each household consumes 400 units of energy a month, the sum of money is enough to pay for 320,000 households’ tariffs for a year.

CLP told Apple Daily that fuel costs are difficult to estimate as international fuel prices are volatile, and even if there was a positive balance in its FCA, CLP would not make a profit from it.

Last month, the Hong Kong and Kowloon Trades Union Council submitted a petition calling for more competition and suggested the government review the profit scheme in the electricity market.

Power companies have gathered nearly HK$5.7 billion by overcharging - report