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HK Electric $13-billion Development Plan Approved
Net Tariffs forecast to remain unchanged over next five years [10 Dec 2013]

HK Electric announced today a capital investment of $13 billion over the next five years as the company continues to provide a safe and reliable electricity supply to its customers. Under the 2014-2018 Development Plan approved by the Executive Council, the net tariffs are forecast to remain unchanged over the next five years, including a blanket freeze of the net tariff for 2014.

Under the new 2014-2018 Development Plan, $6.1 billion is expected to be invested in the company's power generation system, $5.3 billion in transmission and distribution system and $1.6 billion in customer services and corporate development (See table 1 below). The expected total capital expenditure is comparable to the $12.3 billion under the current 2009-2013 Development Plan.

Addressing a meeting of the Legislative Council's Economic Development Panel today, Mr. Wan Chi-tin, Managing Director of HK Electric, described the 2014-2018 Development Plan as very prudent and pragmatic. "We believe the new Development Plan has taken into full consideration the interests of various stakeholders and is conducive to achieving the government's energy policy objectives," Mr. Wan remarked.

Mr. Wan noted that substantial rises in material, contract and labour costs in recent years have led to continuous increases in HK Electric's operating expenses. This, when coupled with the near depletion of the Tariff Stabilisation Fund after a transfer of over $400 million this year to control the tariff increase in 2013, results in the need to increase the basic tariff by 7.1 cents per unit of electricity to 101.8 cents in 2014. However, after taking into account the change in fuel clause charge, the average net tariff will remain unchanged in 2014.

In fact, HK Electric has doubled the use of natural gas in electricity generation since 2010 with the new gas price at about four times that of the old price while coal prices also escalated. In an effort to avoid substantial increases in overall tariffs, the company has curbed the basic tariff adjustment for the past few years. As a result, the basic tariff has remained stable with a mild increase of 0.2 cent per unit of electricity from 2009 to 2013, far below Hong Kong's cumulative inflation rate of 13% over the same period.

The 7.1-cent increase in the basic tariff for 2014 will be fully offset by a corresponding drop in the fuel clause charge, which for 2014 will be adjusted to 33.1 cents per unit of electricity as fuel prices are expected to be less volatile in 2014. Hence, the net tariff for 2014 will be frozen at the current level of 134.9 cents per unit of electricity, meaning that there will be no change to the net tariff for all 560,000 HK Electric customers in 2014 (See table 2 below).

In addition, the existing tariff structure will be maintained, as will the offer of the "Super Saver Discount" to encourage energy conservation as well as the concessionary tariff schemes to assist those in need. Eligible customers – the elderly, handicapped, unemployed or single parent families – will continue to benefit from a 60% discount for the first 200 units each month together with a waiver in the deposit and minimum charge.

Mr. Wan further expects the net tariffs to remain unchanged up to 2018. "In the four years after 2014, there may be moderate adjustments in the basic tariffs and fuel costs, but we will do our utmost to keep the net tariffs unchanged. No adjustment to the net tariff is expected for the whole five-year period to 2018," Mr. Wan said. This will represent a marginal increase of about 5.9 per cent in HK Electric's net tariff over the ten-year period from 2008 to 2018.

On investment in the power generation system, with three existing coal-fired units and one gas-fired unit due to retire from 2017 onward, HK Electric is mindful of the pressure on tariff arising from installing new generation facilities. To ease pressure, it will carry out improvement works for an existing coal-fired unit which is fitted with flue gas desulphurization plant (L2) in order to extend its useful life.

In addition, HK Electric will build a new gas-fired unit (L10) for commissioning by 2020 to maintain its reliable power supply and about 30% gas-fired generation, pending further confirmation from government after completing the reviews on the future fuel mix and the future regulatory framework for the electricity market.

The Transmission and Distribution (T&D) investment will include the construction and reinforcement of T&D facilities to support various development projects such as the MTR Shatin to Central Link, West Island Line and South Island Line. Improvements on area electricity supply and distribution networks will also be made to enhance supply reliability and meet load demand.

On Customer Services and Corporate Development, information technology systems will be upgraded, e.g. Customer Information System, Energy Management System and Distribution Management System as well as metering and communication systems.

Table 1: 2014-2018 Development Plan

Components

$ (Billion)

Power Generation System

6.1

Transmission and Distribution (T&D) System

5.3

Customer Services and Corporate Development

1.6

Total capital expenditure

13.0

Table 2: Tariff Freeze for 2014

Components

2013
¢/unit

2014
¢/unit

Adjustment
¢/unit

Basic Tariff

94.7

101.8

+7.1

Fuel Clause Charge

40.2

33.1

-7.1

Net Tariff

134.9

134.9

No change