The Executive Council has approved CLP Power's development plan from October 1, 2008, to December 31, 2013. The company will reduce its average basic tariff, not including fuel cost adjustment, by 10% from October 1.

Secretary for the Environment Edward Yau said the reduction was agreed after discussions with CLP pursuant to the new Scheme of Control Agreement signed in January.

As the change in fuel cost is not to be taken into account in the determination of the basic tariff, the net tariff paid by customers will be adjusted in accordance to changes in fuel costs incurred by CLP.

Capital expenditure

"We have critically reviewed the need, timing and budget of the capital projects proposed by CLP and demanded revisions. After protracted discussions, CLP agreed to substantially reduce its originally proposed capital expenditure in the development plan period by 30% to $39.9 billion," he said.

"Taking into account inflation, the annualised capital expenditure in the 2008 development plan is broadly on par with that under the last financial plan."

With the lowering of the permitted rate of return from the previous 13.5%-15% to 9.99% under the new agreement, there is room for reduction of basic tariff. The current reduction in basic tariff is in line with the Government's estimate.

Fuel charge

According to the agreement CLP can adjust its fuel clause charge from time to time to reflect the changes in the cost of fuels for electricity generation.

With the increase in prices of coal and natural gas CLP will increase the fuel clause charge by 5.9 cents/kWh on October 1 to avoid accumulating large deficit balance in its fuel clause account.

As the increase in fuel clause charge will partly offset the reduction in basic tariff, the average net tariff, which includes fuel clause charge, will be reduced by 2.7 cents/kWh, from the current rate of 91.1 cents/kWh to 88.4 cents/kWh, representing a reduction of 3% from its current level.

Tariff stabilisation

Mr Yau said the Government has successfully persuaded CLP to draw down its tariff stabilisation fund balance to reduce tariff in the development plan period.

The company projected its Tariff Stabilisation Fund balance in the development plan period will fall by more than 90% from $2.1 billion in end 2007 to a new low not seen in more than two decades.