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People on Hong Kong Island have to pay higher electricity tariff from next year, with those in Kowloon and New Territories not experiencing any change.

Contrary to expectations, Hong Kong's two power suppliers have refused to lower their tariff despite earning huge profits. Instead, Hongkong Electric (HKE), which supplies power to Hong Kong Island, has raised its tariff by 2.5 per cent and China Light Power (CLP) has frozen its rates for the ninth consecutive year.

The two power companies presented their next year's tariff plan in the Legislative Council (LegCo) yesterday, prompting many legislators to criticize them for ignoring their social responsibility.

HKE cited rising fuel costs, higher consumption of natural gas and the economic recovery to increase its fuel clause surcharge by 1 HK cent to 5.9 HK cents and scrap the special rebate of 1.9 HK cents per unit from next year. Thus its average net tariff will rise from HK$1.174 to HK$1.203.

The elderly, dole recipients, single-parent families and the unemployed would, however, enjoy a 60 per cent discount for the first 200 units each month.

The company expects a shortfall in its permitted return of over HK$400 million in 2007 because its average basic tariff of HK$1.144 per unit was below the entitled level under the Scheme of Control that allowed the power suppliers to earn between 13.5 and 15 per cent of their average net fixed assets every year.

HKE Managing Director Tso Kai-sum said the company had accumulated a shortfall of about HK$3 billion in permitted return from 2003 to 2006 because of lower tariffs than the entitled level, and granting of special rebates.

The rise would have little effect on users, he said, because 70 per cent domestic customers would need to pay less than HK$12 additional tariff every month, with an equal percentage of non-domestic users paying less than HK$51 more.

The company said its domestic tariff was only 8.6 per cent higher than CLP's, but some legislators alleged that the tariff difference was nearly 40 per cent.

Unionist legislator Kwong Chi-kin criticized HKE for ignoring public opposition. He said the company should be stopped from raising tariff now because the Scheme of Control was to expire in 2008. Which means the government could tighten its control after that.

"But it seems the company has ignored that, and increased its tariff in spite of strong opposition," he said.

Legislator Yeung Sum accused HKE of having an "insatiable greed", saying even a profit of HK$2.479 billion in the first six months of this year had failed to whet its appetite. HKE's profit for the first half rose 8.4 per cent year on year after it increased its tariff by more than 7 per cent this year.

"It keeps raising its tariff despite earning huge profits. It will be a lie if we say that the company is not greedy," Yeung said.

But Tso countered that the company was a responsible public utility. "We carefully balance the interest of shareholders and customers when we review our tariff," he said.

CLP froze its tariff and extended the special rebate for another year, meaning its average net tariff remained at 87.3 HK cents a unit. The special rebate for 2007, amounting to about HK$500 million, will be funded by the Development Fund and its associated account.

CLP Planning Director Chan Siu-hung said electricity sales to Guangdong had enabled the company to freeze its tariff.

But legislator Abraham Shek felt that the company should have lowered its tariff, instead of freezing it again, especially after its profit over the past five years had reached the scope of Scheme of Control.

Coalition to Monitor Public Transport and Utility spokesman Richard Tso urged the government to deal strictly with the companies while negotiating for the next Scheme of Control.

To which, Secretary for Economic Development and Labour Stephen Ip replied that future permitted return rates would be lower than 10 per cent. The permitted return rate for fixed assets would vary, though.