ENG-2008 — Page 354

286 The Environment

Hong Kong for a further term of 20 years. It was also agreed in principle that the feasibility of supplying natural gas to Hong Kong via a Second West-East Natural Gas Pipeline will be studied, and that the CPG would jointly build with Hong Kong a liquefied natural gas terminal on the Mainland to supply natural gas to Hong Kong. The future level of gas supply to Hong Kong would, as a result, be over and above the current level, and Hong Kong can also benefit from improved air quality by increasing the use of clean energy and reducing the emission of power plants.

The Gas Safety Ordinance regulates the importation, manufacture, storage, transport, supply and use of fuel gas. All gas supply companies, gas installers and contractors must be registered with the Gas Authority (the Director of Electrical and Mechanical Services).

Electricity

The Hongkong Electric Company Limited (HEC) supplies electricity to Hong Kong Island and the neighbouring islands of Ap Lei Chau and Lamma, while CLP Power Hong Kong Limited (CLP Power) supplies Kowloon and the New Territories, including Lantau and several other outlying islands. The electricity supply to consumers is 50 hertz alternating current while the voltage is 220 volts single-phase and 380 volts three-phase.

Both power companies are investor-owned. The Government monitors them through mutually agreed Scheme of Control Agreements (SCAs). These require the companies to seek the Government's approval for certain aspects of their development plans, including their projected basic tariff levels. The SCAs do not give the companies any exclusive rights. They are not franchises, nor do they define a supply area for either company, or exclude newcomers to the market.

The Government signed the new post-2008 SCAs with each of the two power companies in January 2008. The new agreements took effect upon the expiry of the previous ones on 30 September 2008 and 31 December 2008 for CLP Power and HEC respectively. The new SCAs are of ten-year term, with an option exercisable by the Government to extend for five more years, i.e. until 2023, after review of the prevailing market conditions. The permitted rate of return of the power companies. has been reduced from 13.5 to 15 per cent on their average net fixed assets to 9.99 per cent, to bring a material reduction in basic tariffs and ease consumers' spending on their electricity bills. The permitted rate of return is also linked to the emission performance of the power companies in the interest of better environmental protection. With the new SCAs in place, there will be continued supply of reliable, safe and efficient electricity at reasonable prices. The Government will proceed with the preparation for the opening up of the electricity market, including the formulation of a new market mechanism and the associated regulatory framework, in the next regulatory period (i.e. from 2008 to 2018).

Currently, HEC has a total installed capacity of 3 756 megawatts (MW) at its Lamma Power Station. The Castle Peak Power Company Limited (CAPCO) supplies electricity to CLP Power from its power stations at Black Point (2 500MW), Castle Peak (4 108MW) and Penny's Bay (300MW).