ENG-2009 — Page 361

The Environment | 289

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 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 September 30, 2008 and December 31, 2008 for CLP Power and HEC respectively. The new SCAs are of 10-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. The new SCAs ensure the 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 current 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).

CLP Power and HEC own their respective transmission and distribution systems. The two transmission systems are interconnected by a cross-harbour link, which provides emergency back-up and some sharing of generating capacity reserve between the two systems. The link has a current total capacity of 720 megavoltamperes (MVA).

CLP Power's transmission system is also connected to the electricity network in Guangdong Province which facilitates the export and import of electricity to and from the province. The electricity sold to Guangdong is from CLP Power's existing reserve generating capacity. Its sale is governed by an agreement with the HKSAR Government under which CLP Power's consumers are given priority of supply and 80 per cent of the profit from the sales. At the same time, CLP Power buys about 70 per cent of the power generated by the Guangdong Nuclear Power Station at Daya Bay, which has two 984MW pressurised water reactors, to meet part of the longer-term demand for electricity in its supply area.

According to the MoU signed between the HKSAR Government and the National Energy Administration

Administration on August 28, 2008, the Central People's Government supported the China Guangdong Nuclear Power Holding Company