Hong King Special Administrative Region

The Challenge

The Scheme of Control Agreements (SCAs) regulating the privately-owned electricity sector were due to expire in 2018. The SCAs establish how the Environment Bureau (ENB) will review tariffs on an annual basis to ensure tariff adjustments are reasonable. So this represented an opportunity to introduce alternative regulatory tools post-2018. IPA was commissioned to identify and critique the available options.

Our Solution

To provide an independent review of price setting mechanisms (PSMs) IPA:

  • Reviewed alternative options, such as rate-of-return, price-cap/revenue-cap, sliding scale and yardstick regulation, and the economic and financial incentives of each;
  • Developed international case studies of regulatory frameworks and PSMs in Finland, Norway, the Netherlands, Chile, Singapore, New South Wales (Australia), New York City and Alabama (USA);
  • Scoped out a detailed case study of the evolution from RPI-X to RIIO in for transmission and distribution in GB, detailing lessons learnt and implementation of policy design through new regulation;
  • Reviewed the local Hong Kong Special Administrative Region (SAR) electricity market, the development of regulation regarding tariff design, and current issues;
  • Examined PSMs and tariffs set by other local utilities;
  • Assessed the pros and cons of various PSMs and their applicability to the local electricity market, based on price efficiency, ability to attract economic investment, and security of supply for users; and
  • Recommended the appropriate regulatory policy and PSM for the Hong Kong SAR and proposed improvements for setting the allowed rate-of-return using economic efficiency criteria to balance consumer interest over both the short and long term.