The 8% behind the power bill.

A Hong Kong Island power bill has two parts, and each one follows its own rule.

The Fuel Clause Charge follows what HK Electric pays for gas and coal. The Basic Tariff pays for everything else. HK Electric’s 25 August release puts September’s average net tariff at 188.6 cents a unit, of which 60.7 cents is fuel.

The fuel part runs through the Fuel Clause Recovery Account. The agreement defines it from the difference between the standard cost of fuel and the actual cost, “passed on to the consumers by way of rebates or charges”. When fuel costs rise, customers pay the difference. When they fall, customers get it back.

HK Electric’s press release of 26 March 2026 says fuel costs are incorporated “based on a pass-through mechanism without making any profit, as stipulated under the Scheme of Control Agreement”. Its 2026 interim results put this year’s rise down to “the closure of the Strait of Hormuz”, with gas-fired generation at nearly 70% of its output. Sources: the agreement, Sch. 1 (15); HK Electric, 26 March and 25 August 2026; interim results, p. 1.

The return comes from one clause.

“The Permitted Return of HEC for each Year… shall be 8% of the total value of its Average Net Fixed Assets for that Year.”

Fixed assets are the power stations, cables and substations. The amount of electricity HK Electric sells has no place in that formula.

The agreement runs from 1 January 2019 to 31 December 2033. The government gives the reason for the long term: “to provide a stable environment for the power companies to make substantial and long term investments”. CLP’s agreement sets the same 8%.

The Permitted Return also pays the interest on what the company borrows, so I call it a return and keep the word profit for the company’s reported results. The part that reaches shareholders is a separate line in the accounts, the Net Return. Sources: the agreement, cl. 4(2) and 7(1); CLP’s agreement, cl. 4(2); GovHK.

You pay for what it burns. It earns on what it builds.

January showed both at once. The bill went down 2.2%, and the Basic Tariff went up 5.0 cents, which HK Electric Investments described as an increase “reflecting ongoing capital investment”. In 2023 the fuel charge tripled and the Net Return went down.

Spread across the 9,916 million units sold in 2025, the Permitted Return of HK$5,391m comes to about 54 cents a unit. That figure covers interest to lenders as well as the return to shareholders. The Net Return alone comes to about 41.6 cents a unit.

Picture a taxi where the meter charges you for petrol at cost, and the driver’s pay is 8% a year of what the car is worth. Driving you further leaves the driver’s pay where it was. A bigger car raises it.

The people who wrote the contract saw the incentive coming.

Schedule 6, “Mechanism for treatment of excess generating capacity”, takes the cost of a generating unit that the system does not yet need out of the return base until the unit passes a reserve test. It excludes “any new gas combined-cycle generating units to be installed solely for the purpose of enabling HEC to meet mandated targets” on emissions. The 2025 annual report says: “No excess capacity adjustment was made in 2025 and 2024.”

The check that remains is the Development Plan. Under clause 3(1)(a), projected levels of the Basic Tariff are set through periodic Development Plan reviews, “subject to the approval of the Executive Council”. The current plan runs from 2024 to 2028. L13, the fourth 380-MW gas-fired combined-cycle unit, is due for commissioning in early 2029. The agreement ends on 31 December 2033. Sources: the agreement, cl. 3(1)(a) and Sch. 6; Annual Report 2025, p. 180; 2025 annual results, p. 2; 2026 interim results, p. 1.

If a contract pays your supplier a return on what it owns, the investment plan is the page to read.

The same structure turns up in energy, outsourcing and managed-service contracts. A pass-through line follows an input cost. A return on assets follows what the supplier builds or buys, and moves with the investment plan.

Before signing one, I would find three things: what the return is a percentage of, who approves additions to that base, and what takes an unneeded asset back out of it. In HK Electric’s agreement the answers are clause 4(2), the Executive Council through the Development Plan, and Schedule 6.