The Document that Transformed Hong Kong's Power Industry

Friday, 15 January 2021

5 min read

It’s the document that allows CLP to bring electricity into the homes of 2.65 million Hong Kong customers, and an agreement that played a key role in helping the city grow from a fishing port into a world-famous metropolis.

The Scheme of Control (SoC) agreement is a vital document that sets out the basis for CLP to do business and serves as a framework by which the government monitors CLP's financial, operational, and environmental performance.

For more than half a century now, it has ensured customers enjoy a safe, reliable supply of electricity at a reasonable price, while CLP is granted a regulated return in relation to the time and capital-intensive nature of its business.

First signed in 1964 between CLP, the Peninsula Electric Power Company Limited (PEPCO, later known as Castle Peak Power Company Limited or CAPCO), and the Hong Kong government, the agreement played a key role in making electricity services more within reach in the post-war era.

Suddenly, homes across the city were given access to affordable electricity, fuelling the city’s transformation from a fishing port to a booming metropolis and global financial hub.

Here is how the SoC agreement came into existence and what it means to us today.

This is the first in a series of articles examining some of the milestones in CLP’s 120-year history.

Cable-laying in Kowloon City in the 1950s

An era of rapid growth and change

The 1950s and 1960s in Hong Kong were decades of rapid industrialisation and represented a turning point for the city’s economy. A post-war manufacturing boom and population growth drove a rise in electricity demand of 20% a year, as this picture showing CLP workers laying cables in Kowloon City in the 1950s illustrates. High tariffs triggered by a fuel surcharge introduced in the 1950s were unpopular with industrialists. The government decided there was a need for statutory control on tariffs, and a commission was set up to find the best arrangements to cover the city’s two power companies, one of which was CLP.

Building foundations

To increase the electricity supply in Hong Kong, CLP and Esso Standard Eastern agreed in 1964 to form PEPCO, a jointly-owned power generation company. The electricity produced would be supplied to the community, while Esso would provide capital jointly with CLP and supply the oil required for power generation at market price. The Hong Kong government approved this deal and reached an agreement on a scheme of financial control, regulating the companies’ profits to a return based on their equity capital deployed. Here, CLP Chairman Lord Kadoorie (left) walks alongside Governor Sir David Trench (centre) and Esso Chairman Fred Westphal (right) outside the PEPCO building. PEPCO was finally acquired by CAPCO in 1992 and dissolved four years later.

Hong Kong government official and the management of CLP and Esso outside PEPCO

An SCMP article on the first SoC agreement

A historic announcement

The first SoC agreement was announced on 23 November 1964, and was immediately recognised as a landmark in the city’s colonial history. The signing was widely reported and positively received by both businesses and consumers. An article in the South China Morning Post the following day shown here discussed its importance and said the deal was beneficial to the government, CLP, and to shareholders. It also said Lord Kadoorie “deserved to be congratulated” for pulling off the agreement.

Instant benefits

The signing of the SoC agreement marked the beginning of Hong Kong’s modernisation, transforming electricity that was only affordable to a few into a reasonably-priced commodity accessible to people across the city. As Lord Kadoorie, pictured here (left) with Esso Chairman Fred Westphal at the opening ceremony for the Tsing Yi Power Station, remarked in CLP’s 1964 Annual Report: “The significance of this achievement, as yet unapparelled in the annals of the colony’s history, must not be underrated. Not only will this enable a reduction in rates charged to consumers, but this contribution should add substantially to confidence in Hong Kong’s prosperity.”

Opening ceremony for the Tsing Yi Power Station

A victory for the people

The SoC agreement was created to ensure the public has easy access to affordable electricity services and to meet the rapidly-growing demand. CLP Senior Manager Edgar Laufer, who worked with the company for 42 years, was one of the representatives involved in the negotiations for the first SoC agreement. In a 2007 interview, he said the agreement brought an immediate end to complaints over the price of electricity. “It seemed to be to the advantage of consumers,” he said. Click on the video to hear him speak about the introduction of the SoC agreement.

Click on the video and hear the views of Edgar Laufer, one of the representatives involved in the negotiations of CLP’s first SoC Agreement.

Powering ahead

After the first SoC agreement was signed, CLP expanded its power generation facilities in Hok Un and built the new Tsing Yi Power Station, increasing the company’s power generation capacity more than fivefold which was essential to support the rapid industrial development in Hong Kong in the 1970s. The increased capacity ensured CLP was prepared for the surge in residential accounts which prompted the expansion of customer service network, including this cash office in Kwai Fong where customers would settle their bills in person.

CLP's Kwai Fong Cash Office in the 1970s

Providing certainty for growth

The SoC agreement has worked well for over half a century, reflecting CLP’s dedication to support the long-term development of Hong Kong. It provides the regulatory and economic certainty needed for CLP to provide customers with a safe, reliable and environmentally-friendly power supply at a reasonable cost, fulfilling the community’s need for energy while combating the challenge of climate change.

Standing the test of time

The SoC agreement was renewed in 1978, 1993, 2008, and most recently in 2018 to keep up with times and society’s changing needs. The latest agreement offers a stable framework for CLP to contribute to the government’s long-term carbon reduction initiative by increasing natural gas usage in Hong Kong’s fuel mix. It also provides a solid foundation for CLP to realise its Climate Vision 2050, a voluntary pledge it made in 2007 to support Hong Kong’s transition towards a sustainable, low-carbon future.

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