Scheme of Control Agreements

The electricity market in Hong Kong has all along been regulated through the Scheme of Control Agreements (SCAs) signed between the Government and the two power companies, viz. CLP Power Hong Kong Limited and Castle Peak Power Company Limited (referred to collectively as CLP) and The Hongkong Electric Company Limited and HK Electric Investments Limited (referred to collectively as HEC).  The SCAs set out the obligations of the companies, the returns for shareholders and the arrangements by which the Government monitors the companies’ electricity-related financial affairs.  The Government signed the current SCAs with CLP and HEC on 25 April 2017 and they took effect on 1 October 2018 and 1 January 2019 respectively.

What is the history of SCAs?

All along, electricity in Hong Kong has been provided by CLP and HEC.  Both power companies own their respective electricity supply chains, including generation plants, transmission and distribution networks.  The first SCA was signed in 1964.  Since then, features have been added to the SCAs over the years to improve its operation and to better achieve the energy policy objectives.  The current SCAs were signed in 2017 with a term of about 15 years and will expire at the end of 2033.

What policy objectives do SCAs help achieve?

Electricity underpins our daily activities and drives our economic developments.  It is the Government’s longstanding policy to ensure that electricity demand of the community is met safely, reliably, efficiently and at reasonable prices, while minimising the environmental impact of electricity generation.  The SCAs help the Government to achieve these energy policy objectives.

How do they work? - The SCA mechanism

The SCAs are the tools for the Government to regulate the electricity-related financial affairs of the power companies and to monitor their reliability and environmental performance in providing electricity.  The SCAs do not give the companies any exclusive rights to provide electricity, nor are they franchises.  Rather, they set out the rights and obligations of the companies, and the returns for their shareholders.  The Government monitors the companies’ electricity-related financial affairs through Development Plans submitted by the latter and annual Tariff Reviews and Auditing Reviews jointly conducted with them.  The companies’ return is also capped at a permitted rate as a percentage of their fixed assets.

What are the main features of the current SCAs?

The key features of the current SCAs are -

  1. The new SCAs reflect the Government’s commitments to combating climate change and meet the public aspirations on the future development of the electricity market;
  2. They reduce the permitted rate of return of the power companies to 8%;
  3. They have a term of about 15 years to provide a stable environment for the power companies to make substantial and long term investments to replace the retiring coal plants;
  4. Promotion of energy efficiency & conservation and that of the development of renewable energy are key foci of the current SCAs; and
  5. A more frequent fuel cost adjustment mechanism will be implemented to avoid accumulation of large fuel cost surplus balances by the power companies.

Where can I find the full set of the SCAs?

The current and the previous two SCAs have been uploaded to the website of the Environment Bureau for public access via the following link:

https://www.enb.gov.hk/en/resources_publications/agreement/index.html
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Last review date: December 2019