Interim Provisions for the Administration of Grid Power Price

(March 28, 2005, No.514 [2005] of the National Development and Reform Commission)

Chapter I General Provisions

Article 1 These Measures are formulated according to the relevant state laws and administrative regulations, the Notice of the State Council on Printing and Distributing the Plans Regarding the Restructuring of the Power Industry(No.5 [2002] of the State Council) and the Notice of the General Office of the State Council on Printing and Distributing the Plans Regarding the Power Price Reform (No.62 [2003] of the General Office of the State Council) for the purpose of perfecting the mechanisms of grid power price setting and promoting the restructuring of the power industry.

Article 2  The "grid power price refers to the price at which an electricity generation enterprise and a power purchaser settle the grid electric energy.

Article 3 The administration of grid power price shall contribute to the safe and stable operation of the power system, help power enterprises to enhance their efficiency and optimize their electrical source frameworks, and help the smooth transition in the direction to reform the price-setting system by which the sellers and purchasers can fix on the power price through competition.

Article 4 These Measures shall be applicable to the administration of the grid power prices of those electricity generation projects that are built pursuant to the provisions of the State on the construction and management and electricity generation enterprises that are legally registered within the territory of the People's Republic of China.

Chapter II Grid Power Price prior to the Grid-bidding

Article 5 Those electricity generation enterprises that are directly under the former State Power Corporation and have separated from the electric grid shall temporarily apply to the grid power price as verified by the price administrative department of the government pursuant to the principle of compensation for cost, and be gradually governed by Article 7 of these Measures.

Article 6 Any power plant that is reserved by a grid company and whose grid power price has been verified shall continuously apply to the grid power price as verified by the price administrative department of the government. Any power plant whose grid power price has not been verified and that is wholly owned by a grid company, its grid power price shall be verified pursuant to the principle of compensation for cost, and be gradually governed by Article 7 of these Measures; if a power plant is not founded by exclusive investments from a grid company, it shall be governed by Article 7 of these Measures.

Article 7 The grid power price of an independent electricity generation enterprise shall be verified by the price administrative department of the government on the basis of the economic service period of its electricity generation project and pursuant to the principles of reasonable compensation for cost, reasonable determination of profits, legal inclusion of taxes. In particular, the electricity generation cost shall be the social average cost; the reasonable profits shall be guided by the internal rate of return of capital and be verified on the basis of the interest rate of long-term national debts added by certain percentage points. The grid power prices as set down by way of the governments call for bids shall apply to the power prices as determined by the competitive bidding.

Article 8 With the exception of the grid power prices as set down by way of the governments call for bids and those electricity generation enterprises using new energies, the grid power prices of the electricity generating units that are newly built within the same region shall be uniform and be announced to the general public in advance; and the grid power prices of the electricity generation enterprises that have been formerly set down shall be unified step by step.

Article 9 On the premise that the overall level of the power prices be kept stable, the system of peak and valley timing power prices and abundant and exhausted seasonal power prices shall be gradually carried out for the grid power price.

Article 10 When the price of fuels dramatically fluctuates, the grid power price shall change with the price fluctuation of the fuels, provided that the grid power price reflects the relationship between power supply and demand in a timely manner.

Article 11 The grid power price for a trans-provincial or trans-regional power transaction shall be governed by the Guiding Opinions of the National Development and Reform Commission Concerning Promoting the Electric Energy Transactions Between Different Regions.

Chapter III Grid Power Price after the Grid Bidding

Article 12 After a regional competitive power market is established and grid bidding is carried out, the electricity generation units participating in the competition shall apply to the two-tier power price, of which the capacity power price shall be determined by the price administrative department of the government, while the coulometric power price shall be set through market competition. The capacity power price shall be determined gradually through the market competition.

Different regions may adopt different transitional methods in light of their respective situations.

For those electricity generation units that do not participate in the grid bidding, the grid power price thereof shall be governed by Article 7 of these Measures.

Article 13 The capacity power price level as set down by the government shall reflect the cost of power and the market condition on supply and demand, and will be good for guiding investment in electrical sources.

Article 14 A uniform standard shall be applicable to the capacity power prices within the same power market.

Article 15 The capacity power price shall be set down on the basis of the average
investment cost of various electricity generation units participating in the competition of a regional power market or a trading center for dispatching the power, and its calculation formula is:

The capacity power price = capacity power charges / actual usable capacity of a unit.
Of which, the capacity power charges = K × (depreciation + financial expenses)

"K" refers to a proportional coefficient that is fixed on pursuant to the relationship between market supply and demand.

The depreciation shall be verified pursuant to the depreciation rate for valuation as set down by the price administrative department of the government.

The financial expenses shall be calculated on the basis of the average proportion of 80% of the average investment cost being loans.

Article 16 The capacity power price shall be kept relatively stable.

Article 17 The capacity power charges shall be paid by an electric purchaser to an electricity generation enterprise on a monthly basis pursuant to the actual usable capacity of an electricity generation unit.

Article 18 The coulometric power price will be set through market competition. A regional power market shall choose a market trading model in line with its actual situation, and the bidding rules of all trading centers for dispatching power within the same regional power market shall be uniform.

Article 19 In a power market with grid enterprises as a single purchaser, either part or all of electric quantity of an electricity generation enterprise may apply to the grid bidding in the cash market. On the premise of open bidding or full competition, a grid enterprise may carry out long-term electric energy transaction with an electricity generation enterprise.

Article 20 A qualified region may establish a power market in which both the electricity generation party and the consumer can jointly participate, may adopt a market model that combines the bilateral transaction with the cash transaction, and encourage consumers with specific voltage ranks or specific power use capacity, power distribution companies applying independent assessment and electricity generation enterprises to directly carry out transactions by contracts and participate in the cash market competition upon approval.

Article 21 In a power market in which both the electricity generation party and the consumer can jointly participate, the electric quantity and power price shall be decided by both parties to the transaction through consultation; the electric quantity and power price in the cash market shall be specified pursuant to the price level corresponding with the crossing point between the supply curve as declared by the seller and the demand curve as declared by the buyer; at the early stage of bidding, the corresponding rules may be formulated and the transaction price shall be properly controlled so as to ensure the market transaction be smoothly carried out.

Article 22 After the grid bidding, an interactive mechanism between the selling power price and grid power price shall be implemented.

In order to avoid the abnormal price fluctuation in the cash market, the price administrative department may, together with the relevant department, fix the quote of electricity generation pursuant to the situation in a regional power market.

At the early stage of bidding, a power price balancing mechanism shall be established to keep the power selling prices relatively stable.

Article 23 Regular hydraulic power enterprises, coal, fuel and gas power generation enterprises (including thermal power plants), newly established and temporarily qualified nuclear power enterprises shall participate in market competition; enterprises of such new and renewable energies as the wind and geothermal power may not participate in the market competition for the time being, and whose electric quantity shall be purchased by grid enterprises in priority pursuant to the price fixed by government or the bidding price, and the government will prescribe the proportion of electric quantity of new and renewable energies to the selling electric quantity of an electricity supplying enterprise in good time and establish a special competitive market of new and renewable energies .

Article 24 For foreign-invested electricity generation enterprises established according to the state examination and approval procedures, if they were built prior to the Year 1994 and have concluded electricity purchasing contracts, or built in or after the Year 1994 and to which the State Council has made a promise about the power price or the return on investment, a new negotiation may be carried out so as to make them run pursuant to the new mechanism, however, the investors' reasonable profits should be guaranteed.

Artide 25 In order to maintain the safe and stable operation of the power system, an electricity generation enterprise shall provide auxiliary services to a power market. The measures for the administration of prices of paid auxiliary services shall be formulated separately.

Chapter IV Administration of Grid Power Prices

Article 26 Prior to the grid biding, the grid power price of a regional electric grid or uniform dispatching unit of an electric grid within the jurisdiction where a regional electric grid is located shall be fixed on and announced by the price administrative department under the State Council, and the grid power price of any other electricity generation enterprise shall be fixed on and announced by the price administrative department of the provincial government.

Article 27 After the implementation of bidding, the capacity power price of a regional power market and the trading centers for dispatching the power established thereby shall be fixed on and announced by the price administrative department under the State Council. And the grid power prices of any electricity generation enterprises that does not participate in the power market competition shall be administrated pursuant to Article 26.

Article 28 The price administrative department and power supervision department of the
government shall conduct supervision over and administration of the implementation of power market price according to their own functions. The power supervision department shall put forward suggestions on the adjustment of power prices to the price administrative department of the government pursuant to the provisions. The information concerning the power prices shall be announced to the general public and subject to the supervision of the society.

Article 29 The power supervision department has the power to deter any price-related violation committed by a market participant; and the price administrative department of the government has the power to impose an administrative sanction pursuant to the relevant state provisions. If any party involved holds objections thereto, he can lodge an administrative reconsideration to the relevant department or file a lawsuit to the people's court.

Chapter V Supplementary Provisions

Article 30 The power to interpret these Measures shall remain with the National Development and Reform Commission.

Article 31 These Measures shall come into effect as of May 1st, 2005.