Member Article

The National Development and Reform Commission ("NDRC") issued the Notice on the Printing and Issuing of the Implementing Measures for the Reform of Electricity Tariffs on 28 March 2005 ("Notice"). Further to the Notice, the NDRC issued the following regulations which all took effect on 1 May 2005: • Provisional Measures for the Administration of the Electricity On-Grid Tariffs ("On-Grid Tariff Measures"); • Provisional Measures for the Administration of the Tariffs for the Transmission and Distribution of Electricity ("Transmission and Distribution Tariff Measures"); and • Provisional Measures for the Administration of Electricity End-Users Tariffs ("End-users Tariff Measures"). The three Measures establish a comprehensive tariff system for electricity in China, covering production, distribution and sale to end users. On-grid tariffs The On-Grid Tariff Measures define the term "On-Grid Tariff" as the price at which an electricity generation enterprise and an electricity purchaser settle the price of electric power uploaded to a grid. The On-Grid Tariff Measures specify different rules for the determination of On-Grid Tariffs before and after the implementation of competitive pricing. Before the implementation of competitive pricing, the On-Grid Tariffs for power generating companies originally under the State Power Corporation were determined by the tariff regulating authority according to cost-compensation principles. For power plants retained by the State grid enterprises that have an agreed On-Grid Tariff with the tariff regulating authority, their On-Grid Tariffs should remain unchanged. For those who have not agreed to an On-Grid Tariff with the tariff regulating authority, and wholly-owned power generating companies (State grid enterprises or non-State grid enterprises) and other power plants for which On-Grid Tariffs have not been agreed or confirmed by the tariff regulating authority, their On-Grid Tariffs shall be determined by the tariff regulating authority on the basis of the economic life span of the project, according to the principles of reasonable compensation, reasonable actual benefits and with consideration given to the tax payable under PRC law. The On-Grid Tariff Measures provide that pricing systems such as peak and valley pricing, seasonal pricing etc. are to be introduced gradually. When the fluctuation in fuel prices is fairly large, the On-Grid Tariffs may be linked to the fuel price as long as the tariffs also reflect demand and supply. After the implementation of competitive pricing and the establishment of competitive regional power markets, the On-Grid Tariffs of electricity generation companies which participate in the competitive market shall principally consist of two components: the capacity charge, which is to be determined by the tariff regulatory authority, and the energy charge, which is to be determined by market competition. The On-Grid Tariffs of electricity generation companies that do not participate in the competitive market shall be determined by the tariff regulatory authority on the basis of their economic life span. The On-Grid Tariff Measures also deal with electricity generation companies with direct foreign investment. If such companies were constructed prior to 1994 and executed their power purchase contracts prior to 1994, or were established in or after 1994 with State Council approved undertakings regarding electricity tariff or the rate of investment return, new negotiations may be conducted in order to allow them to operate as much as possible in accordance with the new system. Distribution tariffs The Transmission and Distribution Tariff Measures define "transmission and distribution tariffs" as the common term used for tariffs charged by State grid enterprises for the provision of access systems, inter-grid connection, electricity transmission and sales services. The transmission and distribution tariffs are to be fixed by the government. The basis of the tariffs shall be considerations such as reasonable compensation of cost, reasonable determination of returns, lawful inclusion of taxes and fair sharing of the burden. The Transmission and Distribution Tariff Measures distinguish between tariffs for electricity transmission and distribution services via public grids, tariffs for dedicated services and tariffs for ancillary services provided by an electric power enterprise. The Transmission and Distribution Tariff Measures detail how the various tariffs are to be determined. End-user tariffs The End-User Tariff Measures define the term "Electricity Tariffs" as the tariffs at which State grid enterprises sell electricity to end users. Electricity Tariffs are fixed by the government. The tariffs shall be determined with consideration to the fair sharing of the burden, the efficient adjustment of the demand for electricity and public policy objectives. The government will create a mechanism to link Electricity Tariffs to On-Grid Tariffs. Electricity Tariffs are made up of four elements, the electricity purchase cost, the electricity loss during transmission, electricity transmission price and cost of government fund. The End-User Tariff Measures aim to reform the various classes of tariff for end users into three categories: residential electricity, electricity used in agricultural production and electricity used in industry, commerce or for other purposes. The tariff for each category is fixed per voltage class. For residential electricity and electricity used in agricultural production, the Electricity Tariff is calculated per kilowatt-hour. For industrial, commercial or other electricity users who have receiving transformers with a capacity of 100kVA or more or who have electrical equipment with an installed receiving capacity of 100kW or more, the Electricity Tariff shall be comprised of two components. The two components shall be the kilowatt-hour tariff (calculated on the basis of actual use) and the basic electricity tariff (based on the user’s consumption capacity). A system of peak and valley pricing is to be implemented with respect to electricity end-users tariffs.