Operation of Power Markets Basic Rules (Trial Implementation)

(Issued by the State Electricity Regulatory Commission on July 31 2003 and effective as of August 1 2003.)

PART ONE: GENERAL PROVISIONS

Article 1: These Rules are formulated in accordance with relevant State laws and statutes in order to regulate regional power market activities and ensure that regional power markets are unified, open, competitive and orderly.

Article 2: These Rules shall apply to regional power markets.

Article 3: The State Electricity Regulatory Commission and the regulatory institutions authorized thereby (hereinafter collectively referred to as Electricity Regulatory Authorities) shall be in charge of supervising regional power market operations, protecting the lawful rights and interests of market entities in accordance with the law and shall not be subject to illegal interference by any other organization or individual.

PART TWO: MARKET PLAYERS

Article 4: For the purposes of these Rules, the term "market player" includes market entities and market operators. The term "power market entities" means power generation enterprises, power grid operators and power suppliers (including independent electricity distributors) that have obtained power business permits in accordance with provisions, as well as approved users. The term "market operators" means power dispatching and trading centres.

Article 5: Power generation enterprises, power grid operators and power suppliers may only apply to enter the market and participate in market trading after obtaining a power business permit (Permit) in accordance with provisions. Users may participate in market trading after obtaining approval.

Article 6: Power dispatching and trading centres shall be responsible for the dispatching of power, market trading and the settlement of transactions.

PART THREE: TYPES OF TRANSACTIONS

Article 7: Types of electricity transactions on a power market include contractual transactions, spot transactions, futures transactions, etc.

Article 8: The term "contractual transactions" means electricity transactions effected between market entities through the conclusion of electricity sales and purchase contracts. The contract price may be determined by consultation between the parties, market competition or in accordance with relevant State provisions. The term of the contract may be a week, month, quarter, year or more than one year.

Article 9: Spot transactions are next-day electricity transactions (or those completed within the following 24 hours) that take the form of auctions by power generation enterprises, as well as real-time electricity transactions carried out in order to ensure an immediate balance between power supply and demand. The proportion of power available for spot transactions shall be comprehensively considered and determined by the Electricity Regulatory Authority based on such factors as power supply and demand, status of the grid and the electric load characteristics. In general, the proportion shall be determined once each year.

Article 10: The term "futures transactions" means electricity transactions carried out on a specified exchange by way of futures contracts. The term "futures contract" means an agreement for the purchase or sale of electricity at a certain future time and at a set price.

Article 11: Contractual transactions shall be the primary means and spot transactions the secondary means by which electricity transactions are carried out. Electricity futures will not be available for the immediate future.

Article 12: Transactions involving power transmission rights, auxiliary services, etc. may be engaged in by entities that satisfy the appropriate criteria and obtain the approval of the Electricity Regulatory Authority.

PART FOUR: CONTRACTUAL TRANSACTIONS

Article 13: Market operators shall handle the specific arrangements for contractual transactions of electricity. Electricity Regulatory Authorities shall supervise the performance of transaction contracts.

Article 14: Contracts for the sale and purchase of electricity must undergo safety checks and be confirmed by a market operator prior to execution. If a contract fails the safety check, the market operator shall inform the relevant market entity thereof in a timely manner.

Article 15: Power grid operators must implement State energy policies, give priority to executing contracts with power generation enterprises that provide such clean, renewable sources of energy as wind power, geothermal energy, etc. and ensure that their power output gains full access to the grid.

Article 16: Market operators shall divide contracted power in accordance with prescribed principles. Their methods of division shall be disclosed to market players and reported to the Electricity Regulatory Authority for the record. If a revision needs to be made after the division of the contracted electricity for any reason, the market operator shall notify the parties to the contracts of such reason in a timely manner.

PART FIVE: SPOT TRANSACTIONS

Article 17: Market operators shall make arrangements for spot transactions in accordance with the trading rules. Market operators shall issue dispatch instructions on the basis of the dispatch proposal automatically calculated and generated by the technical support system. In general, such dispatch instructions may not be revised.

Article 18: In spot transactions, power generation enterprises generally quote prices on the basis of a single generator set. With approval, several generating units of a single power plant may be combined in a quote. In principle, several power plants that constitute a power generation enterprise may not present a combined quote. Power plants are forbidden to collude in presenting quotes.

Article 19: The mechanism for deriving prices on the spot market shall facilitate the promotion of fair and effective market competition, the realization of the market's guiding function and the management of power transmission bottlenecks.

Article 20: In order to ensure market safety, the Electricity Regulatory Authority shall specify the market price ceiling and floor. The price ceiling and price floor shall, in general, be set on a yearly basis.

Article 21: In order to ensure normal market operation and the safety of the power system, the Electricity Regulatory Authority shall specify the conditions for market intervention and suspension and formulate relevant measures for the handling thereof.

PART SIX: POWER TRANSMISSION SERVICES

Article 22: Power grid operators shall open power transmission grids on a non-discriminatory basis and provide safe, high quality, economical, reliable and continuous power transmission services to market entities.

Article 23: Power grid operators shall strictly implement State prescribed power transmission prices and submit themselves to the supervision and inspection of the Electricity Regulatory Authorities.

Article 24: The measures for handling power transmission bottlenecks shall be determined based on grid structure and the market trading method.

Article 25: In order to minimize the risk of the occurrence of power transmission bottlenecks, the trading of power transmission rights may be carried out with the approval of the Electricity Regulatory Authority.

PART SEVEN: AUXILIARY SERVICES

Article 26: In order to safeguard the secure and stable operation of power grids, market entities shall provide the system with such auxiliary services as maintenance of stable voltage and frequency and recovery after grid malfunctions, etc.

Article 27: Auxiliary services include basic auxiliary services and paid auxiliary services. Basic auxiliary services shall be indicated in the grid connection agreement. Paid auxiliary services may be determined by agreement or through the invitation and submission of bids.

Article 28: The specific contents of, technical standards for, and methods of obtaining various auxiliary services shall be determined by the market players based on the circumstances of each power market and shall be submitted to the Electricity Regulatory Authority for examination and approval.

Article 29: Electricity Regulatory Authorities shall authorize market operators to periodically test the ability of market entities to provide auxiliary services. The test results shall be published and reported to the Electricity Regulatory Authority. When a market entity is unable to provide an auxiliary service as required, it shall report the same to the market operator in a timely manner.

PART EIGHT: ELECTRICITY METERING AND SETTLEMENT

Article 30: Market entities must install electricity metering devices in accordance with the relevant State standards. Use of such devices shall commence after acceptance by a qualified institution.

Article 31: Checks of electricity metering devices shall be carried out periodically. A market entity may apply for a check of an electricity metering device at its own expense.

Article 32: A contract for the sale and purchase of power executed by the parties to a transaction shall specify the electricity metering points. The electricity metered by the statutory or agreed upon metering points shall serve as the basis for settling electricity charges. Market entities shall bear power wastage and related liabilities based on the boundaries delineated by the metering points.

Article 33: Market operators shall establish and maintain electricity metering databases and make the electricity metering data available to market entities.

Article 34: Market settlement includes settlement of contractual transactions, spot transactions, futures transactions, auxiliary services as well as settlement of various types of compensation and liquidated damages.

Article 35: A market entity shall stipulate the method and time limit for the settlement of electricity charges in the contract and strictly perform the same.

PART NINE: SYSTEM SAFETY

Article 36: Market entities shall implement relevant rules and provisions for the administration of power grid operations, submit to unified dispatching, strengthen equipment maintenance, and deploy the necessary safety facilities, provide auxiliary services and maintain the safe and stable operation of the power system in accordance with the requirements of the grid connection agreement.

Article 37: Market operators shall strictly implement power grid dispatch statutes, calculate and publish data on safe system operation in a timely manner, guard against power grid accidents and ensure the safe operation of power grids.

Article 38: The scope of safety checks by market operators shall be consistent with the scope of the market transactions.

Article 39: Market operators shall prepare schedules for arranging the inspection and repair of power equipment based on the power supply and demand situation, safety constraints and system operation. The measures for appraising the operation of generator sets shall be implemented after approval by the Electricity Regulatory Authority.

Article 40: Construction of the technical support systems for power markets shall satisfy prescribed performance indicators, including those for energy management, trade management, electricity metering, settlement system, contract management, quote processing, market analysis and forecasting, trade information and other such functional modules.

Article 41: The power market operating rules shall serve as the basis for the development and construction of the technical support system of a power market. The development, maintenance and management of the technical support system in a single market shall be organized on a uniform basis. The technical support system shall be updated in a timely manner based on the development needs of the power market. The Electricity Regulatory Authority shall be responsible for approving the planning and design proposals for the technical support system; market entities shall deploy the relevant ancillary facilities in accordance with provisions; and market operators shall be responsible for routine maintenance and management.

PART TEN: INFORMATION DISCLOSURE

Article 42: Market entities shall provide information to market operators in accordance with regulations.

Article 43: Market operators shall abide by the principles of accuracy, truthfulness, timeliness and thoroughness in periodically disclosing information on market operations to the market entities and the public.

Article 44: The Electricity Regulatory Authorities shall be responsible for formulating the measures for the administration of the issuance of market information and supervising the implementation thereof.

PART ELEVEN: SUPPLEMENTARY PROVISIONS

Article 45: The regulatory authority in each regional power market shall draft regional power market operation rules in accordance herewith and shall implement such rules after approval by the State Electricity Regulatory Commission.

Article 46: These Rules shall be implemented on a trial basis as of August 1 2003.