Regulation of Power Markets Measures (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 Measures are formulated in accordance with relevant State laws, statutes and State Council provisions in order to regulate power markets and ensure that they are unified, open, competitive and orderly.

Article 2: These Measures shall apply to the regulation of power markets in the People's Republic of China.

Article 3: Electricity regulatory authorities shall abide by the principles of lawfulness, impartiality and transparency in independently exercising their responsibility to regulate power markets in accordance with the law and shall not be subject to illegal interference by other organizations or individuals.

PART TWO: TARGETS AND SPECIFICS OF REGULATION

Article 4: The targets of regulation in a power market shall include the power market entities and the market operator. Power market entities include 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: The electricity regulatory authority shall regulate the following in respect of all the market entities and the market operator:

(1) their performance of system safety obligations;

(2) their entry into and withdrawal from the power market;

(3) their qualifications for participating in the power market;

(4) their disclosure of power market information; and

(5) their implementation of the various technical, safety, quota and quality standards.

Article 6: The electricity regulatory authority shall additionally regulate the following matters in respect of the power generation enterprises:

(1) that their shares of a regional power market do not exceed the prescribed ratio;

(2) that they do not exceed the scope permitted by the market rules and thereby achieve the ability to manipulate the market through the addition of capacity, through leased operation or through mergers, restructuring or a change in equity;

(3) that they do not engage in unfair competition, collude in presenting quotes or engage in trade activities that violate provisions; and

(4) their execution of dispatching instructions from the market operator.

Article 7: The electricity regulatory authority shall additionally regulate the following in respect of the power grid operator:

(1) its non-discriminatory and fair opening of the power grid and provision of power transmission services;

(2) its return on assets;

(3) the power generation of the power generation enterprises connected to the grid; and

(4) the power grid operator's implementation of power transmission prices.

Additionally, the electricity regulatory authority shall regulate a power grid operator engaging in power supply services in accordance with Article 8 hereof.

Article 8: The electricity regulatory authority shall additionally regulate the following in respect of power suppliers:

(1) their market trading activities as power buyers;

(2) their implementation of prices for the distribution and sale of power; and

(3) the quality of their power provision services and power quality.

Article 9: The electricity regulatory authority shall additionally regulate the following in respect of the market operator:

(1) its carrying out of power dispatching in accordance with provisions;

(2) its arrangement of power market trading in accordance with rules for the operation of power markets;

(3) its methods of obtaining auxiliary services and its control of the costs thereof;

(4) its implementation of power market settlement;

(5) its intervention in the power market; and

(6) its construction, maintenance, operation and management of the technical support system of the power market.

Article 10: The electricity regulatory authority shall regulate the trading activities of users in the power market.

PART THREE: ADMINISTRATION OF THE RULES FOR THE OPERATION OF A POWER MARKET

Article 11: The electricity regulatory authorities shall be responsible for the formulation and administration of rules for the operation of power markets. Rules for the operation of power markets shall include the basic rules for the operation of power markets, rules for the operation of the regional power market and the relevant detailed rules for the rules for the operation of the regional power market.

Article 12: The State Electricity Regulatory Commission shall formulate the basic rules for the operation of power markets. The regional electricity regulatory authority shall draft the rules for the operation of the power market and shall implement the same after approval by the State Electricity Regulatory Commission. The regional electricity regulatory authority shall formulate the relevant detailed rules for the rules for the operation of the regional power market and shall submit the same to the State Electricity Regulatory Commission for the record.

Article 13: The electricity regulatory authority shall amend the rules for the operation of the power market in any of the following circumstances:

(1) a major adjustment is made to State laws or policies;

(2) a major change occurs in the market's operating environment;

(3) a market entity or the market operator proposes amendments and the electricity regulatory authority is of the opinion that such amendments are in fact necessary; or

(4) another circumstance arises under which the electricity regulatory authority is of the opinion that amendment is necessary.

Article 14: The authority to amend the rules for the operation of a power market shall accord with the principle that such authority be consistent with the authority to formulate such rules.

Article 15: When formulating or amending the rules for the operation of the power market, the electricity regulatory authority shall listen fully to the opinions of the market entities, the market operator, related interested entities and the public. For major amendments, hearings shall be arranged in accordance with the law.

PART FOUR: GRANT OF ACCESS TO AND WITHDRAWAL FROM A POWER MARKET

Article 16: A system for the registration of the granting of access to power markets shall be implemented. A power market entity may participate in market trading only after registration of its granting of access.

Article 17: Grant of market access shall satisfy the following conditions:

(1) possession of a power business permit and registration with the administration for industry and commerce;

(2) having undertaken to abide by the laws and statutes for the operation of power markets;

(3) possession of the technical conditions such as automated systems, data communication systems, etc. that satisfy the requirements of the power market; and

(4) other conditions stipulated by the electricity regulatory authority.

Article 18: The procedure for granting market access is set forth below:

(1) the market entity submits an application and relevant materials to the electricity regulatory authority;

(2) the electricity regulatory authority examines the application materials; if they comply with requirements, it shall give its approval within 30 days and notify the market operator in writing to register the applicant; if the application materials do not comply with requirements, the applicant shall be notified thereof in writing and the reason therefor given within 30 days;

(3) the electricity regulatory authority shall announce the application and its handling thereof to the other market entities in a timely manner;

Article 19: A market entity may apply to withdraw from the power market. The procedure for a market entity to apply to withdraw from the market is set forth below:

(1) the market entity shall submit its application to the electricity regulatory authority at least 30 days in advance;

(2) the electricity regulatory authority shall make its decision and notify the applicant thereof in writing within 30 days of receiving the application materials;

(3) if the withdrawal is approved, the electricity regulatory authority shall clearly specify the market entity's time of withdrawal and timely notify the market operator to cancel the market entity's registration; if the withdrawal is not approved, the electricity regulatory authority shall state the reason therefor in writing;

(4) the electricity regulatory authority shall announce the application and its handling thereof to the other market entities in a timely manner;

(5) prior to its withdrawal, the power market entity shall maintain the continuity of production operations and complete the transfer of relevant materials, information and contracts.

Article 20: If a market entity violates the market rules and the circumstances thereof are serious, the electricity regulatory authority shall have the power to order it to suspend market bidding. The procedure therefor is set forth below:

(1) depending on the punishment decision, the electricity regulatory authority shall inform the market entity in writing of the term of, and the reason for, the suspension of market bidding 30 days in advance;

(2) the electricity regulatory authority shall notify the market operator of the decision in a timely manner;

(3) the electricity regulatory authority shall decide when the market entity may resume market bidding depending on the status of its rectification; the market entity shall be notified 30 days in advance of the decision to allow its resumption of market bidding;

(4) the electricity regulatory authority shall notify the market operator in a timely manner of its decision to allow the resumption of market bidding;

(5) decisions to suspend and allow the resumption of market bidding shall be announced by the electricity regulatory authority to the other market entities in a timely manner;

(6) during the suspension of its market bidding, the power market entity shall maintain the continuity of production operations and complete the transfer of relevant materials, information and contracts.

PART FIVE: INTERVENTION IN, AND SUSPENSION OF, POWER MARKETS

Article 21: A market operator may intervene in the market in any of the following circumstances:

(1) system output is insufficient, making normal operation in accordance with the market rules impossible;

(2) a major accident occurs in the system, threatening the safety of the power grid;

(3) a major malfunction occurs in the automated system, data communication system, etc. making normal trading impossible;

(4) the electricity regulatory authority issues a decision to suspend the market; or

(5) another circumstance occurs that necessitates such intervention.

Article 22: The electricity regulatory authority may issue a decision to suspend the market if any of the following circumstances arises in the system:

(1) the power market is not being operated or managed in accordance with the rules;

(2) the rules for operation of the market fail to meet the market trading requirements and major amendments thereto are necessary;

(3) a major malfunction occurs in the automatic system, data communication system, etc., making normal trading impossible for an extended period of time;

(4) an event of force majeure occurs making bidding transactions impossible or making it unnecessary to carry out power trading; or

(5) another circumstance that necessitates the suspension of market trading arises.

Article 23: In the event of market intervention or suspension, power trading prices and methods shall be determined by the electricity regulatory authority.

Article 24: During a market intervention or suspension, the market operator shall take measures to ensure system safety and make a record of the intervention or suspension process.

PART SIX: HANDLING OF MARKET DISPUTES AND VIOLATIONS OF PROVISIONS

Article 25: When a dispute arises between market entities or between a market entity and the market operator over a market transaction, the electricity regulatory authority shall coordinate and handle the matter in accordance with the law.

Article 26: The electricity regulatory authority shall handle a dispute in accordance with the following procedure:

(1) a party to the dispute shall submit an application for handling of the dispute to the electricity regulatory authority stating the facts, grounds and basis;

(2) if the dispute falls within the scope of market regulation it shall be accepted by the electricity regulatory authority; if the dispute does not fall within the scope of market regulation, it shall be rejected and the reason therefor shall be stated;

(3) the electricity regulatory authority may investigate and collect evidence after it accepts the dispute and, if necessary, may engage experts and organizations with no material interest in the dispute to participate in the investigation and collection of evidence;

(4) within 30 days after accepting the dispute application, the electricity regulatory authority shall convene the parties to the dispute and attempt to mediate and shall actively encourage the parties to achieve a mutual understanding and reach a settlement agreement; and

(5) if mediation is successful, the parties shall execute a settlement agreement; if mediation is unsuccessful or the parties do not perform the settlement agreement, the electricity regulatory authority shall instruct the parties to apply for arbitration to an arbitration commission in accordance with their arbitration agreement or to institute proceedings with a people's court.

Article 27: When investigating and handling a market dispute, the electricity regulatory authority shall complete its mediation effort within two months of the date of acceptance of the case. If an extension is truly necessary due to special circumstances, the time period may be suitably extended provided that such extension does not exceed one month. After completion of the mediation effort, a mediation conclusion document shall be prepared.

Article 28: The electricity regulatory authority shall investigate and deal with any of the following violations of provisions:

(1) the provision of spurious materials or use of other fraudulent means to obtain the qualifications to be granted market access;

(2) collusion in the setting, or the manipulation, of power market prices;

(3) violations of market provisions by the market operator by practicing discrimination against market entities;

(4) provision of false information or failure to provide regulatory information in accordance with market rules;

(5) failure to participate in settlement in a timely manner thereby infringing upon the interests of other market entities; or

(6) another serious violation of market rules.

Article 29: Electricity regulatory authorities shall handle violations of market rules in accordance with the relevant provisions of the Administrative Penalties Law.

Article 30: If a party is dissatisfied with the decision of the electricity regulatory authority on its handling of the party's case, it may apply for administrative reconsideration or institute administrative proceedings in accordance with the law.

PART SEVEN: REGULATORY INFORMATION AND DISCLOSURE

Article 31: The market entities and market operator shall disclose relevant information in accordance with the rules for the operation of the power market and shall ensure the timeliness, truthfulness, accuracy and completeness of such information.

The electricity regulatory authority shall be responsible for formulating the measures for the collection, administration and use of power market information.

Article 32: The electricity regulatory authority, market entities and market operator may not divulge confidential trading information that would prejudice fair competition.

Article 33: The electricity regulatory authority shall make the following information available to the market entities, the market operator and the public in a timely manner:

(1) State policies and statutes on the power industry;

(2) basic details of power source and power grid plans;

(3) power-related technical, safety, quota, quality and service standards;

(4) rules, regulations and documents on the power market issued by the electricity regulatory authority;

(5) information on the granting of access to and withdrawal from the power market by market entities;

(6) information on market disputes and the investigation and handling of violations of rules; and

(7) other necessary information.

Article 34: The electricity regulatory authority shall issue market regulation reports on a monthly and quarterly basis and publish the same. The reports shall contain the following main particulars:

(1) the power supply and demand situation, information on power prices, the number of hours of power generation equipment usage, etc.;

(2) information on market trading, intervention and suspensions;

(3) information on the management of power transmission bottlenecks and the obtaining of auxiliary services; and

(4) an assessment and forecast of market operations.

PART EIGHT: LEGAL LIABILITY

Article 35: The market entities and market operator shall conscientiously abide by the relevant statutes of the power market and shall have the right to report violations of market rules to the electricity regulatory authority. The electricity regulatory authority shall maintain the confidentiality of parties that submit such reports.

Article 36: The electricity regulatory authority shall, in accordance with relevant laws and statutes, impose administrative penalties on market entities or the market operator when they/it violate(s) the rules for the operation of the market or regulatory statutes.

Article 37: Electricity regulatory personnel must observe discipline, abide by the law, work with integrity in performing their official duties and perform their regulatory duties in accordance with the law. If a regulatory officer violates laws or provisions, the electricity regulatory authority shall impose administrative penalties. If a criminal offence is constituted, the case shall be transferred to the judicial authorities for handling.

PART NINE: SUPPLEMENTARY PROVISIONS

Article 38: The electricity regulatory authority of each regional market shall formulate implementing measures based hereon and shall implement the same after approval by the State Electricity Regulatory Authority.

Article 39: These Measures shall be implemented on a trial basis as of August 1 2003.