Administration of Electricity Sales Prices Tentative Procedures

(Issued by the National Development and Reform Commission on March 28 2005 and effective as of May 1 2005.)

Fa Gai Jia Ge [2005] No.514

PART ONE: GENERAL PROVISIONS

Article 1: These Procedures have been formulated pursuant to relevant state laws, administrative regulations, the State Council, Issuance of the Reform Plan for the Electric Power System Circular (ref. Guo Fa [2002] No.5) and the General Office of the State Council, Issuance of the Electricity Price Reform Plan Circular (ref. Guo Ban Fa [2003] No.62), in order to establish a sound and rational mechanism for setting sales prices for electricity, fully utilize pricing levers to rationally allocate electric power resources and protect the lawful rights and interests of electric power enterprises and users.

Article 2: For the purposes of these Procedures, the term "sales price of electricity" means the price at which power grid operators sell electricity to end users (Sales Price).

Article 3: Sales Prices shall be fixed by the government, subject to uniform policies and administered by level.

Article 4: Sales Prices shall be set based on the principles of an insistence on fair apportioning of the burden, effective adjustment of the demand for electric power and consideration of public policy objectives while employing a mechanism whereby they move in lockstep with the price of electricity uploaded to the relevant grid.

Article 5: These Procedures shall apply to power grid operators lawfully approved and registered in the People's Republic of China.

PART TWO: COMPOSITION AND CLASSIFICATION OF SALES PRICES

Article 6: Sales Prices are composed of four elements, namely purchase cost of electricity, electricity loss during transmission and distribution, prices for the transmission and distribution of electricity and the governmental fund.

The term "purchase cost of electricity" means the charges paid by a power grid enterprise when purchasing electric power from an electricity generation enterprise (including from power plants belonging to the power grid enterprise) or other grids, including the capacity charges and kilowatt-hour charges, and the taxes paid in accordance with the law.

The term "electricity loss during transmission and distribution" means the normal loss occurring during the process of transmitting and distributing electricity after purchasing the same by a power grid enterprise from an electricity generation enterprise (including from power plants belonging to the power grid enterprise) or other grids.

The term "prices for the transmission and distribution of electricity" means the prices set for the transmission and distribution of electricity in accordance with the Administration of the Prices for the Transmission and Distribution of Electricity Tentative Procedures.

The term "governmental fund" means the fund and surcharge imposed in accordance with relevant state laws and administrative regulations or as approved by the State Council or department authorized by the State Council and based on the quantity of electricity sold.

Article 7: The objective of Sales Price classification reform is to divide prices into three categories, namely those for residential electricity, electricity used in agricultural production and electricity used in industry, commerce or elsewhere.

Article 8: The classification of Sales Prices shall be progressively adjusted in line with the bearing capacity of users. Initially, electricity for non-residential lighting, non-industrial and ordinary industrial electricity and electricity used in commerce will be combined into one category. After the combination, Sales Prices will be divided into five price categories, namely for residential electricity, electricity used by large industries, electricity used in agricultural production, electricity used for agricultural irrigation and drainage in disadvantaged counties and electricity used in general industry, commerce and elsewhere. Under the category comprising electricity used by large industries, only one subcategory will be retained, namely electricity used by small and medium producers of chemical fertilizer.

Article 9: The prices for each category of user shall be set according to voltage class. Within one voltage class, the authorities in qualified regions may set prices for different load rate brackets based on power load characteristics and users may choose themselves based on their particular electricity requirements.

PART THREE: METHOD OF CHARGING SALES PRICES FOR ELECTRICITY

Article 10: The prices for residential electricity and electricity used for agricultural production shall be subject to unitary kilowatt-hour pricing. The prices for industrial, commercial and other users whose receiving transformers have a capacity of 100kVA or higher or whose electrical equipment has an installed receiving capacity of 100kW or more shall be subject to two-component pricing. Prices for receiving transformers with a capacity of, and electrical equipment with an installed receiving capacity of, less than 100kVA shall be subject to unitary kilowatt-hour pricing. Those that satisfy the relevant conditions may also have prices subject to two-component pricing.

Article 11: Two-component electricity prices shall be composed of the kilowatt-hour price and the basic electricity price.

The term "kilowatt-hour price" is the electricity price calculated in accordance with the number of kilowatt-hours of electricity consumed by the user.

The term "basic electricity price" is the price calculated based on the user's consumption capacity.

Article 12: The basic electricity price shall be billed based on transformer capacity or maximum demand, at the option of the user. However, once chosen, such choice may not be changed for one year.

Article 13: Users whose basic electricity charge is billed in accordance with its maximum demand shall execute a contract with the power grid enterprise under which the basic electricity charge shall be billed at the value determined in the contract. If a user's actual maximum demand exceeds the determined value by 5%, the basic electricity charge for that portion above the 5% shall be charged at twice the specified rate. Based on its electricity demand, a user may apply half a month in advance to change its contracted maximum demand for the following month. The power grid enterprise may not refuse such change. However, the time interval for which the user applies for the change in its maximum demand may not be less than six months.

Article 14: Users subject to two-component electricity pricing shall, in accordance with relevant state provisions, also be subject to the method of adjusting electricity charges based on the power factor.

Article 15: Sales Prices shall be subject to peak and valley pricing or seasonal pricing. The specific division of periods and the price differential between them shall be determined by supply and demand in the grid's market and its load characteristics.

Article 16: In qualified regions, such pricing methods as high-reliability electricity pricing, interruptible load electricity pricing, holiday electricity pricing, step increase or decrease electricity pricing, etc. for Sales Prices may be implemented.

PART FOUR: SETTING AND REVISION OF SALES PRICES

Article 17: Average Sales Prices shall be determined based on the factors constituting the electricity price. The Sales Price for different types of users shall be rationally determined based on the average Sales Price.

Article 18: The average Sales Price shall be determined by adding the unit's average electricity purchase costs to its average electricity loss during transmission and distribution, average price for the transmission and distribution of electricity and the governmental fund during the calculation period.

Article 19: The average Sales Prices for each voltage class shall be determined by adding the unit's average electricity purchase costs to the average loss of electricity of the relevant voltage class during transmission and distribution, the average price for the transmission and distribution of electricity of the relevant voltage class and the governmental fund during the calculation period.

Article 20: Prices for residential electricity and electricity used for agricultural production shall be determined based on the average price of electricity of each voltage class and take into consideration the bearing capacity of the users. Relative stability shall be maintained in such prices. If the prices for residential electricity and/or electricity used in agricultural production are lower than the average electricity price, the price difference shall be apportioned among the industrial, commercial and other users.

Article 21: The average prices of electricity of each voltage class for industrial, commercial and other users shall be determined based on the average price of electricity for each voltage class plus the price differential that such users are required to share. Such average price shall move in lockstep with the price for electricity uploaded to the grid.

Article 22: The proportion of the shared capacity costs for unitary kilowatt-hour prices of electricity of each voltage class of industrial, commercial and other users shall be determined based on the proportion of the load of users subject to unitary kilowatt-hour electricity pricing and those subject to two-component electricity pricing.

Article 23: The basic electricity price and kilowatt-hour electricity price comprising the two-component price of electricity of each voltage class for industrial, commercial and other users shall be determined and apportioned based on the proportion of total costs accounted for by capacity costs.

Article 24: In qualified regions, prices for different numbers of hours of use of electricity or load factor brackets for industrial, commercial and other users with 10kV and higher voltage class access and whose installed receiving capacity is at a certain level or above shall be set based on their electricity load characteristics.

Article 25: The proportion of the capacity costs to be borne by users with different electricity requirements among industrial, commercial and other users of various voltage classes subject to two-component pricing shall be determined based on their share of the responsibility for the peak-load.

Article 26: When determining the proportion of the basic electricity price and kilowatt-hour electricity price charged to users with different electricity requirements, consideration shall be given to such factors as user load factor, rate of simultaneity of maximum user load and maximum grid load, etc.

Article 27: Sales Prices shall be revised using the following two methods, regular price adjustments and lockstep price adjustments.

The term "regular price adjustment" refers to the annual checks of Sales Prices conducted by the government pricing department. If changes in cost levels during a year have not been significant, Sales Prices shall be maintained at a steady level to the greatest extent possible.

The term "lockstep adjustment of price" means the adjustment of Sales Prices in lockstep with the price of electricity uploaded to a grid and shall apply only to industrial, commercial and other users. Once the government pricing department has determined the Sales Prices, the price difference resulting from the increase or decrease between the actual electricity purchase price and that included in the Sales Prices shall be handled by way of the electricity purchase price balancing account. Once an increase or decrease in electricity purchase prices exceeds a certain range, Sales Prices shall be increased or reduced accordingly. However, the time interval between adjustments shall be at least one month.

Article 28: Once rates for the prices for the transmission and distribution of electricity or the governmental fund are revised, Sales Prices shall be adjusted accordingly.

PART FIVE: ADMINISTRATION OF SALES PRICES

Article 29: Government pricing departments at each level shall be responsible for the administration and supervision of Sales Prices. Until transmission and distribution are separated, the State Council's pricing department shall be responsible for setting Sales Prices. Once transmission and distribution are separated, the pricing departments of the provincial-level people's governments shall be responsible for setting Sales Prices. Cross-provincial Sales Prices shall be submitted to the State Council's pricing department for examination and approval.

Article 30: Government pricing departments shall fully consider the opinions of the electric power regulatory departments, electric power industry associations and relevant market entities when setting and revising Sales Prices.

Article 31: When setting and revising Sales Prices for residential electricity, government pricing departments shall hold public hearings.

Article 32: Government pricing departments and electric power regulatory authorities at each level shall supervise and inspect Sales Prices within their respective purviews. The pricing authorities shall impose punishments in accordance with the law for violations of laws, administrative regulations and policies.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 33: The wholesale electricity prices charged by higher level power grid operators to lower level power grid operators that keep independent accounts shall be set based on the end-user Sales Prices while granting a reasonable discount. The price difference arising due to the discount shall be apportioned to the users to whom the grid supplies electricity directly.

Article 34: In circumstances where the same price is charged to urban and rural users who use electricity from the same grid, the Sales Price charged to users in agricultural villages shall be the grid's end user Sales Price. Where the system of charging urban and rural users the same price for electricity from the same grid has not yet been implemented, the Sales Price charged to users in agricultural villages shall be set based on the grid's end user Sales Price plus the rural low-voltage grid maintenance fee.

Article 35: Where an electricity generation enterprise directly supplies electricity to a user of a specific voltage class or of a specific consumption capacity, the Sales Price shall be determined by the electricity generation enterprise and the user through consultations while simultaneously implementing the specified rates for the prices for the transmission and distribution of electricity and the fund. The specific procedures therefor shall be formulated separately.

Article 36: The pricing departments of the people's governments of the provinces, autonomous regions and municipalities directly under the central government shall formulate implementing rules based on the requirements of these Procedures, which they shall submit to the National Development and Reform Commission and implement after its consent.

Article 37: The National Development and Reform Commission shall be in charge of interpreting these Procedures.

Article 38: These Procedures shall be effective as of May 1 2005.