China Energy News: Sichuan's "dedicated power supply" is in a predicament of illegality

"The two companies themselves did not obtain the 'power supply business license', so setting up transmission lines without authorization to supply power is a typical illegal power supply behavior."

The administrative penalty decision pointed out that Huadian Zagunao Hydropower illegally supplied electricity to Chengdu Jufeng Power Sales Co., Ltd. from February to October 2018, and Daofu Company illegally supplied electricity to Chengdu Jufeng Power Sales Co., Ltd. from September 2018 to August 2019, and illegally sold approximately 105.0991 million kWh and 42.2626 million kWh of electricity respectively.

Regarding the basis for determining illegal power supply and the ins and outs of the illegal power supply phenomenon, the reporter contacted the Sichuan Energy Supervision Office for an interview. The relevant person in charge of the agency said that as an agency dispatched by the National Energy Administration, the Sichuan Energy Supervision Office had no right to accept interviews and rejected the reporter's interview request.

However, according to people familiar with the case, the two hydropower stations involved had privately built transmission lines to supply electricity to specific users, which was the core fact that the regulatory authorities determined to be illegal.

According to reports, according to existing laws and regulations, power generation companies cannot "pull dedicated lines" to directly transmit electricity to power users, but must first sell electricity to power grid companies, which then sell it to power users, and pay network fees and government funds in accordance with laws and regulations. If power generation companies want to "pull dedicated lines" to sell electricity to users directly, they must obtain approval from the government power department in advance, and the dedicated line power supply technology plan must be recognized by the power grid company to ensure unit scheduling and power grid safety. At the same time, they must apply to the energy regulatory department to obtain a "power supply business license."

"The two companies themselves have not obtained the 'power supply business license', so setting up transmission lines to supply power without authorization is a typical illegal power supply behavior." The person said.

In fact, since September 2018, the "Leaders' Message Board" platform of People's Daily Online (21.010, 0.25, 1.20%) has had multiple reports pointing out that the two power generation companies had illegal power supply. One of the reports stated that the Gucheng Hydropower Plant under Huadian Zagunao Hydropower secretly supplied electricity to a "mining" factory that produced Bitcoin, and the factory had not gone through planning, construction, environmental assessment and other procedures at the time. This information was also confirmed by the relevant person in charge of the Wenchuan County People's Government, where the Gucheng Power Plant is located - the factory was indeed an illegal building that was built without approval; the Wenchuan County Economic and Information Bureau also stated that Chengdu Jufeng Power Sales Company was carrying out Bitcoin production business at the time and had signed a surplus power consumption agreement with Huadian Zagunao Hydropower.

Pursuant to the Electricity Regulatory Regulations and the Electricity Business License Management Regulations, anyone who violates the regulations and operates electricity business without obtaining an electricity business license, or anyone who illegally engages in electricity business without obtaining an electricity business license in accordance with the law, shall be ordered to correct the violation, have the illegal gains confiscated, and may be fined up to five times the illegal gains; if a crime is constituted, criminal liability shall be pursued in accordance with the law.

The above-mentioned person who has been in contact with the case stated that the Sichuan Energy Supervision Office made the corresponding penalty decision on illegal profits mainly based on the above facts.

"But when applying for a 'power supply business license', power generation companies will find that they simply cannot meet the relevant conditions and ultimately fail to get it."

However, according to the reporter's understanding, the power generation companies that were punished also have their own difficulties.

Sichuan, where the Wenchuan Gucheng Power Plant and Daofu Mengtuo Power Station are located, is a major hydropower province in my country, but also a major "wasted water" province. The amount of "wasted water" has exceeded 10 billion kilowatt-hours for many years in a row, causing huge waste of resources.

In order to promote the healthy development of the hydropower industry and promote the solution to the "abandoned water" problem, the National Development and Reform Commission and the National Energy Administration successively issued the "Notice on Promoting Hydropower Consumption in Southwest China" and the "Notice on Issuing an Implementation Plan to Solve the Problems of Abandoned Water, Wind and Solar Power" in October and November 2017, which clearly stated that "Sichuan, Yunnan and other provinces are encouraged to take advantage of the low marginal cost of surplus hydropower, actively carry out dedicated direct supply between hydropower and energy-carrying enterprises, and increase local consumption."

Against the backdrop of supporting policies issued at the national level, Sichuan Province also issued the "Implementation Opinions of the People's Government of Sichuan Province on Deepening the Reform of Sichuan's Electricity System" (hereinafter referred to as the "Implementation Opinions") in August 2018, which clearly proposed to "promote the pilot project of hydropower consumption industry demonstration zone" and actively and steadily explore and promote the "dedicated power supply" and "direct power supply" pilot projects to become an important "tool" for the "pilot project of hydropower consumption industry demonstration zone construction".

Since both the national and local governments clearly support and encourage "dedicated power supply", why is the "dedicated power supply" between the Wenchuan Gucheng Power Plant and the Daofu Mengtuo Power Station considered "illegal power supply"?

"We are also concerned about this case. To be honest, this phenomenon of 'dedicated line' is definitely not an isolated case in Sichuan hydropower stations. The core of the problem is that the power plant simply cannot obtain the relevant qualifications, namely the 'power supply business license'." A Sichuan hydropower industry insider told reporters, "Before, our plant also tried to handle the relevant procedures and licenses in order to carry out the 'dedicated line' power supply business. After all, the 'Implementation Opinions' issued by the Sichuan Provincial Government clearly support 'dedicated line'. But when applying for the 'power generation business license', power generation companies will find that they do not meet the corresponding conditions at all, and ultimately fail to get it."

The above-mentioned person said that according to the "Electricity Business License Management Regulations", to apply for a power supply business license, it is necessary to have a power supply business area approved by the relevant competent authorities, as well as a power supply network and business outlets that are suitable for the power supply business. "However, since general power generation companies do not have power supply business areas and are just pure power generation companies, they cannot apply for power supply business licenses at all."

This statement was also confirmed by the head of a thermal power company: "At present, there should not be any pure public power generation company that has a 'power supply business license'. Only those companies that operate and manage distribution networks are eligible to obtain a 'power supply business license', and other pure power generation companies are not eligible to obtain it."

"The basis for the punishment by the Sichuan Energy Supervision Office is the Regulations on the Administration of Electricity Business Licenses issued in 2005, but the new round of electricity reform started in 2015. It is a question whether the previous laws and regulations can meet the needs of the current reform."

The state and local governments have repeatedly introduced policies to encourage this, but power generation companies have difficulty obtaining the corresponding licenses. How can this problem be solved?

"In fact, it is most appropriate for Sichuan Province to implement dedicated power supply, because Sichuan has a large amount of hydropower and serious "water abandonment". "Pulling dedicated lines" is conducive to absorbing the "abandoned water" electricity nearby and realizing the effective use of resources. At the same time, the new round of power system reform launched in 2015 proposed the reform idea of ​​"controlling the middle and opening up the two ends". Among them, "opening up the two ends" means that power generation companies and power users will meet directly, and "pulling dedicated lines" can allow the two to meet directly, which is in line with the spirit of the reform documents. What's more, "opening up the two ends" does not require that power transactions must go through the power grid, nor does it require companies to obtain power supply licenses before they can supply power." Zhan Shuguang, partner of Beijing Xinnuo Law Firm, said bluntly, "The basis for the punishment of the Sichuan Energy Supervision Office is the "Electricity Business License Management Regulations" issued in 2005, but the new round of power reform started in 2015. Whether the previous laws and regulations can meet the needs of the existing reform is a question. This has brought confusion to the participating companies and regulators."

Another energy industry expert told reporters that, in fact, the phenomenon of hydropower companies illegally "drawing dedicated lines" for power supply had already appeared in 2015. Because the regulatory authorities did not strictly supervise the "drawing dedicated lines" and their attitude was not firm and clear, some power generation companies would take advantage of loopholes. For example, a large number of virtual currency "mining" electricity projects were settled near power generation companies, causing the "drawing dedicated lines" of power supply by power generation companies to rise sharply in the past two years. "According to estimates by relevant "mining" personnel, the annual power consumption of Sichuan's "mining" companies has reached about 20 billion kWh, accounting for about 10% of the annual power sales of the Sichuan power grid. In particular, the Sichuan Hydropower Consumption Demonstration Zone has set the price of "abandoned water" trading electricity very low, at 0.075-0.22 yuan/kWh, which is 0.1 yuan/kWh lower than the electricity price sold by "drawing dedicated lines" to Bitcoin "mining" companies on average. Therefore, the local government should first ban all "illegal power supply" and study whether the "abandoned water" electricity price is set too low, so as to ensure the power generation income of power generation companies."

The above-mentioned expert said that only by ensuring reasonable profits for power generation enterprises can the construction of demonstration areas be better promoted. Otherwise, after the "abandoned water" electricity is used for "mining", there will be no "abandoned water" electricity to build demonstration areas. "So from the perspective of promoting industrial development, since my country strictly prohibits virtual currency transactions, and although "mining" consumes a lot of electricity, it cannot extend the industrial chain and has little effect on driving economic development, the energy authorities should resolutely ban the behavior of "pulling dedicated lines" for "mining" enterprises. In addition, the electricity that accounts for about 10% of the total electricity sales of the Sichuan power grid is not included in the supervision and statistics, and hundreds of millions of yuan of transmission and distribution fees and government funds are also lost every year, which still brings serious problems. Once this illegal power supply causes a major power grid accident, who will be responsible?"

"But from the perspective of laws and regulations, the first thing we should pay attention to when the two hydropower stations were fined is whether 'dedicated lines' require 'power supply business licenses'," said Zhan Shuguang. "It is not appropriate to hastily say that power generation companies are 'illegally supplying electricity', and it is also not appropriate to hastily say that regulators should not punish such 'dedicated lines'. In fact, this is a dilemma in the reform process. Because reform is to break old things, so punishing according to the original rules and regulations, although it is 'acting in accordance with the rules', it does not conform to the general trend of reform. Generally speaking, this punishment is worth discussing. To put it nicely, it is 'acting in accordance with the rules', but in fact it is indeed a bit 'rigid'."