Two hydropower stations in Sichuan were fined 1.01 million yuan for using dedicated power lines to mine Bitcoin

On November 11, the Sichuan Supervision Office of the National Energy Administration ("Sichuan Energy Supervision Office") issued two administrative penalty decisions (Sichuan Supervision Energy Penalty [2019] No. 2 and No. 3): Sichuan Huadian Zagunao Hydropower Development Co., Ltd. (hereinafter referred to as "Huadian Zagunao Hydropower") and Sichuan Hydropower Investment and Operation Group Daofu Co., Ltd. (hereinafter referred to as "Daofu Hydropower") illegally supplied electricity without obtaining an electricity business license (power supply type). In accordance with the relevant provisions of the "Electricity Supervision Regulations" and the "Electricity Business License Management Regulations", the Sichuan Energy Supervision Office ordered the two companies to make immediate corrections, confiscate illegal gains and impose fines, with a total fine of RMB 1.014572 million.

The hydropower stations involved in the illegal power supply are the Wenchuan Gucheng Power Plant and Daofu Mengtuo Power Plant under the aforementioned two companies.

The administrative penalty decision of Sichuan Energy Supervision Office shows that Huadian Zagunao Hydropower illegally supplied electricity to Chengdu Jufeng Power Sales Co., Ltd. from February to October 2018, illegally sold 105.0991 million kWh of electricity (the unit price of electricity was 0.2197 yuan/kWh), and earned about 23.0938 million yuan, including 22.7904 million yuan in costs and about 303,400 yuan in illegal income. Daofu Hydropower illegally supplied electricity to Sichuan Tengkai Electric Power Engineering Co., Ltd. from September 2018 to August 2019, illegally sold 42.2626 million kWh of electricity (the unit price of flashlights was 0.26 yuan/10 million hours), and earned about 10.9883 million yuan, including 10.7844 million yuan in costs and 203,900 yuan in illegal income.

In accordance with Article 30 of the Electricity Supervision Regulations and Article 40 of the Electricity Business License Management Regulations, the Sichuan Energy Supervision Office confiscated the illegal gains of Huadian Zagunao Hydropower and Daofu Hydropower, and imposed fines equal to the illegal gains. Huadian Zagunao Hydropower was fined 606,800 yuan, and Daofu Hydropower was fined 407,800 yuan.

According to an interview with a reporter from China Energy News, people familiar with the case revealed that the two hydropower stations involved had privately built transmission lines to supply electricity to specific users. This was the core fact that the regulatory authorities determined to be illegal.

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.

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

Power supply business license is an unattainable "dream" for pure power generation companies

"Putting dedicated lines" is conducive to the local consumption of "abandoned water" electricity and the effective use of resources. Therefore, it is most appropriate for Sichuan Province to implement dedicated power supply lines.

Sichuan 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 solve the problem of "abandoned water", 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 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".

Both the national and local governments have explicitly supported and encouraged "dedicated power supply", but 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 applying to engage in power supply business. General power generation companies do not have power supply business areas, they are just pure power generation companies, so they cannot apply for a power supply business license at all.

Is the price of “abandoned water” electricity set too low? How to ensure the benefits of power generation companies?

An energy industry expert told the Energy News reporter that in fact, the phenomenon of hydropower companies illegally "pulling dedicated lines" to supply electricity had already appeared in 2015. Because the regulatory authorities did not strictly supervise this and their attitude was not clear, some power generation companies took advantage of loopholes.

According to estimates by "miners", Sichuan uses about 20 billion kWh of electricity for "mining" every year, accounting for about 10% of the annual electricity sales of the Sichuan power grid. At the same time, the Sichuan Hydropower Consumption Demonstration Zone has set the price of "abandoned water" trading electricity very low, with the lowest price being only 7 cents per kWh, which is lower than the average price of 0.1 yuan per kWh sold to Bitcoin "miners" by "pulling dedicated lines". Only by ensuring the reasonable profits of power generation companies can the construction of the demonstration zone be better promoted. Otherwise, after all the "abandoned water" electricity is used for "mining", there will be no "abandoned water" electricity to build the demonstration zone. 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 benefits of power generation companies.

Can previous laws and regulations meet the needs of the new round of electricity reform?

The basis for the Sichuan Energy Supervision Office's punishment is the "Electricity Business License Management Regulations" issued in 2005, but a new round of electricity reform began in 2015. It is a question whether the previous laws and regulations can meet the needs of the existing reform.

Reform is to break the old things. Punishment according to the original rules and regulations, although it has achieved "following the rules", it is not in line with the general trend of reform. Overall, this punishment is worth discussing. It sounds good to say that it is "following the rules", but in fact it is indeed a bit "rigid".