Speech by Wang Yeping, Vice Chairman of the State Electricity Regulatory Commission

April 5, 2007

Ladies and Gentlemen,

Good morning!

It gives me great pleasure to be here for today's news briefing by the State Council Information Office. I would like, on behalf of the State Electricity Regulatory Commission (SERC), to start by thanking the press circle for your interest in and support for the cause of power regulation. Now I am going to give a briefing regarding how SERC has been performing its functions since its inception.

In March 2003, the State Electricity Regulatory Commission was officially launched. Acting on the mandate of the State Council, SERC exercises administrative law-enforcement duties and performs the functions of electricity regulation nationwide in a uniform manner according to laws and regulations. Over the last four years, SERC has persisted in working towards its fundamental goals of spurring development and ensuring safety. SERC has been strongly committed to the underlying principle of acting in a law- and rule-based, fair and impartial, efficient and transparent manner. SERC has been trying to improve its performance and pursue its agenda primarily by deepening power sector restructuring. SERC has regarded improving and developing the regime as an important tool for exercising power regulation. SERC has put fostering and regulating the market top on its agenda of electricity regulation. SERC has consistently derived its theoretical basis from the combination of the prevailing conditions in the country with international best practices in the area of electricity regulation. With SERC's strong commitment to its regulatory duties, the cause of electricity regulation got off to a good start and has seen steady progress.

First, a regulatory organization structure has emerged. To date, six regional electricity regulatory bureaus and 11 municipal regulatory offices have been inaugurated. As a result, a regulatory contingent with considerable resources has come into being.

Secondly, significant progress has been made in developing the laws and regulations governing power regulation. We have put in place an electricity regulatory regime, in which the Regulations on Electricity Regulation plays the central role and 20-plus departmental regulations and rules assume supporting roles. We have achieved initial success in making sure there are laws and rules to go by in exercising power regulation.

Thirdly, we have continued to press ahead with efforts to foster a power market. The reform initiative of separating power plants from grids came to a successful conclusion, bringing about a competitive dynamic on the generation side. Efforts to establish region-wide power markets have begun in earnest. Regional markets in northeast China and east China have been running on a trial basis. The south China power market has been operating in a simulation mode. Pilot programs of direct power purchase by large consumers have progressed steadily as the test runs in Jilin and Guangdong Provinces have been proceeding smoothly. The separation of auxiliary utilities from main business in the power sector has seen continued progress. The task of liquidating generation assets of 9,200 megawatts has been completed successfully. Efforts to liquidate another 6,470 megawatts in generation assets will get under way shortly.

Fourthly, SERC has taken seriously various aspects of its regulatory role. Efforts to supervise electricity safety have been immensely fruitful with the creation of a regulatory body charged with power security. An emergency response mechanism for electricity safety has been instituted. Accountability for power security supervision has been improved. Checks on work safety and emergency response drills have been carried out. Efforts to improve regulation over the power market have gone into full swing. A licensing regime has been instituted for the power sector. A host of other rules governing the purchase and sale of electricity, power plants interconnected with grid and day-to-day operations have been introduced. We have worked to improve a reporting mechanism for power dispatching in an open, fair and impartial manner as well as the practice of bringing together power generators and grids at joint working meetings. A mechanism for mediating electricity disputes has emerged. We have offered a ?12398 Hotline? for handling electricity-related complaints. We have put in greater efforts to improve the demand-side management and regulation over cross-region electricity transactions. We launched a nation-wide initiative of inspecting power-supply services and electricity tariff. We have performed administrative law enforcement in an all-round manner. SERC has assisted other agencies concerned in a special crackdown aimed at ensuring compliance with environmental rules. Offenders of laws and regulations started to face the music. In the context of increasingly vigorous market-oriented power-sector reforms, all these efforts have played an important role in reconciling generator-grid relations, codifying the order in the electricity market, upholding the lawful rights of consumers, spurring prosperity in the sector and ensuring safety and stability in power operations as well as reliability in supply. What has taken place over the past few years has fully vindicated the decision by the State to set up a special regulatory institution alongside its mover to initiate market-oriented power-sector reforms. Putting in place a regulatory regime is consistent with the country's embrace of a socialist market economy. It complies with the overall orientation of the power-sector reforms as well as the inherent dynamics within the electricity industry.

Electricity regulation represents a new undertaking. One important item on SERC's future agenda will be to put in place a law- and rule-based regulatory regime that is consistent with the inherent dynamics of a socialist market economy, and accommodate the prevailing conditions in the power sector. To this end, we will perform the functions mandated by the Regulations on Electricity Regulation. While building on our experience of electricity regulation over the last few years, we will earnestly embrace pace-setting philosophies on regulation by drawing on best practices of market regulation in developed market economies as well as those in other domestic sectors. We will go about our work by employing more market-based tools and modern management techniques. We will work harder to explore how best to exercise electricity regulation in the context of a socialist market economy. As part of the emerging regulatory reporting system, one important initiative has been the release of regulatory reports regarding the compliance of electric power enterprises and electric power dispatching and trading bodies with policies, laws and rules governing power regulation as well as how their cases were handled by the electricity regulatory institutions. Last year, we introduced the regulation reporting system for the first time in exercising regulation. Six regulatory reports addressing different subjects were published for the whole year. They were well received. This year, we will be more proactive in disclosing regulatory information as part of our efforts to perform regulation. In response to issues surrounding electric power enterprises and other subjects of intensive public interest, relevant information will be made public in a timely fashion in the form of regulatory reports. Currently, SERC has enacted rules and regulations governing the preparation and release of regulatory reports. SERC has developed a plan for the publication of this year's electricity regulatory reports that will address issues of work safety in power sector, power market order, the implementation of national policies as well as topics of immense interest to the government and the general public. From now onwards, the release of regulatory reports will be incorporated as a routine item on SERC's agenda. We hope to make our regulatory efforts more transparent and effective by means of the issuance of regulatory reports and disclosure of regulatory information. We also hope to subject electricity regulation to greater exposure to and oversight by the media and the general public so that we will be able to go about our regulatory duties in a more well-defined, institutionalized and open manner. We will continue to strive to communicate more effectively with the media and stress the need for greater media oversight so that our regulation will be taken more seriously and become more effective. We hope to enjoy much continued support from you in performing our job.

The Annual Report on Electricity Regulation (2006), which is available to you at the current briefing, represents the very first annual work report SERC has prepared and published since its inception. The Report paints a detailed picture on how SERC fulfilled its role as electricity regulator in 2006 from four aspects of its duties: ensuring electricity security, spurring market competition, upholding the market order and executing guidelines and policies. It is our hope that the document will be helpful in terms of giving you a better understanding of the electricity industry in general and power regulation in particular.

With that, I have come to the end of my presentation. We are now ready to take your questions.