National Development and Reform Commission: Stepwise Power Tariff Model to Ensure Power Tariff Stability for 80% of Families

Author:  Source: The Beijing News  Published time: March 29, 2012

National Development and Reform Commission: Stepwise Power Tariff Model

Note: The power consumption levels at various steps in various areas will be determined on the basis of the stepwise power tariff models designed last year.

As disclosed yesterday by Peng Sen, vice chairman of the National Development and Reform Commission, reform in resource product prices will be further deepened this year, including the stepwise residential power tariff model launched in the first half of this year. According to our source, the power consumption levels at various steps in various areas will be determined on the basis of the stepwise power tariff models designed by government last year. Peng said that the model ensures that the price of 80% of residential power consumption will remain unchanged.

According to our source, the stepwise power tariff model has been on the agenda of the governments of Hebei, Shandong, and other provinces. As early as 2010, the National Development and Reform Commission released a draft of the stepwise power tariff model for consultation, which was finalized at the end of last year.

As Peng said yesterday, the specific rationale for implementing the model is: the price at Step 1 will not be hiked, with the percentage of it in total residential power consumption fixed by the central government; due to the differences in the levels of domestic power consumption, a local government can, according to the general principle, determine the power consumption standards for various steps and, after a public hearing, the actual model can be implemented.

As reemphasized yesterday by the National Development and Reform Commission, the residential power consumption in China accounts for 12% of the aggregate national power consumption; 5% high-income families are responsible for 24% of the total residential power consumption while 10% high-income families take up 33% of the total residential power consumption. Therefore, the model guarantees that the price will remain stable for 80% families while financially underprivileged families can access certain amounts of electric power free of charge.

Challenge: Being Fair and Just

Li Boqiang, director of Xiamen University Energy Economics Research Center, said that 80% of the population is covered at Step 1, meaning that the lives of 80% of the residents will not be affected by this adjustment. “The stepwise power tariff model is correct in general. The rich have to pay more, which can be subsidies for some public causes or for poor folks.” However, he thought that the key to implementing this model is how to be truly fair and just.

Some people had previously thought that differences between regions and between urban and rural areas as well as seasonal factors. “Determining the power consumption level at Step 1 is the most important, because it is directly related with the levels of the other steps,” said Li.

As to whether the power of refined oil product pricing will be delegated, Peng, vice chairman of the National Development and Reform Commission said emphatically, “This is not accurate. Even with the new mechanism, refined oil products will still be subject to the government guidance pricing.”

Relevant

Reform in Natural Gas Pricing Will Be Promoted Nationwide in Two to Three Years Yesterday, Peng Sen stated that a breakthrough will be made in two to three years in basing the nationwide natural gas pricing on the new pricing mechanism.

At the end of last year, the National Development and Commission has launched a reform in the natural gas pricing mechanism, whose rationale was that the pricing mechanism should shift from “cost plus profit” to “market value”, that is, prices should be decided by the market; it established some pilots for this natural gas pricing mechanism in Guangdong and Guangxi. The two provinces were selected because the natural gas there was all sourced from overseas. The reform will not much affect the natural gas prices. As stated by the National Development and Reform Commission earlier, the experience of the pilots will be summarized and promoted nationwide.

Government Will Still Be in Control over Refined Oil Prices

Yesterday at the same meeting, Peng Sen also answered the question about the reform of the refined oil pricing mechanism, saying that the power of refined oil pricing would not be delegated to enterprises and would remain with government. About power delegation, he said “This is not accurate.” He emphasized that, even with a pricing mechanism, refined oil prices are still subject to government guidance pricing and that enterprises can, depending on the market situation, adjust oil prices in a timely manner according to relevant rules within the framework of government guidance pricing. He reiterated that the focus of adjustment is shortening the cycle of price adjustment to flexibly reflect price changes in international markets and improve transparency in pricing. As for the right time to start the reform as emphasized by the Commission, Peng said that it would be “when international oil prices stabilize or adjust downward.”