Establishment of a state electricity regulatory commission in China: a suggested road map

33209 Establishment of a State Electricity Regulatory Commission in China A Suggested `Roadmap' Working Paper October 2002 The World Bank This working paper was prepared by Noureddine Berrah (Lead Energy Specialist, EASEG) and Joseph Wright (Young Professional, EWDEN). It is based on position papers prepared Jon Stern (Regulation Specialist, NERA, UK) and Roberto D'Addario (Regulation Specialist, Mercados Energeticos, Argentina) following discussions held during two missions to China: the first being in April, 2002 including N. Berrah, J. Zhao (EASEG) and J. Stern, and the second in June, 2002 including N. Berrah, J. Zhao and R. D'Addario. The paper has also benefitted from review by Philip Gray (Senior Private Sector Development Specialist, PSAPP), Jianping Zhao (Senior Energy Specialist, EASEG) and Ranjit Lamech (Senior Energy Specialist, ECSIE).  Table of Contents EXECUTIVE SUMMARY..................................................................................................... 1 A. INTRODUCTION............................................................................................................. 3 B. PRIORITIES AND TASKS OF STAGE 1...................................................................... 3 WORKING METHODS.............................................................................................................. 4 INSTITUTION BUILDING ACTIVITIES. ...................................................................................... 5 HIGH PRIORITY REGULATORY ACTIVITIES ............................................................................. 7 TABLE 1. PROPOSED STAGE I ACTIVITIES .............................................................................. 8 C. PRIORITIES AND TASKS OF STAGE 2 ...................................................................... 9 INSTITUTION BUILDING ACTIVITIES ....................................................................................... 9 HIGH PRIORITY REGULATORY ACTIVITIES ........................................................................... 12 TABLE 2: STAGE 2 ACTIVITIES............................................................................................ 14 D. INDICATIVE STAGE 3 TASKS.................................................................................... 17 INSTITUTION BUILDING ACTIVITIES ..................................................................................... 17 REGULATORY ACTIVITIES.................................................................................................... 17 APPENDIX 1: STUDY VISITS, TWINNING AND TRAINING ................................... 20 APPENDIX 2: WHAT NEEDS TO BE REGULATED? ................................................. 23 APPENDIX 3: SERC INSTITUTIONAL DESIGN CONCEPTUAL ISSUES.............. 25 TARIFF SETTING................................................................................................................... 25 RULES BASED REGULATORY METHODOLOGY........................................................................ 26 BENCHMARKING .................................................................................................................. 26 LICENSES ............................................................................................................................. 27 STRUCTURE: LEVELS............................................................................................................ 27 BUDGETING FOR THE SERC ................................................................................................. 28 BEST PRACTICE FOR EXPANSION PLANNING AND INVESTMENT APPROVAL .......................... 28 APPENDIX 4: ORGANIZATIONAL STRUCTURES OF REGULATORY AGENCIES............................................................................................................................ 30 List of Charts: Chart 1. Organization Chart for Ofgem, United Kingdom Chart 2. Organization Chart for ENRE, Energy Regulator in Argentina Chart 3. Organization Chart for EMA, The Singapore Energy Regulatory Agency  Establishment of a State Electricity Regulatory Commission in China A Suggested `Roadmap' EXECUTIVE SUMMARY This paper presents an indicative `roadmap' for establishment of an effective and functioning State Electricity Regulatory Commission (SERC) for China by the end of 2003. The roadmap has been prepared based on preliminary discussions with the concerned Government agencies in China. During these discussions two scenarios were considered: the first would aim for the establishment of an `achievable' regulatory agency (limiting the functions of the SERC to those currently assigned to the State Economic and Trade Commission) and the second would aim to establish of an agency based on the needs of the industry and international `best practice'. This Paper argues that: (a) the goal of the project should be to establish a `best practice' regulator; this is a major opportunity to establish an effective Regulator in China and a mere codification and transfer of the functions currently performed by the SETC into a new agency would be a seriously wasted opportunity; and (b) the prioritization of tasks to this end should be based on, and synchronized with, the restructuring of the power sector. Based on international experience, the paper stresses that the detailed specification of SERC's functions and authority, and the development of power sector regulations will be an iterative process that will require: (a) full access of the Chief Regulator to decision makers to ensure timely decisions on important matters and avoid regulatory gaps as the sector reform proceed; and (b) continued consultation with a broad range of stakeholders to ensure clear delineation of SERC's activities, and their coordination with activities of other agencies that have authority over to the sector. The recommended sequence (roadmap) of institution building actions is to (a) establish an SERC Core Team with the capability and necessary funds to perform the planned activities; (b) determine the functions and authority of the SERC in detail; and (c) prepare an SERC organizational structure and implementation plan. The roadmap also presents for consideration several regulatory tasks that are deemed a high priority given the reform plan detailed in State Council Document No. 5. First amongst these is preparation of transitional generation and transmission tariffs. Thereafter the recommended priorities are (a) the design of decentralized regulatory arrangements (b) licensing of new generation entrants (c) preparation of power market rules (d) design of a regulatory reporting system. However, it should be noted that the 1  proposed actions, especially for the later stages of the project will, inevitably, need to be reviewed and revised as the project progresses. With regard to working methods, the project should be lead by a team of Chinese experts (an inter agency working group and an SERC Core Team) with input from international experts as appropriate. For most regulatory matters discussion papers will be required as a basis for wide-ranging stakeholder consultation. Training, study tours and twinning arrangements will be required to build and enhance the capability and experience of the SERC Core Team. However, these must be carefully focused on specific regulatory tasks if they are to make their fullest contribution to the project objective. _______________________ Establishment of a State Power Regulatory Commission in China