Research Program with the SERC and the World Bank
                                                               68968




                           Policy Study on
           Electricity Universal Service in China




    Research Team of Policy Study on Electricity Universal Service in China

                               December, 2006
                                                             Contents

Preface.......................................................................................................................................... 1
1. Policy Basis for Universal service in electricity ............................................... 2
        1.1 Major Conclusions of the Investigation and Study of Universal service in electricity2
        1.1.1 A Brief Introduction to Universal Service ................................................................ 2
        1.1.2 Main Conclusions of Investigation .......................................................................... 3
        1.1.2.1 Research Methods, Sample and Contents of Investigation ................................... 3
        1.1.2.2 Number and Situation of Villages, Households and Population with No Access to
        Electricity and the Solutions ............................................................................................. 4
        1.1.2.3 Situations of Low-income Population and Electricity Consumption Per Capita .. 4
        1.1.2.4 Actual Operation Cost and Rational Operation Cost Analysis of the Rural Power
        Grid ................................................................................................................................... 5
        1.1.2.5 Rural Power Grid Transformation and Investment in Villages and Rural
        Households with No Access to electricity in the recent five years .................................... 6
        1.1.2.6 Survey of Rural Households and their Demands on Universal Service in
        Electricity .......................................................................................................................... 6
        1.1.2.7 Research into Urban Low-income Groups and Demand on Universal service in
        electricity........................................................................................................................... 7
        1.1.2.8 Universal Service Projects in Electricity under Construction and the Problems... 8
        1.2 Lessons of Universal Social Service Drawn from Domestic Relevant Industries..... 10
        1.2.1 Postal Service ......................................................................................................... 10
        1.2.1.1 Making Law and Determining Monopoly Right Are The Top Priority in Ensuring
        Universal Service. ........................................................................................................... 11
        1.2.1.2 Setting an Overall Goal and Guaranteeing the Realization of Social Universal
        Service in a Phase-by-phase and Step-by-step Manner................................................... 11
        1.2.1.3 All objects Are Charged Uniform and Low Service Postage .............................. 11
        1.2.1.4 Supporting Social Universal Service with the Financial Subsidy of the
        Government ..................................................................................................................... 11
        1.2.2 Telecommunications............................................................................................... 12
        1.2.2.1 Providing Legislative and Legal Guarantee ........................................................ 12
        1.2.2.2 Setting an Overall Goal and Guaranteeing the Realization of Social Universal
        Service in a Phase-by-phase and Step-by-step Manner................................................... 13
        1.2.2.3 Making Clear the Management Principles and Purpose of Universal Telecom
        Service............................................................................................................................. 14
        1.2.2.4 Establishing and Standardizing Compensation Mechanism of Universal Service
        ......................................................................................................................................... 14
        1.2.2.5 Improving and Strengthening Supervision .......................................................... 15
        1.3 Lessons of Universal Social Service Drawn from Foreign Relevant Industries ....... 16
        1.3.1 Postal Service ......................................................................................................... 16
        1.3.1.1 Strengthening the Building and Perfecting of Legal System of Postal Service .. 16
        1.3.1.2 Defining the Scope of Postal Monopoly Right and Giving Corresponding


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              Protection ........................................................................................................................ 16
              1.3.1.3 Establishing and Improving Compensation Mechanism of Universal Postal
              Service............................................................................................................................. 17
              1.3.2 Telecommunications............................................................................................... 17
              1.3.2.1 Ensuring the Establishment of Universal Postal Service System through
              Legislation ....................................................................................................................... 18
              1.3.2.2 Using Fund for Universal Telecom Service as Value Compensation Mechanism
              ......................................................................................................................................... 18
              1.3.2.3 Setting up Special Managerial Authority for Universal Service Fund ................ 19
              1.3.2.4 Implementing Universal Service Projects through Bidding ................................ 19
              1.4 Lessons of Universal Service in Electricity Drawn from Abroad ............................. 20
2. The Fund Raising Mode and the Compensation Mechanism of the
Universal Service in Electricity in China .................................................................. 21
       2.1 Standard of the Universal Service in Electricity ....................................................... 21
       2.1.1 Target Groups of the Universal Service in Electricity ............................................ 21
       2.1.1.1 Urban Low-income Groups................................................................................. 21
       2.1.1.2 Rural Areas .......................................................................................................... 22
       2.1.1.3 Outlying Areas .................................................................................................... 23
       2.1.2 The Current Situation of the Universal Service in Electricity in China ................. 23
       2.1.2.1 The Urban Low-income Groups.......................................................................... 23
       2.1.2.2 Rural Areas .......................................................................................................... 25
       2.1.2.3 Outlying Areas .................................................................................................... 27
       2.1.3 Standards of Universal Service in Electricity in Different Regions ....................... 28
       2.1.3.1 Urban Low-income Groups................................................................................. 29
       2.1.3.2 Rural Areas .......................................................................................................... 30
       2.1.3.3 Outlying Areas .................................................................................................... 31
       2.2 Estimated Funds in Need .......................................................................................... 33
       2.2.1 Solving the Problem of Electrification Cost for Households without Access to
       Electricity ........................................................................................................................ 33
       2.2.2 Users’ Power Rates and Power-supply Enterprises’ Operation and Maintenance
       Cost ................................................................................................................................. 34
       2.3 The Capital Sources, Fund Raising Methods and Principle of Input ........................ 35
       2.3.1 The Capital Sources ............................................................................................... 35
       2.3.2 Fund Raising Methods and Principle of Input........................................................ 36
       2.4 Electricity Universal Service Mode .......................................................................... 37
       2.4.1 Universal Service Subjects ..................................................................................... 37
       2.4.2 Operation Mode Analysis ....................................................................................... 38
       2.4.2.1 Appointment Mode.............................................................................................. 39
       2.4.2.2 Fund Mode .......................................................................................................... 41
       2.4.2.3 Operation Mode Suitable to China ...................................................................... 44
       2.5 Compensation Mechanism of Universal service in electricity .................................. 44
       2.5.1 Using Monopoly Right to Guarantee Universal Service Provided by Power-Supply
       Enterprises....................................................................................................................... 44
       2.5.2 Providing Tax Preference ....................................................................................... 45


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              2.5.3 Government Establishing Universal Service Fund ................................................ 45
              2.5.4 Government Compensating Universal Service By Means of Transferring Business
              Revenue........................................................................................................................... 45
              2.5.5 Direction Financial Allocation by the State to Compensate the Deficit of Universal
              Service............................................................................................................................. 45
              2.5.6 Business Compensation ......................................................................................... 45
              2.5.7 Establishing Power Rate Regulatory Mechanism .................................................. 46
              2.5.8 Policy Preference ................................................................................................... 46
3. Supervision Framework of Universal Service in Electricity ..................... 46
    3.1 Supervision Target............................................................................................................. 46
         3.1.1 Quantity.................................................................................................................. 46
         3.1.2 Quality.................................................................................................................... 47
         3.1.3 Fund raising and using. .......................................................................................... 48
         3.2 Supervision and Control Principle ............................................................................ 48
         3.2.1 Supervising and Controlling According to Law ..................................................... 48
         3.2.2 Consistent Rights and Duties between Subjects and Objects................................. 48
         3.2.2.1 Deciding Projects and Project Legal Persons through Bidding and Changing
         Disorderly Competition ................................................................................................... 49
         3.2.2.2 The Power Network Transmitting and Distributing Electricity without
         Interruption...................................................................................................................... 50
         3.2.2.3 Ensuring Supporting Services So that Power Networks Can Function Safely and
         Transactions Go Successfully ......................................................................................... 50
         3.2.2.4 Obligatory Acquisition ........................................................................................ 51
         3.2.3 Separating the Functions of the Government from Those of the Supervisory and
         Controlling Institution ..................................................................................................... 52
         3.3 Task and Substance of Supervision and Control ....................................................... 52
         3.3.1 Universal Service Open to the Entire Society ........................................................ 52
         3.3.1.1 Providing Various Sorts of Information Service ................................................. 52
         3.3.1.2 Formulating Industry Stipulations and Rules and Enhancing the Social
         Responsibility of Power Enterprises ............................................................................... 53
         3.3.1.3 Ensuring Users’ Equal Right of Enjoying Service of Electricity ........................ 55
         3.3.1.4 Deepening Traditional Electric Service and Including It into Universal service in
         electricity......................................................................................................................... 57
         3.3.1.5 Power Enterprises Should Continue to Expand the Content of Service and
         Improve Its Quality ......................................................................................................... 58
         3.3.1.6 Guaranteeing the Safety of Power Networks ...................................................... 59
         3.3.2 Construction of an interactive system in universal service in electricity ............... 60
         3.3.2.1 The construction of customer assessment system and the increasing of the
         public’s participation ....................................................................................................... 60
         3.3.2.2 Effective Complaint Management....................................................................... 60
         3.3.2.3 The establishment of risk management for an enterprise .................................... 61
         3.4 Supervision Institutes and Their Responsibilities. .................................................... 61
4. Policies and Suggestions on Universal service in electricity .................. 62
        4.1 Setting a Multilevel Goal of Universal Service That Corresponds with Economic and


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Social Development ........................................................................................................ 62
4.2 Establishing and Improving the Relevant Legal Guarantee System ......................... 62
4.3 Formulating a Special Plan for Universal Service in Electricity and Forming a
Corresponding Target System ......................................................................................... 63
4.4 Improving the Regulatory Mechanism of Universal Service .................................... 64
4.4.1 Regulatory Institution............................................................................................. 64
4.4.2 Regulatory Measure ............................................................................................... 64
4.4.3 Principles and Objectives of Regulation ................................................................ 65
4.4.4 Regulatory Means .................................................................................................. 65
4.5 Formulating Relevant Supporting Policies................................................................ 66
4.5.1 Loan Policy ............................................................................................................ 66
4.5.2 Tax Policy............................................................................................................... 67
4.5.3 Financial Policy...................................................................................................... 67
4.6 Pushing Universal Service in Electricity Forward with State Energy Policy
Combined ........................................................................................................................ 68




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                             Team Mmbers

TEAM LEADERS:
Li Junfeng        Deputy Head and Senior Researcher of the Energy Research
                  Institute, the National Development and Reform Commission
Gao Shixian       Head and Senior Researcher of the Research Centre for Energy
                  Economics and Development Strategies, ERI, NDRC

TEAM MEMBERS:
Shi Jingli    Deputy Research Fellow of the Energy Research Institute, NDRC
Niu Chen      Intern Researcher of the Energy Research Institute, NDRC
Zhao Dongxu   Ph.D. Candidate of the Institute of Quantitative and Technical
              Economics, Chinese Academy of Social Sciences

CONTRIBUTING TO THE PROGRAM:
Bai Yan         Associate Professor and Ph. D. of the Department of Political
                 Science and Public Administration, Peking University
Huang Hengxue      Professor and Adviser to Ph.D. Candidates of the Department
                  of Political Science and Public Administration, Peking
                  University
Li Lingling     Lecturer and Ph. D. of the North China Electric Power University
Yang Zhigang      Associate translation Reviser and Ph. D. candidate of the
                  Department of Political Science and Public Administration,
                  Peking University
Lei Yuqiong       Lecturer and Ph. D. of the BeiHang University
Cui Jia           Ph. D. candidate of the Department of Political Science and
                  Public Administration, Peking University
Preface
     Since the 16th Congress of the Chinese Communist Party, China’s central government and
the State Council have worked out strategic objectives to comprehensively build a well-off society,
put forward strategic tasks to build the New Socialist Countryside as well as taken measures to
build a socialist harmonious society in accordance with the scientific development concept. Under
new situations, the central government has presented all industries and departments with new
demands in order to guarantee basic subsistence of people in urban cities and rural areas. As far as
the electricity industry is concerned, all-out efforts should be made to provide electric services
with rational price and high quality and to press forward the works in terms of universal service in
electricity with a view to carry out the social and economic development strategies. The program
made an analysis and conducted in-depth research on China’s universal service policy in
electricity with advanced international practices and local conditions taken into consideration.
     Including a multiple-layer of meanings such as availability, non-discrimination and
affordability, universal service in electricity has gained general acceptance of the international
community and has been successfully implemented in some developed countries. China is a vast
and populous country, with most of its population living in rather concentrated areas. However,
there are still some residents living in remote or deep mountainous areas or on islands, with no
access to electricity for basic subsistence. At the end of 2005, there were about 2.5 million
households living in areas uncovered by electric networks. 70 percent of China’s population is
living in rural areas, some of which still suffer from inadequate supply of electricity and that the
quality of power supply cannot be guaranteed. As the reform of China’s power system gradually
deepens, the power enterprises have maintained rapid development, with the current installed
capacity exceeding 500 million kilowatts. However, given the speed of our economic development,
supply-and-demand tension of electricity continues to exist in certain regions and in a certain
period of time, thus power switch-off has occurred from time to time. Promoting universal service
in electricity is one of the major tasks facing China’s power development. This topic makes
objects of universal service in electricity in the narrow sense as the major subject of study.
     With the financial aid of the World Bank, the China Electricity Regulatory Commission has
coordinated efforts to conduct research into the universal service in electricity since 2006. The
program is composed of two parts: the first part is the research and investigation into the universal
service in electricity, which is led by the North China Electric Power University; the second part is
the study of the strategic workout scheme of the universal service in electricity, which is led by the
Energy Research Institute, NDRC and coordinated by the Department of Political Science and
Public Administration, Peking University.
     On the basis of comprehensive research and study, the report proposed advice on the standard
system, fund-raising and compensation mechanism, regulatory framework and related support
policy of the country’s universal service in electricity by giving reference to the domestic and
international experiences of the electricity, telecommunications and postal industries and taking
consideration into local conditions.




                                                  1
1. Policy Basis for Universal service in electricity

1.1 Major Conclusions of the Investigation and Study of Universal service in electricity

    1.1.1 A Brief Introduction to Universal Service

      As an internationally recognized concept, universal service falls into the category of public
policy. It means that the state, in order to safeguard the basic rights and interests of all its citizens
and to narrow the wealth gap, formulates laws and policies so that all its citizens, no matter where
they live within the territory of the country, can obtain kind of service that can meet the demand of
basic living requirements and development at a universal and affordable price.
      At present, most countries around the world define the overall goal of universal service in
electricity as providing reliable power at a reasonable price so as to meet the demand of those
citizens who lack or cannot afford electricity. China’s State Electricity Regulatory Commission
has defined its universal service in electricity like this: “The state formulates policies and takes
measures to ensure that all users have the access to reliable and consistent basic power service at a
fairly reasonable price.�
      China’s universal service in electricity has three layers of meanings. First, availability, that is,
power service shall be available to all users. Second, non-discrimination, that is, equal treatment
shall be granted to all users. Third, affordability, that is, a majority of the users can afford the
service.
      Obviously, universal service has some characteristics of public goods and market mechanism
may not work when resolving issues related to it. Just like alleviating poverty, universal service is
also an important function of the government. Therefore, issues like poverty and universal service
can not be resolved merely by relying on universal economic growth and economic development;
and thus the government needs to, through making laws and special policies, impose the
obligation of universal service upon particular enterprises (generally referring to monopolized
enterprises such as power network companies and telecommunications companies) and depend on
such enterprises to carry out universal service so as to the policy goal of the government.
Generally speaking, the variety and content of universal service has a direct and close relationship
to public life. As society and economy develops, science and technology advances and people’s
living standard improves, the variety and content of universal service are also changing
accordingly, with the state deciding or adjusting them by formulating laws and policies in different
periods of time.
      China is a vast and populous country. Although most of its population lives in concentrated
areas, there are still some residents living in remote or deep mountainous areas or on islands,
where there is an inadequate supply of electricity or simply no access to electricity. Therefore, it is
necessary to further consider the issue of supplying electricity to their areas and solve the problem
of lacking electricity. Due to the fact that 70 percent of China’s population lives in rural areas,
providing electricity to rural residents is the core issue of universal service. As the reform of
China’s electric-system gradually deepens, the power industry has maintained rapid development,
with the current installed capacity exceeding 500 million kilowatts. However, given the speed of
our economic development, supply-and-demand tension of electricity continues to exist in certain


                                                    2
regions or periods of time, thus switching off power has occurred from time to time. Despite a
year-on-year increase of electrification rate in counties, villages and households, there were still
about 2.5 million households with no access to electricity at the end of 2005. Thus, it is one of the
urgent issues of China’s power development to promote universal service in electricity.

1.1.2 Main Conclusions of Investigation

1.1.2.1 Research Methods, Sample and Contents of Investigation

     The research was conducted nationwide in the country’s 31 provinces, municipalities and
autonomous regions with emphasis placed in six major regions including Tibet, Shaanxi,
Shandong, Shanxi, Guizhou, Heilongjiang, Anhui, Jiangxi, Yunnan, Qinghai, Gansu and Jilin
provinces.
     For interview purposes, the research team randomly took three typical counties (one of them
is powered by small hydropower station,) in every typical province as samples, 20 households in
every county and no less than 60 households in every province. 1261 effective questionnaires
were submitted with 814 in rural areas and 447 in urban cities, or 527 government-designated poor
families and 734 non government-designated poor families.
     In terms of research into related policies of local governments and grid companies, site
inspections in the typical counties were carried out in the form of informal discussion. The main
research contents include:
      1) Research on basic situations to generally understand the current situations and problems
           of universal service, the scale of universal service that needs to provide nationwide, and
           the cost to provide such service. In detail, they are the number of villages, households,
           population and low-income population with no access to electricity; situations of power
           grid restructuring in rural areas and investment into villages with no access to
           electricity; operation and maintenance cost of power grid in rural areas in the recent
           years; electricity supply by small hydropower stations; electricity price movement after
           rural power reform, restructure and price unification; planning of the universal service
           in electricity during the Eleventh Five-Year Planning Period(2006-2010); governmental
           compensation mechanism or preferential policy given to those provide universal service;
           and basic problems.
      2) Visit to residents, including low-income urban dwellers and poor rural people. Spot
           inspections were conducted to know backgrounds of users, to understand the current
           situations of the universal service in electricity from grassroots and to better know the
           needs and tolerance of the universal service in electricity of urban and rural dwellers. In
           detail, they are basic family background such as family members, their age, sex,
           education level and occupation; basic subsistence and production such as whether or
           not government-defined poor family, farmland area, major income, annual income;
           electricity consumption, electric device, electricity price and annual electricity
           consumption.
      3) Policy research into the views and opinions of universal service in electricity of local
           governments and power companies. In detail, they are geographical location,
           population, demographic structure, GDP, economic structure and pillar industries;
           regions where poor people concentrate, their education level and nationality; situation

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              of power using, including overall electricity consumption, electricity using structure,
              valley-to-peak gap, generation hours, and trans-provincial transaction; local conditions
              and the potential influences on the universal service in electricity; related policies
              available and the compliance; how poor people are defined regionally and the scale,
              goals and standards of universal service in electricity; those who in responsibility of
              implementation, fund-raising channels of universal service in electricity; compensation
              mechanism to the power grid companies; desirable fund-raising channels and advice on
              how to devise compensation mechanism; and operation and regulation of universal
              service in electricity.

1.1.2.2 Number and Situation of Villages, Households and Population with No Access to
Electricity and the Solutions

      In the recent years, a few counties and villages gained access to electricity with greater
efforts of all-level governments and power companies to construct and rebuild power grids. Up to
the end of 2005, 98.79 percent of counties, 98.84 percent of villages and 99.37 percent of rural
households within the business sphere of the State Grid Corporation of China (SG) have had
access to electricity. According to the survey, there are 6268 villages and 1,410,343 households
with no access to electricity within the SG business sphere, and 795,000 households, or 1.57
percent, and 3.2 million people with no access to electricity within the business sphere of the
China Southern Power Grid. There are estimated 2.5 million households with no access to
electricity in the country.
      Questionnaires of 312 counties and cities in five provinces1 are collected to know situations
of those villages, households, population and low-income people with no access to electricity. The
survey show 266 counties, or 6.11 percent, 17,756 villages, or 9.55 percent, 856,672 households,
or 3.7 percent and 3,235,863 people (except Qinghai province), or 3.89 percent had no access to
electricity in 1999 while 89counties, or 2.09 percent, 6730 villages, or 3.7 percent, 352,000
households, or 1.67 percent and 1,333,094 people (except Qinghai province), or 3.89 percent had
no access to electricity in 2004. The statistics show great achievements have been made in the
country’s efforts to provide electricity service.
      There are two options to provide electricity to villages used to have no access to electricity.
One option is to extend power grid to those villages, the other is to provide electricity by building
independent electric sources such as small hydropower stations, wind power stations, solar power
stations or biomass generating electricity. It needs to take into consideration the reliability of
electricity supply, local conditions, startup investment and maintenance cost to make overall
evaluation in order to choose the adequate option.

1.1.2.3 Situations of Low-income Population and Electricity Consumption Per Capita

     With the improvement of China’s social security system, the proportion of “the most difficult
groups� in the five provinces has been increasing year by year with those enjoy minimum social
security increased to 427,949, or 3.22 percent, from 225,605, or 1.72 percent, in Gansu, Jilin and
Yunnan provinces.
     The survey found the country’s social security system is far from satisfactory. Take Jilin for
1
    The survey was conducted in the five typical provinces including Yunnan, Qinghai, Jilin, Gansu and Jiangxi.

                                                          4
instance, when researcher asked those living in sheer poverty about reasons why they did not
apply for government-designated “poor family� status to get subsidy, most of them said the
appliance, limited by many conditions such as quota limits, is too difficult to succeed. There is
much room to improve the social security system. And it also means this group of people is
targeted to set up the system of universal service in electricity. In the recent five years, as the
economy grows rapidly, the annual per capita income has increased by 31.37 percent from 2158
yuan in 1999 to 2835 yuan in 2004. But the annual per capita income in Qinghai is much lower
than that of other four provinces. And the annual per capita income of “the most difficult groups�
in the five surveyed provinces is much lower than that in other provinces in the country. Take
Gansu and Yunnan for instance, the annual per capita income of “the most difficult groups� was
265 yuan in 1999, accounting for only 12.3 percent of that of Qinghai, Jilin, Yunnan and Gansu,
and 376 yuan in 2004, 13.3 percent.
     Electricity consumption per capita has increased with the economic growth and the income
increase. Electricity consumption per capita of Qinghai, Jilin, Yunnan and Gansu provinces was
only 96.48 kW•h. However, electricity consumption per capita of the five provinces increased by
64.1 percent from 1999 to 2004, compared with the annual per capita income growth of 31.37
percent. It means there are positive relations between electricity consumption growth and
economic growth, and the electricity consumption growth goes ahead of the economic growth.

1.1.2.4 Actual Operation Cost and Rational Operation Cost Analysis of the Rural Power
Grid

      The power companies in Jiangxi, Jilin, Yunnan and Gansu continue to strengthen financial
investment every year in the operation and maintenance of the power grid in rural areas with the
annual growth rate of 16.8 percent in 2001, 33.9 percent in 2002, 29.9 percent in 2003 and 33.8
percent in 2004. The capital invested increased by 172 percent to 5618.84 million yuan in 2004
from 2065.67 million yuan in 2000.
      The electricity sales of power grid in rural areas increase as grid transformation finished and
operation cost goes up gradually. The sales rose by 85 percent from 9,692.54 million kW•h in
2000 to 17,926.41 million kW•h in 2004, with the annual growth rate of 11.5 percent in 2001, 9.2
percent in 2002, 22.5 percent in 2003 and 24 percent in 2004. Analysis showed the growth rate of
operation and maintenance cost of power grid in rural areas exceeded that of electricity sales. The
cost per unit for electricity sales rose steadily from 0.213 yuan/kW•h in 1999 to 0.313 yuan/ kW•
h in 2004. Household lighting accounted for 90.38 percent of rural electricity consumption and
irrigation-purposed electricity consumption, which had lower price than lighting, only represented
0.12 percent, so power suppliers still make profits with the current actual cost level. As expense
structure from 2000 to 2004 remained similar, we are able to make an analysis of the cost structure
of the five years through that of 2004. In 2004, salary, welfare and other expenses accounted for
about 30 percent, depreciation fees 15 percent, material fees 15 percent, and interest fees about 2
percent, which reflected that electricity suppliers were not under too much pressure to pay off their
loans.
      The gap between rational electricity demand and the cost rose to 249.7319 million yuan in
2004 from 169.73698 million yuan in 2000. Despite the steady increase in the absolute value, the
ratio of the actual cost to the demand-to-cost gap has been declining from 7.59 percent in 2000 to
5.72 percent. Given the electricity sales of the rural grid remain unchanged, the cost of per unit

                                                 5
electricity sales rose from 0.23 yuan/kW•h in 1999 and 0.33 yuan/kW•h in 2004.The comparison
between the cost of per unit electricity sales and the lighting electricity price showed power
suppliers are able to make profits and have a certain degree of capital potential to act as main
electricity universal service provider.

   1.1.2.5 Rural Power Grid Transformation and Investment in Villages and Rural
Households with No Access to electricity in the recent five years

      The planned investment in power grid reconstruction in the five provinces in the recent five
years is 21,167.7873 million yuan, 20 percent of which are planned to come from public debts, 70
percent from bank loans and 10 percent are self-raised. The actual executed investment reached
18,411.9818 million yuan, 24 percent of which came from public debts, 54 percent from bank
loans and 22 percent were self-raised. The non-executed investment was 2,755.8055 million yuan,
or 13 percent. To be more specific, in Jiangxi, Jilin, Qinghai and Yunnan, the aggregated actual
executed funds from public debts reached 2,441.2912 million yuan, compared with the planned
2,341.948 million yuan; the actual executed funds from bank loans reached 5,617.1229 million
yuan, 73.9 percent of the planned 7,595.938 million yuan; the actual executed funds that were
self-raised reached 2281.877 million yuan, 23 times as much as the planned which was 97.667
million yuan. According to the plan, there should have had no self-raised funds in Qinghai
province, however, the actual executed funds self-raised reached as much as 2,113.32 million yuan,
accounting for 66.31 percent. The rural grid transformation plan earmarked 10,012.9929 million
yuan, or 47.3 percent, to be invested in electricity supply to villages with no access to electricity in
the five years.

1.1.2.6 Survey of Rural Households and their Demands on Universal Service in Electricity

     The surveyed 814 families in rural areas include 274 government-designated poor families.
1520 people, or 53.58 percent, are male and 1317 people are female, or 46.42 percent.
     The analysis of occupations and main income sources of the families found most of the
family members are engaged in traditional agricultural production. 63 percent are farmers and 9
percent are migrant workers. Agricultural income accounted for as high as 67 percent and service
revenue accounted for 14 percent. Most of the surveyed believed their living burden was relieved,
which could be reflected by the living cost and income changes. This is mainly due to the
government’s taxation reduction policy in the recent years.
     During this period, the first and second phases of the rural power grid transformation were
completed in all the provinces. The decline in rural electricity price contributes to the
improvement of farmers’ life. After investigation, the investigation team thinks that it is
reasonable for the rural population relying solely on traditional agriculture to be concerned about
the prices of agricultural products because they affect their income and the improvement of their
living standards. Meanwhile, they regard the electrification project as a major event in their life,
because electricity changes their life style into a totally different one from their ancestors. They
can know the outside world through TV and they can also improve the production efficiency by
the using of electrical machinery. Besides, it must be admitted that this investigation also makes
the rural population become more interested in the electrification project.
     In recent years, noticeable increase has been witnessed of farmer’s income. The per capita

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annual income of farmers has increased from 1460 yuan in 2001 to 2310 yuan in 2005, an increase
of about 58 percent. Meanwhile, the per capita expenditure of farmers increased by 47 percent
from 1200 yuan in 2001 to 1764 yuan in 2005. The comparison between the rises in income and
expenditure reveals that farmers’ life is still not well-off although their living standards have
improved. The research group believes that the reform of “the same electric price in urban and
rural areas� has lowered the rural electricity price and greatly promoted the increase of the power
use volume in rural areas. We must admit that the increase in the power use volume in rural areas
has also been influenced by some other factors such as the increase in household income. Besides,
because of the introduction of “same electric price in urban and rural areas�, expenditure on power
use volume has not increased. In some households, it even decreases. Although the electricity
consumption in rural areas has increased, the expenditure on power use accounts for a small
proportion in the overall household expenditures and stays within rural household’s reach.
     Among 814 surveyed rural households, 446 households, or 72 percent, believe the electricity
price is rational. The current electricity price can be accepted by most of rural households.
Meanwhile, they hope the electricity price can be as low as possible. 221 households, or 34
percent, believe the electricity price cut to 0.15 yuan/kW•h to 0.30 yuan/ kW•h is the most
desirable. 42 percent of the households hold the view that breakdown should be fixed as soon as
possible and 19 percent favor reduction of power switch-off. But what they most care is whether
or not the electricity universal service can really benefit them and when the universal service
policy will be implemented. The electricity consumption pattern is as follows: 92 percent in
household lighting, 3 percent in processing and only one percent in irrigation.

1.1.2.7 Research into Urban Low-income Groups and Demand on Universal service in
electricity

     The program surveyed a total of 447 urban low-income households, in which 253 households,
or 57 percent, have minimum living pensions, with 1280 surveyed people, 677 male, 53 percent,
and 603 female, 47 percent. The study of sample occupation and main economic income showed
23 percent of low-income households are engaged in the service sector while the laid-off workers,
the unemployed and the patient who have long stayed in bed account for 32 percent which are not
listed in the occupation part in the questionnaire. The main income sources are from doing service
jobs.
      When asked whether their life burden has increased, a pessimistic view is prevalent among
urban low-income groups. 63 percent believe that they are having an increasingly heavy burden in
their life in the past 5 years and they don’t think that their burden will be reduced. Therefore,
investment on social security should be increased and more concern should be given to the
low-income groups. Meanwhile it reveals that the universal service in electricity aimed at
low-income groups is an important measure in the reducing of their life burden. In recent years,
the income and expenditure of urban low-income groups increase rapidly, but the increase rate is
not that good compared to those of rural residents. The annual income per capita of rural residents
has experienced an increase rate of 47 percent, from 2109 yuan in 2001 to 2581 yuan in 2005.
Meanwhile, their average household expenditures have increased from 1785 yuan in 2001 to 2581
yuan in 2005. This represents major reasons why urban residents have a gloomy outlook towards
their potential life burden.
      With the introduction of the policy of “ same grid, same price� in urban and rural areas, city

                                                 7
dwellers need to pay more on their residential power use, but the power use volume in the urban
low-income households are on the rise. The reform of “same grid, same price� increases the
proportion of expenditures on power to the overall household expenditures. The expenditure on
power in urban low-income household has gradually become a relatively important part of their
overall household expenditure. The implementation of the universal service in electricity is an
important measure in the lightening of the burden on urban low-income households.
      Among 447 surveyed low-income households, 218 households, or 59 percent, believe the
electricity price is rational. The current electricity price can be accepted by most of low-income
urban households. Meanwhile, they hope the electricity price can be as low as possible. 148
households, or 51 percent, believe the electricity price cut to 0.15 yuan/kW•h to 0.30 yuan/ kW•h
is the most desirable. 49 percent of households hold the view that breakdown should be fixed as
soon as possible and 25 percent favor reduction of power switch-off.

1.1.2.8 Universal Service Projects in Electricity under Construction and the Problems

        Electricity universal service projects in electricity have been established in the 12 surveyed
provinces, including the government’s efforts to solve electricity supply problems, electricity
available to every households, urban and rural grid transformation, unified electricity price in the
same power grid, quality service, flood combat and disaster relief, migration, and electricity
charge reduction, among others. Main problems facing electricity universal service include:
       A．Serious Capital Shortage for Applying Universal Service in Electricity
       At present, the areas with no electricity refer mostly to the remote and the economically
depressed areas. Many a poor family in country and city cannot get enough power even for their
basic demand. To realize the universal service in electricity, a big amount of capital is needed to
upgrade the power network, provide power subsidy for the poor families, and establish relatively
independent power source and power supply system in remote areas. The biggest problem is how
to raise this astronomical capital.
       After the reform of the urban and rural networks, there is a capital shortage to maintain and
operate the upgraded networks. For example, in Shandong province, the grid is aging 10 years
after the reconstruction of the first stage of the urban electricity networks, but there is lack of
money; in Shanxi province, the net structure for the rural power network is usually
county-centered, and provides power with 110V in a radioactive way. But the investment focus of
the reconstruction project in the first two stages is 35KV and below. However, most remote
mountainous areas (esp. those which have contributed and suffered a lot during the Revolution),
due to their poor economy, have fewer 110v transformer substations, longer wire, and single-track
sing-transformation, which cannot meet the N-1 principle. Currently, province-wide, over 40
counties have no 220v transformation substations, about 10 counties no 110v transformation
substations, and most with 35v single-track single-transformation substations. This serious
situation asks for immediate renovation; in Tibet, the situation is even more special: the total
volume for electric power capacity there is limited, the construction and operation cost, however,
are rather high. With the dissatisfactory profit of the power enterprises, there is no possibility of
self-investing and financing. From the past experience, no power project can be carried out easily.
Take the Zhikong Hydroelectric Power station as an example. It took almost 20 years from the
prophase preparation to the approval of the construction start-up. In the 10th 5-Year Term, the
central government invested about 5 billion YUAN in power industry in Tibet, and 18.5 billion

                                                  8
YUAN is needed for power construction for the 11th Five-Year Term, which is a tough job.
       The government has the responsibility to carry out poverty relieving, including helping the
poor families with no power to get basic life electricity. However, it’s impossible for the
government to invest one-off. Therefore, more parties are needed to get involved for this
investment to improve and settle this problem completely. But, even the independent reproducible
energy is used, more difficulty is ahead in spreading, transporting, installing, training, maintaining,
and managing as well. This means, the project of “sending electricity to village and household�,
compared with the former project of “sending electricity to village�, is even harder, and will be the
vital battle for the electrification of the countryside for our nation.
       B. Lack of Enthusiasm of Power Suppliers
       First, non-profit service has serious problems. After the upgrading of rural power grids,
there is no clear-cut dividing line of electric equipment ownership, and this leads to the rising
service cost. For instance, when a farmer asks to have their bulb changed, the rural power
enterprise will send professionals and necessary vehicles there, and nothing but the bulb cost can
be charged; Second, all, including the upgrading of rural power grids, flood control and drought
relief（favorable terms for raising poultry during SARS）,emergency and disaster settlement,
geologic disaster, migrant relocation, poverty relief, new countryside construction, ask for large
investment from the power suppliers alone, with no support in the form fiscal allocation, policy, or
capital from the government. The power supply enterprise at county level in mountainous areas
with more disasters shoulders the heaviest burden; Thirdly, to carry out the “same price for the
urban and the rural� policy, the power network enterprises suffer an income loss over tens of
billions every year. For example, after the upgrading of the rural power grids, the power
enterprises at the county level of Shandong Province, following the “sale to the household,
meter-reading to household, charge to household, service to household� requirement, take cost
accounting inside the county, and find, due to the high power supply cost of the rural power grids
and the limited supply volume, if digested inside the county according to the “same network, same
price between the urban and the rural�, they will suffer deficit and have difficulty in maintaining
the normal operation and management, not to mention further construction and development of
rural power network. What’s more, the power supply enterprise cannot regulate the local power
price on the basis of local power supply cost. Therefore, policy should be made by the government
to offer compensation to these enterprises, in order to generalize universal service in electricity in
the rural area and assure the same power price between the urban and the rural.
       To realize electricity accessibility and affordability to all Chinese people, a lot of detailed
work needs doing. Currently, in China, the main body being responsible is mainly the State Grid
Corporation and Southern Grid Corporation, as well as the attached power suppliers of different
levels. To carry out the work like upgrading the urban and the rural network, system maintaining,
need a lot of manpower and material; what’s more, these work is non-profitable, and the cost
depends on the power network enterprises themselves. Therefore, in order to carry out the
universal service of power, the premise is to make and maintain a sound related motivating system,
the guarantee is the enthusiasm of the power grids enterprises as the main body to carry out the
service. In addition, as the grass-root components of the main body for universal service in
electricity, the power supply enterprise at the county level should get a more profound
understanding of the significance of universal service. Meanwhile, the knowledge of universal
service in electricity should be publicized and generalized among the vast farmer users and urban


                                                  9
users entitled to basic living allowances, to strengthen supervising over universal service in
electricity.
       C. Lack of Effective Supervision System over the Universal Service in Electricity
       At present, there is still no effective supervising in China over the universal service
electricity. The related law system does not make clear the ultimate goal, the carrying-out
mechanics, the carrying-out procedure, or the corresponding supervising institution (let alone its
responsibilities and duties), or supervising methods. The lack of an effective supervising system
will further push the universal service of power to face more challenges.

1.2 Lessons of Universal Social Service Drawn from Domestic Relevant Industries

1.2.1 Postal Service

      The concept of universal postal service stipulated by Universal Postal Convention is: “In
order to enhance the concept of an allied and unified postal field, all member states shall enable all
users (customers) to enjoy universal postal service, that is to say, to provide frequent and quality
basic postal service in every corner within the territory at an affordable price. For such reason, all
member states shall, under their respective national postal law or in other customary forms,
formulate reaching coverage, quality standard and reasonable charge related to postal businesses
based on the needs of citizens and specific national conditions�, “All members shall provide
universal service and ensure lasting universal service by feasible means�.
      The governments of all member states agree that, in the 21st century, universal postal service
is still an important means to realize right of correspondence and postal service still bears the
responsibility of providing universal service to the general public; the government is responsible
for developing postal service, providing quality universal service to the public and guaranteeing
their right of correspondence so as to promote sustainable development of our society. China, as a
signatory state to the Convention, has committed that citizens (customers) within its territory can
enjoy universal postal service. China’s postal service, like that of any other country around the
world, is commissioned by the government and shoulders the task of providing universal service.
The operations concerning correspondence handled by China’s postal service are basic businesses
in providing universal service; packages, printed matters, remittances delivered by the masses,
confidential correspondence, issuing party newspaper and periodicals, letters free for compulsory
servicemen and free postal service for readings for the blind also fall into the category of universal
service of postal service; in addition, post offices and rural delivery lines established in the
countryside and remote areas in order to provide universal service also belong to universal service.
Because of China’s vast territory and its relatively huge gap in terms of economic development
level, the cost of maintaining universal postal service is pretty high. Compared with foreign
countries, the universal service undertaken by Post of China are characterized by more variety,
larger scale, heavier responsibility, huger obstacle, thus maintaining universal service is more
difficult. Compared with foreign telecommunications industries, the universal service undertaken
by Post of China features a wider coverage, and so the organization and implementation is harder,
the task is graver and the cost of providing universal service is even higher.
      According to the investigation and study of the postal service, the difficulties faced by the
universal service of Post of China are quite similar to those faced by the universal service in
electricity. The universal service in electricity in China is also confronted with such difficulties as

                                                  10
a great variety of electricity users, extensive distribution, heavy responsibility, expensive network
maintenance, relatively high cost of maintaining universal service and difficulty in fund-raising.
Based on comparative research, universal postal service may provide some effective lessons for
universal service in electricity in the following aspects.

1.2.1.1 Making Law and Determining Monopoly Right Are The Top Priority in Ensuring
Universal Service.

     There is still no clear definition of universal postal service in the Postal Law of the People’s
Republic of China promulgated in 1986. At present, Office of Legislative Affairs under the State
Council is taking a lead in amending such Law and will include regulations of universal postal
service into legal norms. The reform plan of postal system issued by the State Council (guo fa
[2005] Document No.27) defines: establishing a mechanism of universal service. China Post
Group assumes the responsibility of providing universal postal service. The scope and standard of
universal service should be determined through legislation. At the same time, postal enterprises
must establish and improve a cost-efficient incentive mechanism and make great efforts to reduce
the cost of universal service with the prerequisite of ensuring the capability and standard of
universal service. Moreover, due to the interference of private postal service inside the post, there
has appeared a phenomenon of gaining pretty advantages, that is, private investment is only
targeted at profitable fields, while for non-profit social responsibility, nobody is willing to
undertake. Therefore, determining monopoly right is the top priority in ensuring universal service.

1.2.1.2 Setting an Overall Goal and Guaranteeing the Realization of Social Universal Service
in a Phase-by-phase and Step-by-step Manner

     The business scope of China’s universal postal service covers not only such basic operations
like ordinary correspondences and packages but also such policy operations like letters free for
compulsory servicemen, free postal service for readings for the blind, confidential correspondence,
issuing party newspaper and periodicals and frontier correspondence. The universal service
operations provided by Post of China outnumber that of any other county around the world and are
done in a phase-by-phase and step-by-step manner. At each stage, the government plans a different
scope based on realities and enlarges it gradually, thus providing a relatively complete service
variety and higher quality of service in the end.

1.2.1.3 All objects Are Charged Uniform and Low Service Postage

      Just like the post in other countries, in order to guarantee the right of correspondence of its
citizens and enable its citizens and all social communities to enjoy universal postal service, Post of
China, based on the cost standard lower than cost and cost-free policy formulated by State Bureau
of Commodity Prices, has set up extensive postal business networks to provide universal service.
Post of China implements low postage, with uniform charge for urban and rural areas as well as
for the vast rural areas, remote areas and urban cities.

1.2.1.4 Supporting Social Universal Service with the Financial Subsidy of the Government

     As China is a vast country with numerous underdeveloped regions and due to the heavy task

                                                 11
of guaranteeing frontier correspondence, these objective factors have led to a huge cost in
maintaining universal postal service, and thus the Post, if merely relying on itself, can not stand
the huge amount of deficit. As the top priority should be given to universal service, the postal
department cannot completely follow market and economic rules in terms of management system,
operation mechanism, network organization, mode of production and variety of business, resulting
a heavy burden and great stress on universal service, which is particularly prominent in western
areas of China. Meanwhile, the infrastructural facilities of providing universal postal service are
weak, so basic conditions for production can hardly be ensured. Finally, staff’s working conditions
are tough, especially in some branch institutions, and the labor protection standard is quite low.
Currently, primitive means like delivering on foot and on horseback have to be maintained in
some rural areas and western regions. It is a commonplace for a county’s delivery road to be over
100,000 meters, some even as long as 200,000 or 300,000meters.
      The reform plan of postal system issued by the State Council (guo fa [2005] Document
No.27) clearly defines that postal enterprises must establish and improve a cost-efficient incentive
mechanism and make great efforts to reduce the cost of universal service with the prerequisite of
ensuring the capability and standard of universal service. Upon such basis, the deficit of universal
postal service should be subsidized by state finance. At present, the government departments
concerned are still under research with regard to subsidizing universal postal service.
      In light of the experience of universal postal service, workers engaged in universal service in
electricity may have to work very hard. Therefore, the fund for universal service in electricity
must provide workers with the most basic life guarantee and grant some monetary reward if
necessary for better advancement of the task. The state exempts this project from VAT before the
project cost of universal service gets compensated so that universal service can enjoy various
preferential policies of the state.

1.2.2 Telecommunications

     The definition of the universal service of China’s telecommunications can be summed up as:
providing standard voice service as well as other basic telecommunications service provisioned by
telecommunications department in charge to all citizens within the territory of the People’s
Republic of China with universal and affordable telecom charges.

1.2.2.1 Providing Legislative and Legal Guarantee

     Promulgated for implementation in September 2000, Telecommunications Ordinance is
China’s first comprehensive administrative law concerning the telecommunications industry. As
for universal telecom service, Article 44 of Telecommunications Ordinance stipulates that
“Operators engaged in telecommunications business shall perform corresponding duty of
providing universal telecom service in accordance with the relevant provisions of the state.� It also
stipulates that “The cost compensation measure of universal telecom service shall be formulated
by the responsible Department of Information Industry under the State Council, the Financial
Department and the department in charge of price under the State Council and then submitted to
the State Council for promulgation and implementation.� These provisions of Telecommunications
Ordinance provide the universal telecom service with legal basis and guiding way of thinking.
     In November 2001, the State Council issued Notice Concerning Printing and Issuing the

                                                 12
Reform Plan of Telecommunications System. The Notice mentions that, as supporting measure of
the reform plan of telecommunications system, “Universal service fund should be established as
soon as possible. All enterprises engaged in telecommunications business shall undertake
universal service and promote the change of the mechanism of telecommunications universal
service so as to safeguard the universal telecom service under the circumstances of market-driven
economy.� This is the first time that the State Council mentioned in public official document that a
fund for universal telecom service shall be set up.
      Currently, Ministry of Information Industry is actively negotiating with National
Development and Reform Commission. In order to assist the establishment and implementation of
universal service fund, the two sides are busily drafting Plan for Universal Service, Measure for
Collecting and Using the Fund for Universal Telecom Service and Measure for Universal Telecom
Service so as to make clear the concept, objective, obligation and compensation mechanism of
universal service by law. The future Telecommunications Act will define the function, mechanism
and management framework on the part of the government when it implements universal service.
The implementation mechanism and management system of universal service defined by law shall
conform to the relevant provisions of Agreement on Basic Telecommunications of the WTO. First,
the principle of neutrality in competition shall be followed. All qualified operators shall undertake
the obligation of universal service and hand in a share of the fund. Next, management shall be
made public and transparent. The proportion and amount of fund collection shall be based on
scientific and reasonable calculation of cost. Market mechanism such as bidding shall be
employed as much as possible in the utilization of the fund. All qualified operators shall have the
opportunity to participate in the bidding of universal service projects. Third, an over-heavy
financial burden for operators brought about by the obligation of universal service should be
avoided and disturbance done to the telecommunications market should be reduced as much as
possible. This requires that the objective of universal service must be reasonable and in
accordance with rural residents’ demand for telecommunications and with the economic and
political demand of rural areas.

1.2.2.2 Setting an Overall Goal and Guaranteeing the Realization of Social Universal Service
in a Phase-by-phase and Step-by-step Manner

     The implementation of universal telecom service is a phase-by-phase and step-by-step
process, which has different content and development goals at different stages of social and
telecom development. As for which operations should be included into the scope of universal
service and which means should be employed, these should be decided by the unique condition of
each state. Although such social factors of a country as its politics, history, law and culture may
exert an impact on it, economic level, natural conditions and telecom infrastructural facilities play
a bigger role in the implementation process.
     The overall goal of China’s universal telecom service is to establish a mechanism of
universal service and guarantee basic telecom service for different stages; and to gradually
improve the popularity of various telecom businesses and ensure and enhance customers’ interests.
Its core content is to ensure that customers must have the access to telecom service within the
endurable time limit and the reachable scope of region, to ensure the convenience of enjoying
telecom service, to ensure universal telecom service provided in a fair, reasonable and
non-discriminatory manner and that the service should be affordable to its subjects, to ensure a

                                                 13
stable service quality and a relatively high level of satisfaction, and to ensure that universal
telecom service should provide basic telecom service. According to China’s realities, from the
perspective of region, subject with access to the businesses and variety of the businesses provided,
China’s universal service can be divided into several stages. In the first stage, telecom service is
provided, covering major cities. In the second stage, the scope of telecom service is extended,
covering cities and major counties and townships. In the third stage, universal access service is
provided, basically realizing “village-to-village telephone call�. In the fourth stage, household’s
access to telephone is basically guaranteed. In the fifth stage, the benefit of information is brought
about to individuals, with higher level of information service provided. All basic telecom demand
will be met and the general public will be provided with high-level information service.
      Drawing on the division of stage of universal telecom service, universal service in electricity
can be divided in to the following five stages:
      In the first stage, on-the-spot investigation is carried out in order to know the features of
promoting universal service in each province. In the second stage, urban electricity supply is
guaranteed so as to meet the electricity demand of cities with dense population. In the third stage,
the coverage is extended, with electricity supplied to major counties and townships. In the fourth
stage, electricity supply covers all natural villages. In the fifth stage, special service is provided
based on the electricity demand of individual users.

1.2.2.3 Making Clear the Management Principles and Purpose of Universal Telecom Service

      The management principles mainly include: a) Principle of non-discrimination. The
conditions and procedure of managing and using universal telecom service shall apply to all
telecom business operators and shall not discriminate against any individual operator or a
particular kind of operators engaged in telecom business; b) Principle of openness and
transparency. Universal telecom service shall be implemented in a fair, open and transparent
manner; c) Principle of compensation. The fund for universal telecom service shall only
compensate operators of universal service for the gap between their revenue generated from
provision of universal service and the cost; d) Principle of neutrality in competition. The fund for
universal telecom service shall not be used in a manner that exerts any positive or negative
influence on operators’ position of competition and their telecom operations, and shall not affect
the commercial operation mechanism of the main body of operators.
      The management purpose of universal service is to provide standardized, easy to operate and
low-cost service. a) Standardized. Formulate relevant regulations concerning each link of the
management of universal service and determine its working process so as to ensure the realization
of the goal of universal service. b) Easy to operate. While corresponding management norms and
measures are formulated, China’s telecom reality should be taken into account so as to ensure that
they are easy to operate. c) Low cost. On account of the asymmetric feature of information,
government’s reliance on information about the cost of enterprises should be reduced as much as
possible and it is the same case with the cost of control.

 1.2.2.4 Establishing and Standardizing Compensation Mechanism of Universal Service

     Judged from international experience, compensation capital is possibly from universal
service fund, state finance, taxation, surplus of high-rewarding businesses, loan or financial

                                                 14
assistance, license and auction of resources. Accordingly, contribution compensation may be from
enterprises operated in low-cost regions, high-income consumers and the surplus of some
profitable businesses. Based on the sources and outflows of compensation fund, compensation
mechanism of universal service generally has the following forms: By means of market
competition, especially through reform of privatization, competition and cost-based pricing
measure; obligatory stipulation: implemented by means of license conditions and other control
measures; cross subsidy: subsidizing within the internal businesses or different kinds of businesses
provided by the leading operators; compensation for access deficit: competitive telecom operators
pay leading operators to subsidize their loss suffered in access into the line; fund for universal
telecom service.
      These measures are not contradictory to each other and many countries employ a couple of
means at the same time. The experience of all countries around the world and the theoretical
standard of telecom economy demonstrate that universal service fund is the optimal choice to
promote the sustainable development of universal telecom service in a competitive environment.
However, it must be noticed that the complicated procedure of administering the universal service
fund and great difficulty in calculating the cost may lead to a relatively huge transaction and
management cost. Therefore, a demand for higher efficiency of governmental controlling
department has been put forward. Cost compensation mechanism, income compensation
mechanism and price compensation mechanism must be established as soon as possible.
      Given China’s telecom development stage and referring to international practice, China’s
universal telecom service adopts a compensation mechanism with the fund for universal telecom
service at the core. Through formulating Measure for Collecting and Using the Fund for Universal
Telecom Service, the government standardizes sources of the fund for universal telecom service
and stipulates the measure for collection targeted at telecom operators in details; standardizes
specific scope of utilization of the fund for universal telecom service; and enhances the benefits of
utilizing the capital by further classifying the management and utilization of universal service
fund.

1.2.2.5 Improving and Strengthening Supervision

     Supervision and control of the telecom industry mainly depends on internal supervision and
control, but there is no specific measure and no special department in charge. Ministry of
Information Industry, for most part, is busy formulating development strategies of telecom and
pursuing scientific and technological innovation. However, with constant progress of telecom
technology, the quality of universal telecom service has been improved remarkably. In light of the
experience of telecom, the promotion of China’s universal service in electricity must follow the
guidance of technology. And under a reasonable system of supervision, various measures of
universal service must be implemented in a phase-by-phase and step-by-step manner and goals for
each stage be achieved so that the overall goal can be attained finally. The department for industry
management needs to make development plan of universal telecom service based on the reality of
national economy and telecom industry. In the plan, the department should make clear the goal for
each stage and the variety and scope of universal service and organize the implementation with the
approval of the state. The department for industry supervision must create a favorable external
environment for operating enterprises to carry out universal telecom service. It must also use legal
and economic means and gradually reduce administrative means to establish and improve the

                                                 15
mechanism of supervision and control, and beef up efforts in supervising and controlling so as to
provide a fine platform for safeguarding consumers’ rights and interests.
      According to the experience concerning universal telecom service, for the purpose of more
standardized, orderly and healthy development of universal service, the following principles must
be adhered to in actual practice. First, principle of integration with international standard, that is,
the establishment of universal service must help break monopoly, protect competition and promote
development; be conducive to supervision and management so that the function of the fund is
more open, fair and transparent; and help constantly improve public welfare and ensure the
sustainable development of national economy. Second, principle of defining rights and duties
clearly, that is, every individual shall be entitled to the basic right of enjoying universal service
and every operator shall have the duty to provide universal service. Third, principle of sustainable
development, that is, the objective of universal service must keep updating with economic and
technological development; and the level of service needs to be continuously improved, which
shall be going hand in hand with the development of the power industry instead of simply being
an expedient.

1.3 Lessons of Universal Social Service Drawn from Foreign Relevant Industries

1.3.1 Postal Service

1.3.1.1 Strengthening the Building and Perfecting of Legal System of Postal Service

       Proceeding from the perspective of protecting their own interests and national interests and
safeguarding the security of state information, many developed countries attach great importance
with the control, management and protection of postal monopoly right, for which countries around
the world have formulated complete, definite and detailed legal provisions. The Postal Law of
France stipulates that letters and packages weigh less than 1,000 grams shall be monopolized by
Post of France. The Russian government released postal monopoly in 1995 by revising the Postal
Law. However, after 4 years of operation, it discovered that not only the right of correspondence
of its citizens was not protected but correspondence sovereignty and security of state information
had been severely damaged due to the influx of foreign capital. In 1999, the Russian government
summed up its lessons and restored postal monopoly of the state by revising Postal Law, in which
it stipulates that “Post of Russian is entitled to natural monopoly right and undertakes the task of
consolidating state organization and exercising national sovereignty.�
       In addition, some countries even have established special enforcement force to provide postal
monopoly right with a strong and powerful judicial guarantee. For example, in the United States,
there are over 7,000 postal supervisors and more than 5,000 postal police officers enforcing the
law on behalf of the state and never allowing non-postal enterprises to encroach upon postal
monopolized businesses. Even for Italy only with a population of over 57 million, a postal
enforcement team made up of 300-plus people has been set up.

1.3.1.2 Defining the Scope of Postal Monopoly Right and Giving Corresponding Protection

     All countries and regions have granted monopoly right of different degrees to the postal
department in various forms. The Republic of Korea, one of the “Four Tigers� of Asia, stipulates


                                                  16
that “Apart the from the state itself, nobody shall engage himself/herself in business of
correspondence or deliver correspondence for others by taking advantage of his/her organization
and networks. And nobody shall commission legal correspondence operator to deliver letters.� In
order to realize universal postal service, the United States has carried out postal monopoly of
correspondence, including bills, certificates, commercial letters and postcards. And the country
has no intention to open it within ten years and never allows non-postal companies to encroach
upon monopoly business. What’s more, the United States even stipulates that only post bureau can
install and use mailboxes. Though the European Union demands its members to reduce the scope
of universal service and cut monopoly right of postal businesses, it still regards mails weighing
less than 350 grams as postal monopolized business. Non-postal companies may operate such
business but the charge is five times of postage. With a history of over 300 years in modern postal
service, the Great Brain still clearly stipulates that “All correspondence mailed into the country
shall be handled by the postal department� in order to ensure the security of state information.
      Nearly all countries around the world (even for countries whose postal service has been
incorporated) have implemented postal monopoly of correspondence. Some countries have
released it on condition of monopoly. In general, all countries throughout the world are mainly
adopting such three means as postage restriction, weight restriction and delivery restriction to
conduct monopoly protection.

1.3.1.3 Establishing and Improving Compensation Mechanism of Universal Postal Service

      In order to take concrete steps to implement universal postal service, all countries have
defined the concept and scope of universal postal service and established compensation
mechanism of universal postal service. The mechanism mainly falls into the following several
categories: direct subsidy by the state finance; reducing and remitting taxation; transferring
business revenue to compensate universal service; granting managerial authority to non-profit
postal businesses; establishing universal service fund; and providing policy support to universal
postal service (mainly including postal monopoly right and priority of postal transportation and
inspection).
      The government has the duty to safeguard its citizens’ right and freedom of correspondence.
It commissions postal enterprises to provide universal postal service in order to fulfill its duty. The
stability and long-term nature of compensation mechanism should be taken into account when
compensation mechanism of universal postal service is to be established. The compensation
mechanism of universal postal service must be stipulated by law so as to ensure its smooth
implementation. As a comprehensive system, fund for universal postal service may be established
by learning from the way of telecom so as to guarantee the stability of compensating universal
service. Direct subsidy by state finance is feasible if necessary, e.g. when fund fails to make up the
deficit of universal service. Meanwhile, tax preference, business compensation and other
preferential policies may be employed in a comprehensive way so that deficit of universal postal
service can be compensated and the postal authority can better fulfill its responsibility of
providing universal service.

1.3.2 Telecommunications

     Nowadays, countries worldwide that have successfully implemented universal telecom

                                                  17
service are the United States, India, Australia and Mexico, Chile and Peru of Latin America. In
spite of their varying successful experience, there are some characteristics in common.

1.3.2.1 Ensuring the Establishment of Universal Postal Service System through Legislation

    The concept of universal service was put forward as early as 1934 in the Telecommunications
Act of the United States. In 1996, the Act established the US universal service system. In 1997,
Order of Universal Service promulgated by Federal Communications Committee (FCC) states
clear provisions concerning the specific implementation measure of universal service. In several
years after, FCC promulgated again a series of articles as the supplement of Order of Universal
Service so as to further improve the universal service system of the United States.
Telecommunications Act of Australia in 1997 clearly stipulates that the major content of
Australia’s “Universal Service Obligation (USO)� is “to enable all Australian nationals to
reasonably enjoy standard call service, paid public phone service and the stipulated transmission
service on a fair basis�. Subsequently, the country promulgated Law on Upper Limit of Universal
Service Price and Law on Consumers’ Rights and Interests and Service Standard in succession and
gradually established and improved universal service management system. India’s first National
Telecommunications Policy (NTP’94) wrote universal service into policy document for the first
time and defined it as providing particular basic telecom businesses to all citizens at an affordable
and reasonable price. NTP’99 emphasized that one of the primary goals of universal service
obligation was to provide telecom service to areas sparsely populated (with rural and remote areas,
mountainous areas ad tribal regions included). In the Amendment of India’s Telecommunications
Act of 2004, the content concerning universal service fund was written into the Act and made it
lawful. In 1994, the Peru government formulated general Telecommunications Act, in which the
concept of universal service is proposed. The Act also determines that the primary goal of
universal service is to promote the popularity of telecom business in rural areas and some
low-income urban regions (remote areas in particular) or isolated areas.

1.3.2.2 Using Fund for Universal Telecom Service as Value Compensation Mechanism

    Currently, operators worldwide with successful practice of implementing universal telecom
service all replace traditional cross subsidy with universal service fund. Major subjects for
universal service fund collection are telecom operators. For example, the total volume of US
universal service fund in 2002 was 5.86 billion US dollars, accounting for 2 percent of US telecom
revenue. All US telephone users must pay for the universal service fund each month, which is
collected by operators first, then submitted to state or federal finance (jointly formed as universal
service fund) and finally distributed to the operators investing in high-cost and low-benefit areas.
Australia also adopts the means of universal service fund to subsidize the deficit of universal
service, which in specific words is operation-maintaining cost subsidy of cost subsidy. In 2002,
the telecom revenue of Australia was 13.38 billion US dollars, of which the collected universal
service fund accounted for 1.4 percent. In India, apart form ISP, all operators take 5 percent of the
gross revenue after adjustment out as payment for universal service fund.




                                                 18
1.3.2.3 Setting up Special Managerial Authority for Universal Service Fund

    Special managerial authority for universal service fund is in charge of collecting, distributing
and using universal service fund as well as of drawing up documents related to universal service
fund. In the United States, FCC, simply as a managerial and controlling department of universal
telecom service, is responsible for formulating policies and supervising the enforcement, while the
special managerial authority for universal service fund is a civil non-profit organization authorized
by the government, which, as the executive body of universal service policies, is in particular
charge of project and fund management of universal service. In Australia, management of
universal telecom service is under the direct control of ACA and the department in particular
charge is USO sector, which consists of three groups, namely, fund group, subsidy group and
supervisory group. These three groups are respectively responsible for managing universal service
fund, appraising universal service cost and supervising whether telecom companies have fulfilled
their universal service obligation. India’s universal service fund is managed by the department of
fund management. As bidding is the way of choosing operators, so a major task on the part of the
department of fund management is to work out the bidding procedure, including terms and
conditions of bidding, and then to assess the bidding plan. After finishing the tasks above, some
agreements need to be signed between the department of fund management and telecom operators,
and the department of fund management is also responsible for accepting the claims of universal
service operators. From the perspective of storing and auditing fund, no matter it is the United
States, South Africa, Australia or France, they all use a special account. Moreover, the relevant
provisions of these countries stipulate that both the balance and the outcome of the account of
universal service fund shall subject to the audit of independent auditing body (including National
Auditing Bureau and accounting and law firms).

1.3.2.4 Implementing Universal Service Projects through Bidding

    In the process of utilizing fund, operators of all countries implement universal service projects
through bidding. Those who offer the lowest quotation can obtain subsidy so as to ensure the
minimum cost of universal service. Bidding can save the government from the huge amount of
work done for precise calculation of cost subsidy. Australia’s supervisory and controlling
institution first appoints traditional operators as the obligatory suppliers of universal service and
makes public each year areas suffering losses due to provision of universal service. Then the
institution calculates the cost of universal service with method of avoidable cost and publicizes the
outcome. If other operators can issue valid certificates to show that they can provide universal
service with an even lower cost, then they can compete for monopoly right of universal service. At
present, project bidding of universal service in India is carried out in big regions. The task of
nationwide universal service has been divided into 21 telecom regions. In each region, before the
bidding starts, the department of fund management conducts investigation and study (All data
needed are submitted by the operators.) and employs experts to develop an engineering
mathematical mode and find out a most effective access service mode based on the natural
geography and population features. And then, on the basis of such mode, the department in
question figures out how much investment is needed for this region, upon which it proposes the
highest subsidy volume of the bidding. During the bidding, usually there are several operators
competing for one region. Therefore, the government chooses the operator giving the lowest

                                                 19
quotation (Such quotation should be lower than the highest subsidy volume.) to provide access
service so as to make the policy more transparent.

1.4 Lessons of Universal Service in Electricity Drawn from Abroad

      Up to now, no country has clearly put forward the concept of universal service in electricity
in its legislation. However, almost all countries have proposed the fundamental principles that
power companies need to observe in their legislation. And these principles are in line with the
requirements of universal service in electricity.
      At present, research on universal service at home and abroad, for the most part, lays
emphasis on the telecom industry, while study on the universal service in electricity is still in its
infancy. By analyzing the experience of such countries as Britain, the United States, France,
Australia, Spain, New Zealand, Bangladesh, Argentina, Kazakhstan, Japan and Sweden, it is not
difficult to see that these countries, in terms of universal service in electricity, share the following
experience in common: First, legislation is employed to seek legal guarantee for the universal
service in electricity. Second, establishing or authorizing special power supervisory and
controlling institution. Third, constantly deepening the reform of power management system and
striving for a nationwide unified power market. Fourth, a compensation mechanism of universal
service in electricity should be set up. Take Spain for example. Its Electric Power Law adopted in
1997 stipulates that power network enterprises shall undertake the duty of constructing and
extending electric network. The country also has established an energy management committee in
charge of the supervision of the entire power system. Currently, Spain has realized 100 percent
universal service in electricity. If there is a new-established residential area (even only one
household) with no access to electric network, the power network enterprise in charge of this
region is responsible for completing the extension and supplying electricity within designated time.
All cost needed will actually be covered by the state finance. Within one cycle of every four years,
power network enterprises report to the energy management committee the plan and budget of
extending power network at the beginning, and the budget and cost are cancelled after verification
at the end of each cycle. By establishing such compensation mechanism, the obstacle of hardware
facilities needed by power network enterprises while providing universal service has been
removed.
      Despite the fact that no country has clearly put forward the concept of universal service in
electricity, most countries (including developed and some developing ones) regard supplying
remote areas with electricity as one fundamental task of power service and put in into practice.
Developing countries and the developed ones with vast territory mostly use renewable energy to
generate electricity based on their individual conditions. In this case, they have not only made full
use of various resources, efficiently improved energy utilization ratio and met their nationals’
demand for electricity but protected the natural environment. Peru, Australia, Nigeria, Egypt and
Chile are good examples in this regard. Furthermore, with a rather low level of comprehensive
national strength and per capita living standard, developing countries need to consider the
affordability of their citizens when taking power generation and supply into account. Therefore,
most governments of these countries grant electricity subsidy to low-income residents so as to
realize the goal of providing universal service in electricity. Democratic People’s Republic of
Korea, Mexico and the Philippines are examples in this regard.
      Though most countries have made a promise concerning the policy of universal service to

                                                  20
some extent, in the process of reform, the issue of universal service still has given rise to
numerous conflicts. As a matter of fact, among the many important theoretical and practical
problems caused by universal service policy, two remain the focus of dispute: First, what is the
optimal scale for network expansion? Second, how to fix the price so that universal service policy
can be best implemented? As power supply exceeds power demand in developed countries, so
power supervisory and controlling department does not have to give too much consideration to
power supply. Moreover, developed countries have basically realized universal service in
electricity, which has a lot to do with their long-term history of power construction and
development. These countries, after scores of or a hundred years’ construction, are already in
possession of a wide-spread power network, the European countries in particular, as they have
small territories, well-developed coverage of electricity and strong economic strength, even when
there appears a need for power network extension and capacity expansion, demand of capital will
not be high. This is quite different from China’s national conditions and its power market
quotation. That is to say, China can not learn much from the experience of foreign countries with
regard to universal service in electricity. Although domestic institutions concerned and experts
have already started to pay attention to universal service in electricity, most of them only look at
the brief introduction of overseas practice without setting forth any specific implementation
mechanism and corresponding policies and suggestions on the basis of China’s national
conditions.



2. The Fund Raising Mode and the Compensation

Mechanism of the Universal Service in Electricity in

China

2.1 Standard of the Universal Service in Electricity

2.1.1 Target Groups of the Universal Service in Electricity

     The first priority to carry out universal service in electricity is to define target groups.

2.1.1.1 Urban Low-income Groups

      To carry out universal service in electricity in the urban low-income groups, the first thing is
to target those who need subsidies. The urban low-income residents are divided into three groups
according to the minimum living pension. The first group includes those without living incomes,
working abilities or legal guardians. The second group includes those who fail to find job when
they receive unemployment benefits or when the relief period expires and the per capita income is
below the minimum living standards. The third group includes families in which per capita
income is below the minimum living standards after the working people get salaries, the
unemployed get allowances and the retired get pensions. In 2005, there were 22.328 million
people and 997 households that receive minimum relief. Average Minimum Relief Standard by
Region in 2006 is as follows. (See Table 1)

                                                   21
                    Table 1. Average Minimum Relief Standard by Region in 2006

                                                                 Unit: Yuan

  Region        Standard       Region      Standard        Region       Standard      Region       Standard
  Beijing          310        Shanghai        320           Hubei        146.75       Yunnan        166.71
  Tianjin          300         Jiangsu      219.12         Hunan         145.89        Tibet        205.75
   Hebei         152.78       Zhejiang       231.1        Guangdong      206.24       Shaanxi       151.67
  Shanxi         135.36        Anhui        173.63         Guangxi       142.56        Gansu        142.05
  Inner
                   130         Fujian       173.58         Hainan          140        Qinghai       175.98
 Mongolia
 Liaoning        174.15        Jiangxi      139.58        Chongqing      176.19       Ningxia       168.64
    Jilin        137.57      Shandong        186.7         Sichuan       142.23       Xinjiang      129.62
Heilongjiang     123.48        Henan        144.89         Guizhou       143.53


      The above-mentioned minimum living pension standards are set by local governments. The
  current poverty line is worked out on the basis of 20 commodities and services that meet
  necessities of basic subsistence, which is called basic demand method. The average minimum
  living pension standards and expenses set by cities vary with local conditions and consumer price.
  The Regulation of Minimum Living Cost of Urban Residents stipulated that the minimum living
  cost should be set in accordance with expenses of clothe, food and houses that meet subsistence
  demand of urban residents and with charges of water, electricity, gas and education taken into
  consideration to guarantee people’s basic subsistence.
       In accordance with above-mentioned principles, the government should provide the urban
  low-income group with basic subsistence services, including subsidies to living-purpose electricity
  charges. The Regulation of Electricity Supply Supervision (on trial) stipulated that electricity
  suppliers should undertake their responsibilities to provide universal service in electricity in order
  to guarantee that all people have access to electricity at the generally accepted electricity prices
  and the electricity regulator is responsible for supervision. Accordingly, the government and
  electricity suppliers have responsibility to provide universal service in electricity to the urban
  low-income groups that meet the minimum relief standards.

  2.1.1.2 Rural Areas

       The target groups of the electricity universal service in rural areas mainly include those who
  get no access to electricity and those who cannot afford electricity.
       The cost of living varies in different areas and that is also true of the standards for the cost of
  living. At present, the poverty level set by the civil affairs bureau in our country is a minimum
  expenditure level which can satisfy the basic need of the rural poor population. At the present
  stage our national strength is not solid and this poverty level is determined by the objective reality
  of China. The civil affairs bureaus publish a social relief table once a quarter and the objects of the
  universal service in electricity in rural areas and remote areas can refer to the latest table to
  determine which group can enjoy the electrical power use subsidies. However, it does not
  necessarily include all the poor population in the universal service in electricity. Because the
  group on the top of the list of social relief is the “households enjoying the five guarantees�---
  mainly composed of childless and infirm old persons who cannot take care of themselves in daily

                                                     22
life. These persons should be accommodated into the “old folks’ home�. Another group in the list
of social relief is the mentally retarded population who cannot handle electricity properly and the
supply of electricity will be a danger to their life. As to this group, the supply of electricity should
be withheld unless they are under guard. Therefore these two groups should be excluded from the
universal service in electricity and the universal service only applies to other poor families
designated by the civil affairs bureaus at various levels.

2.1.1.3 Outlying Areas

     The universal service in the rural areas mainly caters to
      1)       The population in the old revolutionary base areas, areas inhabited by minority
               nationalities, frontier areas and poor areas. These areas are not far from the power
               grid but are not covered by the power grid due to economical underdevelopment.
      2)       The population in the sparsely-populated remote mountain regions, western
               farming-pastoral region and islands. These areas are usually located in inaccessible
               parts and far away from the grid where the high cost for power supply and the
               limited power use volume made it not economical to expand grid network.
      3)       The populations in remote poor regions who cannot afford the rural grid retrofit
               economically.
     Limited by the national strength, the number and distribution of the outlying areas and
households where power access is still not available cannot be solved at one time. The power
service in remote areas should be satisfied step by step. Most of the non-connected households
scatter in a remote area, and in some cases in order to connect one household in the power grid
requires several kilometers of the supply lines and a transformer. Taking into consideration of the
small capacity and high damage, it is a big waste of social material at the present stage when our
national economical conditions are rather poor. The current practice is to provide power
connection according to the population, and a village with more than 30 households will be
provided with the power access. After our national economical conditions improved, the power
access of poor population in outlying areas will be satisfied gradually, say if the investment cost is
below 50,000 yuan per household or the village with more than 10 households.

2.1.2 The Current Situation of the Universal Service in Electricity in China

      Universal service in electricity is restricted by a few factors, among which economic
development level and power grid construction are the most obvious. With the country’s vast
territory and unbalanced economic development, the construction of power grid varies in the east,
middle and west areas. Therefore, the program conducted research into the universal service in
electricity for urban low-income group, rural areas and the outlying areas in accordance with the
variation of the residents’ basic subsistence. The current situations are analyzed by target groups
as follows:

2.1.2.1 The Urban Low-income Groups

     Electricity supply is one of the basic necessities in the life of urban residents. The efficient
solution of the electricity demand of urban low-income groups plays an important role in


                                                  23
promoting social equality and maintaining social stability. By satisfying the electricity demand,
the government helps to solve the practical difficulties in low-income groups and regulate the
income distribution among people. Moreover, it constitutes an important part of the building of a
well-off society and a harmonious community. At present, the well-off society has already been
achieved in urban cities. According to some investigation, at this stage more electrical appliances
will be used by urban residents for their convenience and the household electricity consumption
will also increase. Since 1990s, under the guidance of the Central Party Committee and the State
Council, local people's governments at various levels, together with the Electric Power Sector,
have implemented a series of projects such as the urban power grid upgrading, “one meter for one
household� to improve the electricity service in urban cities, provide electrical service for the
urban low-income groups and improve the life quality of those people. The statistics of urban
residents’ electricity consumption in 2004 are listed below in Table 2.

         Table 2 Urban Residents’ Electricity Consumption in 2004 （per capita）

                                                                   Among them：
                                                Lowest-incom                            Low-income
                    Unit            Total                            Difficult
                                                e Households                            Households
                                                                    Households
  Amount      Killowatt-hour       402.24           215.35              195.33             264.86

     The statistics show residential electricity has become a basic demand of urban residents, and
even for the low-income groups, the total amount of electricity purchased per capita for a whole
year has almost reached 50 percent of the average level of the whole country.

      The sample investigation made on China’s universal service in electricity reveals that 63
percent of the urban low-income households believe that their life burden is on the increase. In
sharp contrast, only 31 percent of the investigation objects believe that their family income will
increase in the coming year. It demonstrates that at the stage when the economic competition is
becoming increasingly intense and the social transformation is yet to finish, the expectation for
life of the urban low-income groups is not optimistic. Therefore, the whole society should show
close concern towards this group and give them more support and assistance. Providing
universal service in electricity is naturally an important part to lighten their burden and improve
their life quality.

      In recent years, especially with the introduction of the nationwide “same grid same-price in
town and rural area� with the purpose of providing rural areas electrical service at a more
reasonable price, the electric power use price for urban residents increases constantly and the
burden of power use has become relatively heavier. The proportion of the expenditure on electric
power use increases in the overall household spending. 59 percent of the investigation objects hold
that the electricity price is reasonable, that is to say, a large proportion of the difficult households
thinks the electricity price is high. In their expectation for the government, over half of the
investigation objects (51%) think that the ideal price of electricity should be between 0.15 and 0.3
yuan per kilowatt-hour. Meanwhile, the issues which get the greatest concern of the difficult
household include prompt treatment with malfunction (49%), reducing the frequency of limiting
power utilization amount (25%) and the capacity expansion and the reconstruction of current
power grid (21%).



                                                  24
     According to the investigation, we can reach the following conclusions: first, the urban
power grid coverage is rather high, providing the vast majority of urban residents with reasonable
electricity service on relative unified price. Second, with the increase of the living standards of
urban residents and the constant rise in electrical power price, the burden of power consumption is
becoming increasingly heavier for urban low-income groups. Third, although the governments and
the power suppliers have increased the input on the reconstruction of urban power grid, a large
part of the low-income groups still haven’t enjoyed the electricity service amount to the average
social service level.

2.1.2.2 Rural Areas

     China has long adopted the policy of emphasizing electric power generation, ignoring power
supply service and the users’ electricity consumption demands in terms of power investment. The
government invests little in the rural power grid below 10 kilovolt and the setup and maintenance
of rural electrical facilities are mainly funded by farmers themselves. Moreover, the dualistic
economy structure itself leads to the serious disparity between urban and rural areas. The
backwardness of the rural economy inhibits the electrical power use in rural areas. In order to
promote the healthy, sustainable and rapid growth of the rural economy, in 1998 the State Council
ordered to have the rural power grid in 2366 counties upgraded within 3 years to realize the goal
of “same grid, same price in town and rural area�, which accelerates the building and upgrading of
rural power grid, speeds up the rural electrical power development and reduces the burden of
electricity utilization in rural areas. Up to the end of 2005, the total investment has amounted to
380 billion yuan, exceeding the total investment in rural power grid in the past 50 years since the
founding of the PRC. Every county has been connected to power grid. The rate of power
penetration of townships, villages and peasant households has significantly grown respectively to
99.9 percent, 99.8 percent and 99.4 percent. After the construction and transformation of rural
power grids, the structure and quality of the rural power grid has been greatly improved. The
power grid security, the power supply quality and reliability has been constantly upgraded. Over
99.6 percent of the voltage is now up to standard and the reliability of power supply has reached
99.7 percent. The sales price to peasant households lowered substantially and the standardized
power price has been brought about. The situation of “different price for different village� no
longer exists, and the demand for power utilization increased rapidly. Over the past two years, the
power use volume at county level or below has increased rapidly, reaching 15 percent on average,
with some places even reaching 20 percent. The popularity of electrical appliance and the degree
of rural electrification is increased constantly. Although the rural power construction has made big
progress, by the end of 2005, there are still 2.5 million households throughout the country with no
access to power yet.

    Despite great progress of the country’s rural electricity construction, there were still 344
counties (325 in Tibet, 12 in Sichuan, 6 in Qinghai and 1 in Heilongjiang), 6268 villages, and
1,410,343 households with no access to electricity within the SG business sphere up to the end of
2005. In the business sphere of the China Southern Power Grid, 99.52 percent of villages and
98.43 percent of households already had access to electricity while 795 thousand households and
3.2 million people had no access to electricity. There were 2.5 million households around the
country with no access to electricity.


                                                25
      There are big gap of basic electricity consumption between urban cities and rural areas. The
random survey of the State Statistics Bureau show in 2004 every 100 rural households in the 12
provinces in the country’s western areas owned 25.85 washing machines, 79.77 electric fans, 7.72
refrigerators and 62.57 color TV sets, only accounting for 27 percent, 77 percent, 9 percent and 49
percent of urban households in the western regions respectively. And every 100 rural households
in China owned 37.32 washing machines, 17.75 refrigerators and 75.09 color TV sets, only
accounting for 39 percent, 19 percent and 56 percent of urban households respectively. Further
investigations show the gap of power construction between the rural areas and urban cities has
been slowly narrowed although rapid progress has been made in rural power construction. Take
washing machines owned by every 100 households as an example, the proportion of rural
households to urban households in the 12 provinces in western China was 20 percent in 2000, 24
percent in 2003 and 27 percent in 2004. There is tough work ahead and a long way to go to raise
electricity consumption in the country’s rural areas.

     In addition to the big gap between rural areas and urban cities, the backwardness of rural
electricity service is reflected in the regional unbalance. The vast territory and regional economic
development disparity are direct reasons for the regional serious unbalance in the electricity sector.
Up to the end of 2004， per capita installed capacity reached 0.331 kW•h, per capita electricity
consumption was 1,372.9367 kW•h, and per capita living electricity consumption was 198.09333
kW•h. The proportion of the middle areas to the east is 68 percent in terms of per capita installed
capacity, 63 percent in terms of per capita electricity consumption and 45 percent in terms of per
capita living-purpose electricity consumption. And the proportion of the western areas to the east
is 82 percent in terms of per capita installed capacity, 78 percent in terms of per capita electricity
consumption and 51 percent in terms of per capita living-purpose electricity consumption.

     The 2004 NBS statistics show the durable consumer goods owned by every 100 rural
households vary greatly in the east, middle and western areas of China. Specifically, the
proportion of washing machines of Guangxi to Beijing and Jiangxi to Beijing was respectively 4.7
percent and 7 percent. The proportion of electric fans of Qinghai to Shanghai and Inner Mongolia
to Shanghai was respectively 3 percent and 3.5 percent. The proportion of refrigerators of Guizhou
to Beijing and Guangxi to Beijing was respectively 3.8 percent and 4 percent. The proportion of
color TV sets of Tibet to Shanghai and Guizhou to Shanghai was respectively 23 percent and 34
percent.

      The 5th Plenary Session of the 16th Central Committee of the Communist Party of China put
forward a historical task of building a new socialist countryside, which constitutes an important
strategic step in the solution of the “Three-Agriculture� issues and the building of a harmonious
society. In order to head into to an all-round well-off society, China must establish and strengthen
the fundamental position of agricultural industry because, without a well-developed agriculture
industry, prosperous villages and rich farmers, the country unlikely build a well-off society in an
all-round way. As an important material basis for the social and economical development in rural
areas, rural electrical power plays a significant historic role in the solution of the
“Three-Agriculture� issues and the building of a new socialist countryside. At present, to better
serve the purpose of the construction of new socialist countryside, we must set up the standards of
the universal service in electricity, raise the fund for the universal service in electricity from
various channels and establish a compensation mechanism of the electric universal service. We

                                                 26
must also increase the coverage of power grid, enhance the reliability of rural power supply,
ensure the implementation of the rural electric universal service and thus let electricity play a
leading role in the economical life in rural areas. The remote rural areas are often ignored in this
respect because the profit got from the power service cannot make up for the risk involved.
Therefore, unless the government interferes in this matter, these remote rural areas will be the last
area connected into the power grid. In this sense, the problem of connection to power grid is much
more serious in the countryside than with the urban low-income residents.

2.1.2.3 Outlying Areas

     The power construction in remote areas is an important way to help farmers and herdsmen to
shake off poverty and become better-off, meanwhile it is also an important political task for
promoting the stabilization of the frontier and national unity. After years of great effort, the power
construction in remote rural areas has made great achievement. Starting from 1990s to the end of
2005, about 60 million people in remote areas are provided with power access for residential use
with the power grid expansion, rural power grid transformation and separated power system
construction. From 2002 to 2004, the “sending electric power to villages� project was started to
provide power for the public utility and residential use in the countryside and town in the western
outlying areas. The central government and local government respectively allocated 2 billion and
2.7 billion yuan to build many power stations using renewable energy including PV Power, PV /
wind Hybrid and small hydro-power in 900 county seats and towns in the 12 provinces (regions
and municipalities) in Inner Mongolia, Qinghai, Xinjiang, Sichuan, Tibet and Shanxi.

     The current regions with no access to power connection refer to the sparsely-populated
western rural areas (See Table 3). Compared with the areas where the “sending electric power to
villages� project are conducted, the poor natural condition and backwardness in economical
development in these regions made it even more uneconomical to apply the traditional power
supply methods such as the expansion of power grid. Therefore, power construction in these
regions will be a formidable task.

    Table 3 Distribution of the Population with no Access to Electricity (13 Provinces and
                                  Municipalities in the west)


                                                                               The proportion in the
                                                         Population with no
               Province(Autonomous             Region,                         total population with
                                                         access to electricity
               municipality）                                                   no access to electricity
                                                               (mln.)
                                                                               in the whole country
Southwest         Yunnan Province                            21.894                22.38%
                  Sichuan Province                           19.392                19.82%
                  Tibet Autonomous Region                    12.007                12.27%
                  Guangxi Province                           7.279                 7.44%
                  Chongqing Municipality                     5.523                 5.64%
                  Guizhou Province                           4.664                 4.77%
                  Sum                                        70.759                72.32%
Northeast         Gansu Province                             5.234                 5.35%

                                                 27
                  Qinghai Province                          4.954                   5.06%
                  Shanxi province                           4.778                   4.88%
                  Xinjiang Autonomous Region                4.157                   4.25%
                  Ningxia Autonomous Region                 0.497                   0.51%
              Inner-Mongolia Autonomous Region              7.466                   7.63%
                  Sum                                       27.086                  27.68%
     Total                                                  97.845                  100%
(The population with no access to electricity in other provinces is not included)

2.1.3 Standards of Universal Service in Electricity in Different Regions

     According to international practice, with the development and maturity of power supply
technology and business, the content of universal service also evolves gradually. The economical
level and power supply level vary greatly in different areas of China, therefore the standards of the
universal service in electricity should be promoted step by step under the principle of availability,
capacity and non-discrimination.

     The survey showed the demand for power varies in different places. The average monthly
power use volume in the indigent household in Xinjiang and Tibet is about 6 kW•h, while in
Beijing it is about 15 kW•h. The electric universal service is provided to realize social equality
and to safeguard the basic right of all citizens. It is guaranteed that all citizens, no matter where
they live, could enjoy the basic electrical service. According to the investigation, the lowest
standard for the average monthly power use volume for each household should be no less than 10
kW•h throughout the country.

      The poor households in Xinjiang and Tibet have no other electrical appliance than the basic
lighting, while in Beijing and Shanghai, most of the poor households are equipped with such
electrical appliances as TV and washing machine. Therefore, the standard for universal service in
electricity should be determined according to the local standard of the poor population. Besides, in
setting up a lower standard, special attention should be put on meeting the basic living demand
which means not only the need for lighting but also the need for TV should be met, a window
through which they come to know the outside world.

     On this basis, electric universal service, especially the urban electric service should also take
into consideration the factors of energy conservation and environmental protection. The
application of new energy-saving technology in electrical household appliances should be
expanded to realize the goal of “double-win� of universal service and scientific development.

     In the report, we set two scenarios, namely basic subsistence scenario and well-off life
scenaria, for universal service in electricity in urban cities, rural areas and outlying areas, which
are analyzed as follows. (See Table 4)




                                                 28
Table 4 Standard of Universal Service in Electricity

                                  Basic Subsistence                 Well-off Life
                                                                    4 Energy-saving Lamps
                                                                    1 Electric Fan
                                  3 Energy-saving Lamps
     Urban Low-income                                               1 Color Tv Set
                                  1 Electric Fan
        Households                                                  1 Washing Machine
                                  1 Color Tv Set
                                                                    1 Energy-saving Refrigerator
                                                                    1 Grease Pump
                                                                    4 Energy-saving Lamps
                                  3 Energy-saving Lamps
                                                                    1 Electric Fan
         Rural Areas              1 Electric Fan
                                                                    1 Color Tv Set
                                  1 Color Tv Set
                                                                    1 Energy-saving Refrigerator
                                  2 Energy-saving Lamps
                                                                    3 Energy-saving Lamps
                                  1 Radio or 1 White and Black
        Outlying Areas                                              1 Color Tv Set
                                   TV Set
                                                                    1 Energy-saving Refrigerator
                                  1 Satellite Dish



2.1.3.1 Urban Low-income Groups

      At present, almost all the cities and towns have been connected into power grid and most of
the urban residents can get access to electricity. Limited by their economical conditions, some
poor families could not afford power consumption or are not willing to spend on power. Therefore,
it is the principal task of universal service in electricity in urban cities for the government and
power suppliers to try their best to ensure power use quality and encourage the power
consumption of the low-income urban residents when they are willing and can afford to purchase
power.

     The two scenarios hereby established include basic standard, which is to meet urban residents’
basic demand on electricity, and the well-off standard, which is to make a picture for the future
universal service in electricity on the basis of the promotion of energy-saving technology.

     1) Basic Subsistence Scenario

    The subsistence demand of urban residents is met and the energy-saving technology is
popularized to a certain extent. Every household will own 3 energy-saving lamps, 1 electric fan, 1
washing machine and 1 color TV set.

     The demand on electricity consumption should be pinpointed. In terms of household lighting,
given that three 11-watt fluorescent lamps illuminate for four hours one day, the annual electricity
consumption of every household will reach 48 kW•h; given that one 40-watt electric fan works
for 360 hours a year, the annual electricity consumption will reach 15 kW•h; given that one
60-watt color TV works for 1460 hours a year, the annual electricity consumption will reach 88
kW•h.

     On the basis of the above scenario, the annual electricity consumption of every household


                                                29
should be no less than 151 kW•h in the universal service in electricity for urban low-income
groups.

      2）Well-off Life Scenario
      The well-off life demand of urban residents is met and the energy-saving technology is
largely popularized. Every household will mainly own 4 energy-saving fluorescent lamps, 1
electric fan, 1 washing machine, 1 energy-saving refrigerator, 1 color TV set, 1 grease pump and 1
air conditioner.

      The demand on electricity consumption should be pinpointed. In terms of household lighting,
given that four 11-watt fluorescent lamps illuminate for four hours one day, the annual electricity
consumption of every household will reach 64 kW•h; given that one 40-watt electric fan works
for 360 hours a year, the annual electricity consumption will reach 15 kW•h; given that one
400-watt washing machine works for 30 minutes one time and 4 times a week, the annual
electricity consumption will reach 40 kW•h; given that one energy-saving refrigerator consumes
0.9 kW•h a day, the annual electricity consumption will reach 330 kW•h; given that one 60-watt
color TV works for 1460 hours a year, the annual electricity consumption will reach 88 kW•h;
given that one 100-watt grease pump works for 600 hours a year, the annual electricity
consumption will reach 60 kW•h.

     On the basis of the above scenario, the annual electricity consumption of every household
should be no less than 597 kW•h in the universal service in electricity for urban low-income
groups.

2.1.3.2 Rural Areas

      Most of rural areas are covered by power grid and most rural households can accept the
current electricity price. However, the survey shows it is the most important thing for rural
residents to guarantee the quality of power supply and 42 percent of rural households believe the
breakdown should be fixed timely and the frequency of breakdown should be reduced.
      1）Basic Subsistence Scenario

     Every rural household will own 3 energy-saving lamps, 1 electric fan, 1 washing machine
and 1 black and white TV set.

      The demand on electricity consumption should be further pinpointed. In terms of household
lighting, given that three 11-watt fluorescent lamps illuminate for four hours one day, the annual
electricity consumption of every household will reach 48 kW•h; given that one 40-watt electric
fan works for 360 hours a year, the annual electricity consumption will reach 15 kW•h; given that
one 60-watt black and white TV works for 1460 hours a year, the annual electricity consumption
will reach 58 kW•h.

    On the basis of the above scenario, the annual electricity consumption of every household
should be no less than 121 kW•h in the universal service in electricity for rural areas.

     2）Well-off Life Scenario

      Every household will mainly own 4 energy-saving lamps, 1 electric fan, 1 energy-saving
refrigerator and 1 color TV set.

                                                30
      The demand on electricity consumption should be pinpointed. In terms of household lighting,
given that four 11-watt fluorescent lamps illuminate for four hours one day, the annual electricity
consumption of every household will reach 64 kW•h; given that one 40-watt electric fan works
for 360 hours a year, the annual electricity consumption will reach 15 kW•h; given that one
energy-saving refrigerator consumes 0.9 kW•h a day, the annual electricity consumption will
reach 330 kW•h; given that one 60-watt color TV works for 1460 hours a year, the annual
electricity consumption will reach 88 kW•h.

    On the basis of the above scenario, the annual electricity consumption of every household
should be no less than 497 kW•h in the universal service in electricity for rural areas.

     The quality of universal service in electricity should be guaranteed in addition to the service
standards of the two above-mentioned scenarios.

   2.1.3.3 Outlying Areas

      Suffering from an economical backwardness and limited by their purchasing power, the
farmers and herdsmen still have a strong demand for power supply for production use and
residential use, especially after the “same grid and same price� practice has adopted. Although the
traditional power construction in remote areas will cost a lot and with big difficulties, the remote
areas enjoy rich renewable energy resources, which makes it practical to generate power using
stand alone RE power generators.

      As to the universal service in electricity in remote areas using stand alone RE power
generators, its service standards should be different from those of power grid expansion and the
service standards should be adjusted according to the economical development and the increase of
the living standards of the local farmers and herdsmen. Therefore, in accordance with power and
power supply, the electricity universal service standards are set under the two scenarios as follows;

     1）Basic Subsistence Scenario

     Every rural household will own 2 energy-saving lamps, 1 radio or 1 black and white TV set
and 1 satellite dish.

     In terms of household lighting, given that two 11-watt fluorescent lamps illuminate for four
hours one day, the annual electricity consumption of every household will reach 32 kW•h; given
that one 10-watt radio works for 4 hours a day, the annual electricity consumption will reach 15
kW•h; given that one 60-watt black and white TV works for 1460 hours a year, the annual
electricity consumption will reach 58 kW•h; given that one 20-watt satellite dish works for 4
hours a day, the annual electricity consumption will reach 30s kW•h.

     On the basis of the above scenario, the annual electricity consumption of every household
should be no less than 120 kW•h in the universal service in electricity for the outlying areas if
black and white TV is used.

     If centralized power-supply system of independent renewable energy generation is adopted, it
will be established in residential areas inhabited by at least 30 households, and full time of annual
generation of the renewable energy system is about 1,000 hours. Electricity consumption by some
public facilities, businesses (such as tourism and stores) and simple production may be taken into

                                                 31
   consideration.

         2）Well-off Life Scenario

         Every household will mainly own 3 energy-saving lamps, 1 satellite dish, 1 energy-saving
   refrigerator and 1 color TV set.

         In terms of household lighting, given that three 11-watt fluorescent lamps illuminate for four
   hours one day, the annual electricity consumption of every household will reach 48 kW•h; given
   that one 60-watt color TV works for 1460 hours a year, the annual electricity consumption will
   reach 88 kW•h; given that one 20-watt electric fan works for four hours a day, the annual
   electricity consumption will reach 30 kW•h; given that one energy-saving refrigerator consumes
   0.9 kW•h a day, the annual electricity consumption will reach 330 kW•h.

       On the basis of the above scenario, the annual electricity consumption of every household
   should be no less than 496 kW•h in the universal service in electricity for the outlying areas.

        If centralized power-supply system of independent renewable energy generation is adopted, it
   will be established in residential areas inhabited by at least 30 households, and full time of annual
   generation of the renewable energy system is about 1,000 hours. Electricity consumption by some
   public facilities, businesses (such as tourism and stores) and simple production may be taken into
   consideration.

         In addition, the electricity universal service should guarantee services in terms of electricity
      reliability.

        Regional electricity consumption standards under different scenarios are shown as table 5.

                Table 5 Regional Electricity Consumption Standard in Different Scenario

                                                                                           Unit: kW•h

 Household Electric Device         Urban Low-income              Rural Areas             Outlying Areas
                                         Group
                                 Subsistence    Well-off   Subsistence    Well-off   Subsistence    Well-off
                                                 Life                      Life                      Life
Energy-saving        Number           3            4            3              4           2            3
    Lamp            Annual            48           64           48           64           32           48
                   Electricity
                  Consumption
 Electric Fan        Number           1            1            1              1           0            0
                    Annual            15           15           15           15            0            0
                   Electricity
                  Consumption
  Color TV           Number           1            1            0              1           0            1
                    Annual            88           88           0            88            0           88
                   Electricity
                  Consumption
  Black and          Number           0            0            1              0           1            0


                                                     32
White TV Set       Annual            0            0           58            0           58           0
                  Electricity
                 Consumption
  Washing          Number            0            1            0            0            0           0
  Machine          Annual            0            40           0            0            0           0
                  Electricity
                 Consumption
Energy-saving      Number            0            1            0            1            0           1
 Refrigerator      Annual            0           330           0           330           0          330
                  Electricity
                 Consumption
Grease Pump        Number            0            1            0            0            0           0
                   Annual            0            60           0            0            0           0
                  Electricity
                 Consumption
Satellite Dish     Number            0            0            0            0            1           1
                  Electricity        0            0            0            0           30           30
                 Consumption
    Total          Annual           151          597          121          497         120          496
                  Electricity
                 Consumption



   2.2 Estimated Funds in Need

        Given China’s national conditions and strength as well as the development of electric power,
   and that the development of electric power is also a regional issue, the goals set by the state for
   regions with no access to electricity are as follows:
        1) By 2008, electricity will have been supplied to households without electricity with the
   investment cost below 20,000 YUAN for each household and to villages without electricity
   inhabited by more than 30 households;
        2) By 2010, electricity will have been supplied to households without electricity with the
   investment cost below 30,000 YUAN for each household and to villages without electricity
   inhabited by more than 10 households;
        3) By 2020, electricity will have been supplied to households without electricity with the
   investment cost below 50,000 yuan for each household and to villages without electricity
   inhabited by more than 5 households.
           In view of the above, the capital demand of the universal service in electricity in China is
   as follows:

   2.2.1 Solving the Problem of Electrification Cost for Households without Access to
   Electricity

       According to investigation and study statistics, during the “11th Five-Year Plan� period, State
   Grid plans to invest over 22 billion yuan to solve the problem of electrification for about 1.15

                                                   33
million households without access to electricity, and China Southern Power Grid is also to invest
3.3 billion yuan to solve this problem for 410,000 households, leaving about 700,000 households
without electricity (households without electricity with the investment cost below 30,000 yuan for
each household).
     By 2010, electricity will have been supplied to households without electricity with the
investment cost below 30,000 yuan for each household. According to the electrification plan of the
State Grid, the electrification cost for each household on average is 19,100 yuan. The investigation
and study of Qinghai Province shows that the electrification cost for each household had exceeded
20,000 yuan by 2005, and therefore the rest 700,000 households without electricity can obtain
electricity supply based on the standard of 30,000 yuan for each household on average.
     According to the standard above, total electrification cost of supplying electricity to
households with the investment cost below 30,000 yuan for each household is 46.3 billion yuan.
By 2020, 250,000 households will have been supplied with electricity with the investment cost
below 50,000 yuan for each household, costing 12.5 billion yuan.

2.2.2 Users’ Power Rates and Power-supply Enterprises’ Operation and Maintenance Cost

      The Fifth Census of the State Statistics Bureau demonstrates that there are 23.65 million rural
poor people and 30 million urban people living on subsistence allowance nationwide, with 3.13
people in each household. Among them, there are 9.97 million urban households across the
country enjoying minimum living allowance (Year 2005), 2.5 million households living in remote
areas with no access to electricity and 5 million poverty-stricken households in rural areas.
      According to the monitoring statistics of National Development and Reform Commission
concerning major commodities and service projects of China’s 36 medium- and large-sized cities
in 2005, the average power price for urban residential consumption of electricity in these 36 cities
is 0.51 yuan per kW•h. Based on the power price of the agricultural network of State Grid from
April to June in 2005, the average power price for rural residential consumption of electricity of
the whole system is 0.5199 yuan per kW•h. According to the investigation and study statistics of
China’s universal service in electricity, the average cost of electricity sales in all provinces was
about 0.23 yuan per kW•h in 1999 and about 0.33 yuan per kW•h in 2004, with unit cost of
electricity sales on the rise as expected; average operation and maintenance cost for hydropower
was 0.23 yuan per kW•h; the cost of solar electric power plants was around 5 yuan per kW•h; and
the minimum operation and maintenance cost for wind power plants was 0.5 yuan per kW•h.
      For urban low-income groups, if power price is calculated at 0.51 yuan per kW•h and
operation and maintenance cost at 0.5 yuan per kW•h, then the total capital needed is 1.521 billion
yuan per year based on basic standard living and 6.012 billion yuan per year based on
comparatively well-off standard of living. For prospective beneficiaries of universal service in
rural areas, if power price is calculated at 0.5199 yuan per kW•h and operation and maintenance
cost at 0.5 yuan per kW•h, then the total capital needed is 618 million yuan per year based on
basic standard living and 2.537 billion yuan per year based on comparatively well-off standard of
living. For remote areas, initial investment in the system and cost operation and maintenance
should be included into the capital demand needed for universal service provided by independent
renewable energy system. In small-scale hydroelectric power, small-scale wind electric power and
photovoltaic systems, great differences exist between investment and cost of maintenance and
operation. Investment in small-scale hydroelectric power system is no more than 5,000 yuan per

                                                 34
kW•h, but the figure jumps to 70,000 yuan or so per kW•h for photovoltaic system or wind-PV
hybrid power system. Estimates show that only no more than 10 percent of people without access
to electricity have the potential of simply relying on small-scale hydroelectric power system for
electric power. Therefore, estimate of initial construction investment should be temporarily based
on the measurement and calculation of independent photovoltaic system or wind-PV hybrid power
system. If the number of current households without electricity is calculated at 2.5 million, the
capital needed is 21 billion yuan per year based on basic standard living and 86.8 billion yuan per
year based on comparatively well-off standard of living.
     According to the investigation outcome of “Transmitting Electricity to Villages�, for
centralized independent renewable energy system, if cost of changing storage battery is taken into
account, annual cost of operation and maintenance on average will be 4,000 to 6,500 yuan per kw
(In some areas of Qinghai-Tibet Plateau, the cost is as high as 6,000 to 6,500 yuan per kw, while
in other areas, the cost is 4,000 to 5,500 yuan per kw in general.). If one third employs centralized
system (Responsibility for the maintenance of household system and the corresponding cost may
be assumed by peasants.) and the maintenance cost is calculated at 5,500 yuan per kw, then annual
operation and maintenance cost is 550 million yuan for living standard below the basic level and
2.273 billion yuan for living standard below the comparatively well-off level.

     Capital needed to provide electricity universal service for urban low-income groups, rural
areas and remote regions is shown in table 6.

  Table 6 Electricity Charges, Operation and Maintenance Fees and Start-up Construction
                                        Investment

                               Urban Low-income              Rural Areas           Far Outlying Areas
                                     Group
                             Subsistence    Well-off   Subsistence    Well-off   Subsistence    Well-off
                                             Life                      Life                      Life
 Electricity Consumption          151          597          121          497         120          496
    (kW•h/household)
Start-up Investment (Bln          —            —            —            —            21          86.8
          Yuan)
  Annual       Electricity       0.768        3.036        0.315        1.293         —            —
Investment    Operation          0.753        2.976        0.303        1.244        0.55        2.273
(Bln Yuan)      and
             Maintenance
                 Total           1.521        6.012        0.618        2.537        0.55        2.273



2.3 The Capital Sources, Fund Raising Methods and Principle of Input

2.3.1 The Capital Sources

     The capital sources of the universal service in electricity may include:

     (1) Fiscal allocation. It is the most direct form, which shall come from local government and
central government;

                                                 35
     (2) Partly paid by users. Some of economically capable households without access to
electricity can afford a part of electricity fees.

     (3) The power price markup, such as Three Gorges Fund. An independent power service fund
can be built up in such a way as getting a small proportion take-out per kW•h.

     (4) Commission from the sales income of power grid enterprises. According to the
international common practice, the industry with natural monopoly should be responsible for the
corresponding universal service. Hence, the fee should be paid by the power grids enterprises, esp.
by their sales income, and at last the pay gets transferred to the nationwide power users via power
grids enterprises.

     (5) Special funds, such as the government’s 50 billion yuan agricultural investment in 2006.
With which the National Development and Reform Committee publicized the agricultural
investment policy of the central government and clear regulations for agricultural investment
focus. Among them, there is the investment for rural power construction. Besides, the nation has
established special fund for reproducible energy development; however, the accurate amount and
the ways of using have not been given out clearly, and listing independent power system of
reproducible energy as one focus should be taken into consideration.

     (6) Establishment of universal service fund to receive various donations. As the direction of
future electricity power reform, electricity-admittance system will be more healthy and
comprehensive, and according to some international common practice, let it serve the universal
service fund in terms of admittance.

     (7) Funds from international development institutions.

2.3.2 Fund Raising Methods and Principle of Input

     After an analysis of the fund-raising methods for universal service of 18 countries, they can
be summed up into the following ones:
     ——Uniform charge according to a certain proportion of some management index.
     ——Compensation for deficit of access and charged based on minute or with each mainline
as the benchmark (Compensation for deficit of access was originally used to replace cross-subsidy
and was practiced in the United States, Canada and Australia, but duo to its low efficiency in
practice and the fact that it hindered competition, this method has been discarded by these
countries.)
     ——Mode of license, which is raising the requirement of universal service in the process of
issuing license. This is a material and obligatory mode of provision.
     ——Governmental provision, through direct/indirect subsidy, reduction or remitting.
     In the specific case of China’s universal service in electricity, the country may offer a variety
of methods for choice by considering the goal of universal service. As for the existing power
-supply enterprises, a certain proportion of their revenue may be collected as universal service
fund. According to the survey of collecting proportion of some countries, 2 percent is widely
accepted. An over-high proportion will be a huge burden for electricity-supplying enterprises.
     As the reform of power market progresses, a certain amount of conditions for universal
service may be added when licenses are issued to new power-supply enterprises. As for the


                                                 36
electricity-supplying enterprises that need support, the government may offer some subsidy or
reduction when collecting a uniform proportion for fund-raising targeted at previous
electricity-supplying enterprises.
      The fund for universal service in electricity is mainly used for the following two purposes:
First, giving subsidy of cost deficit to power enterprises that provide universal service in
electricity; and second, giving subsidy of electricity to the vulnerable groups of China. Regarding
the cost compensation of power-supply enterprises, the government may refer to the volume of
cost deficit submitted by enterprises and, after the examination and calculation of management
authority, withdraw some capital from the universal service fund as compensation so as to
mobilize the enthusiasm of the power enterprises to provide universal service, while with regard to
the subsidy for the vulnerable groups of the country, the government should give top priority to
those who can not afford electricity and compensate their electricity charge so as to ensure their
access to basic electricity service. Whatever the fund for universal service in electricity is for, the
following principles must be observed:
      First is principle of special fund for a special purpose. Established to realize universal service
in electricity for the entire society, the fund for universal service in electricity should be used in all
kinds of activities aimed to promote the development of universal service in electricity. Any act
that intends to use the fund for any other purpose shall be banned and topped.

     Second is principle of transparency. As the fund for universal service in electricity is
collected from the additional fee of electricity and is the payment for electricity by terminal users,
the principle of transparency should be abided by when utilizing the fund. The management
authority of the fund for universal service in electricity should timely make public the purpose and
amount of the fund used and regularly subject to the auditing of the auditing department.

2.4 Electricity Universal Service Mode

2.4.1 Universal Service Subjects

      Universal service includes subjects at three different layers, with the government as the
subject of responsibility, power network enterprises as the major subject of implementation (In
areas uncovered by electric networks or under particular circumstances, other enterprises may
function as the subject of implementation.) and state electricity supervisory body as the subject of
supervision. Currently, under the condition of state-owned enterprises like State Grid and China
Southern Power Grid conducting monopoly, power-supply enterprises shall also function as the
subject of responsibility and undertake part of the obligation of universal service.
      In promoting universal service in electricity, the purpose lies in realizing social fairness and
ensuring social stability by the provision of basic power service. As a result, as a public service
undertaking of public welfare, the government has the duty to provide essential public goods for
the whole society if it is to play a dominant role in it. Meanwhile, in the current situation, power
network enterprises, especially those cross-regional, nationwide state-owned ones (mainly State
Grid and China Southern Power Grid) occupy a monopolized position in power industry and enjoy
excess monopolized proceeds thus generated. Thus, the electric enterprises shall also undertake
part of the responsibility of universal service in electricity and the obligation of cross subsidy.
      Therefore, fund raising of universal service in electricity should be mainly realized through


                                                   37
government subsidy and subsidy of power network enterprises. Specifically speaking, there are
three means as follows. First, governments at the central and various local levels directly provide
capital subsidy for basic electricity to low-income groups, poor people in rural areas and remote
areas without access to electricity. Second, power network enterprises provide the capital needed
for basic electricity supply and the subsidy for high-quality electricity-supplying service to
low-income groups, poor people in rural areas and remote areas without access to electricity
within the areas in their charge. Third, combining building a “resource-conserving� society and
carrying out energy-saving task, the government and enterprises should make joint input of capital
in universal service in electricity to promote the use of energy-saving technology and electric
appliances and the realization of the goal of universal service.

2.4.2 Operation Mode Analysis

     A study of the universal service home and abroad show that there are two operational modes
widely used: one is fund operation mode, the other appointed operation mode. The fund operation
mode is composed of 4 forms: the first, a universal service fund committee is founded by the
electricity supervising committee, to be responsible for the fund operation; the second, an
independent committee is established to take the responsibilities; the third, the power supply
enterprise is entrusted to operate the fund; the fourth, a mixed committee, likely, to be composed
of representatives from 3 parties, the government, the electricity supervising committee, and the
power supply enterprise. The appointed mode has two forms: one, under the prescribed
circumstances, the government offers some economic compensation; the other, digested by the
enterprise alone and completely. As shown in Chart 1 and Table7:




                                                                                     Cost Compensation

                                                     Appointment Mode
                Electricity Universal Service




                                                                                         Self-Digesting
                     Operation mode of




                                                                                       SEDRC Management

                                                          Fund Mode
                                                                                     Entrusted by Power Suppliers


                                                                                       Third   Independent   Party
                                                                                       Operation


                                                                                         Mixed         Committee
                                                                                         Operation

                                                Chart 1: Operation mode of electricity universal service




                                                                        38
              Table 7: A Comparison between Appointed Mode and Fund Mode
                                 Advantage                                 Disadvantage
                                                               Normal business and
                                                               universal service business mixed,
                                                                hardly      distinguished    and
                                                                inconvenient       for    capital
                                                                compensation;
                 Simple manner and clearly defined
                 responsibilities;                             The big network being hard to
Appointment
                 Lower universal service cost with capital     coordinate due to the existing
Mode
                 self-digesting mode since they can rely on    smaller networks;
                 their own technology and experience.
                                                               Inconsistent capital compensation
                                                               leading to impact on national fiscal;

                                                               Unsymmetrical information being
                                                               harder to supervise;
                 Fixed goal, transparent process, being
                 easy to supervise;
                 More likely to use more sources to solve
                 universal service problems;
Fund Mode        Public bidding reducing cost, and             Fund operation costs;
                 information publicized;
                 Less interference among projects;
                 Better for coordinating power suppliers in
                 different business areas;

     It is known to all, since power suppliers enjoy business monopoly position in the country,
they should accordingly take the duty of universal service in electricity. The government therefore
can accredit all responsibilities of universal service in electricity to power suppliers in such a way
as legislation to require power suppliers to cut electricity charges for the poor and to solve
problems for those non-electricity households. It needs to stress that the solution of non-electricity
household issue does not necessarily ask for the extending of the big net. In fact, it can be solved
by dispersive power sources. The effectiveness of universal service is the first priority to choose
the modes, appointment mode or fund mode with a view to ensure the best economic and social
effects with the lowest investment, and effective supervision.

2.4.2.1 Appointment Mode

     The Appointment mode has two forms, which are the cost compensation form, and the
self-digesting form.




                                                 39
     Table 8 A comparison between Cost Compensation Form and Self-digesting Form
                           Advantage                                 Disadvantage
                   Clear     dividing    line    To establish capital raising mechanics
                   between      rights   and     To establish capital distributing mechanics
Cost
                   duties;                       Too many departments needing coordinating,
compensation
                   To realize fairness of        increasing difficulty in coordinating capital;
form
                   universal service through     The increasing universal service cost due to the
                   shift payment system;         capital-raising cost and finance cost;

                                                 The reducing enthusiasm of enterprises;
Self-digesting     Saving      capital-raising
                                                 The universal service fairness cannot be achieved
form               cost and finance cost;
                                                 through shift payment system;

     Cost compensation form is a form in which the government gives compensation of universal
service cost to power suppliers. First, the programs of power suppliers must be those prescribed in
policy or law, and fulfill the range, goal, and criteria; second, the comptrollers audit the universal
service program cost; last, the compensation will be made to power suppliers according to the
universal service compensation policies.

     Under self-digesting form, the government does not compensate power suppliers; instead, the
universal service fees will be counted in the total cost volume of the year, and be deducted from
the sales. However, this does not mean the enterprise can report its own universal service cost, and
the cost still has to be audited carefully by the national auditing departments, to avoid
exaggeration in cost.

      The difference of these two forms lies in that for cost compensation form, the profit of power
suppliers is not affected by the government allocated compensation while, for self-digesting form,
the profit of power suppliers is cut by the in-reckoning of the cost. However, both should have
their universal service cost audited strictly according to universal service laws and regulations.

     Cost compensation form is more complicated: first, the compensation capital source should
be taken into consideration, e.g., national finance, power price markup, and may be taken out from
the sales volume of power suppliers, according to some foreign practice; second, how to distribute
should also be considered carefully, that is, how to realize fair distribution among all power
suppliers; last, preservation and increment of value need to be considered if the capital is more
than needed while fund raising capacity needs to be strengthened if there is a capital shortage.

     According to the early calculation and the publicized total profit volume of National Grid
Corporation and South Power Grid Corporation in 2004, power suppliers has the ability to
shoulder the cost of the universal service in electricity. Also, according to “loss and compensation�
principle, the compensation can be rejected and self-digesting is needed. Therefore, self-digesting
is recommended. Besides, due to the different cost of universal service of different enterprises,
thus different total volume, shift payment mechanics can be applied to make universal service cost
shouldered jointly.

     One more thing worth mentioning is the business area issue. According to the net-building
situation in China, there are still many an area not covered by National Grid Corporation and


                                                 40
South Power Grid Corporation. For example, among the 16 districts and 129 counties in Yunnan, 6
districts and 33 counties are administrated by the Yunnan Bureau of Water Resources instead of
the big network                                    .
               （Yunnan Power Grid Corporation） There are two entrusting forms: one, “the kids
should be cared about by their own parents�, that is, auditing the universal service cost of each
power supply enterprise will be enough; the other, everything is entrusted to National Power
Network Corporation and South Power Network Corporation. And the non-self-owning business
areas will be coordinated. The form is shown in Table 9:

   Table 9 Comparisons between Business Areas in Entrusted Mode of Universal Service
                                   Advantage                                  Disadvantage
Full   trust  to
National Power                                                   Capital-raising mechanics needed;
                     Clear dividing between rights and
Network                                                          Being responsible for universal
                     duties;
Corporation and                                                  service      in      non-self-owning
                     Cross-subsidy available in the big net to
South      Power                                                 business      areas,    harder    to
                     get universal service capital;
Network                                                          coordinate;
Corporation
                                                                 Supervising and administrating
                     Clear dividing between rights and           cost rising;
Divided
                     duties;                                     Cross-subsidy      among   power
according       to
                     Better coordination among all business      suppliers unavailable; impossible
business area
                     areas;                                      for the poor areas to pay the
                                                                 universal service capital;



2.4.2.2 Fund Mode

     The four types of committee of Fund Mode have their own advantages and disadvantages,
shown in Table 10. The electricity supervising committee form is recommended, because, its
responsibilities are clear, the goal clear too, and it helps to coordinate among power suppliers in
all business areas, to master the operation of all programs completely, is easy to supervise, and at
last achieving the goal of universal service better. Three requisites are needed for effective
management over the capital of universal service in electricity: first, the comprehensive goal of
the fund and the corresponding and specific program goal should be made clear; second, in the
carrying-out of the fund, the policy should be consistent; last, an agreement on goal and program
designing should be realized among all major parties involved. The major parties should include at
least the supervisor, the policy-maker, and the service supplier as power supply enterprise. Only
when the three requirements are fulfilled, will the universal service in electricity fund function
properly, and will universal service be carried out smoothly.




                                                 41
    Table 10 Comparisons between Fund Mode Forms of Universal Service in Electricity
                                      Advantage                             Disadvantage
                   Well-defined responsibilities, specific
                   purpose;
                   Familiar with the related laws and
                   regulations of universal service in
                   electricity;
                   Better to achieve universal service goal
Electricity-                                                   The same institution to supervise and
                   with operation and supervising
Supervising                                                    operate makes the inner auditing
                   combined;
committee                                                      harder.
                   Easier to coordinate all power supple
                   enterprises, assuring the carrying out of
                   universal service all around the nation;
                   With       comprehensive       branches,
                   beneficial for managing and cost
                   saving;
                   Power       suppliers     being     more
Chosen power       enthusiastic;
                                                               Unsymmetrical information makes
supply             A good knowledge of universal service
                                                               auditing and supervising harder;
enterprise         situation in all areas helps to carry out
                   the universal service;
                   Being neutral, hence, fair;                 An independent organization, and
Third party
                   Professional operation;                     branches needed, raise the cost;
                   Better for coordination among all           The off-balanced coordination inside
Mixed              sides;                                      the committee leads to possible
committee          Transparent capital using helps             conflicts,    thus  affecting    the
                   supervising;                                carrying-out;

      If fund mode is chosen, then, the managing of capital for universal service in electricity is the
basic assurance for the effective functioning of the service. First, “Managing Regulations of
Universal Service in Electricity�, or the likes, is needed, to make clear the legal duties for all
power supply enterprise toward universal service in electricity; to stipulate the ranges in area and
business to be benefited by the universal service in electricity; to prescribe the principles of fund
using, to choose the universal service supplier through public bidding, including design,
construction, and operation. What’s more, specific and relatively independent managing institution
for universal service in electricity should be founded according to laws and regulations, and this
institution should be composed of experts on electricity managing, economics, laws, and so on;
this institution, following the principle of being open and transparent, carries out universal service
in electricity managing according to law, including calculating the cost, selecting highly-effective
power enterprises to provide universal service in electricity, supervising and checking service
quality, and evaluating.

    BOT program operation mode is a representative of Fund Mode, and the specific operation
procedure is shown below:


                                                  42
                                                                          Project Planning




                                        Design Adaptation
                                                                               prog
                                                                          Bidding Design




                                                                                                             Design Adaptation
                                                                                 Operation
                                                                                  Bidding



                                                                    Success

                                                                              Construction
                                                                                Bidding

                                                                                         Success
                   Project Adaptation




                                                                        Project Construction




                                                                        Check & Accept of
                                                                        Operation Company
                                                                                                   Success
                                                                                                             Paying Fees




                                                                 Operation Maintenance


                                                                        Annual Examination




                                                            Chart 2 BOT operation mode procedure

      First, the public bidding of designing according to the project planning: the designing
should not be limited to building a large-scale network, solar energy, wind energy, the clean
energy like small hydropower is also acceptable; then, the public bidding should be evaluated
according to the lowest standard of the accumulation of startup investment and 10 years’ operation
and maintenance expense, since the cost of power supply project includes two parts: one is the
start-up construction cost, the other daily maintenance expense, which includes expense for
manpower, material, maintenance, and even the wire abrasion. According to “same net, same price�
principle, generally, the power charge income of universal service in electricity cannot fully make
up the operation and maintenance expense; besides, the households who do not have the access to
electricity are usually poor ones located in remote areas, and can not afford power. Therefore, the
operation expense should be taken into consideration at the early stage of the investing, to achieve


                                                                               43
the lowest overall cost. In this way, electricity will be not only “accessible�, but also “affordable�
for the public.

     Next, according to the requirements and expense for operation and maintenance in the design,
operation bidding is taken. If the bidding goes smoothly, the construction bidding follows; if no,
the design should be adapted, and even the designing bidding should be carried out again. The
bidding parties for operation bidding can be local power supply enterprise, or local government, or
even a business in operational maintenance. After a successful construction bidding, the project
can be carried out, checked and accepted by the operation company. Then, the project will be
turned over to the operation company for operation and maintenance. According to the bidding
price, a certain amount of money will be paid to the operation company.

     Via bidding in this form, the cost, quality, and schedule will be under control. Moreover, a
better choice, to establish a large-scale network, or to employ dispersive electricity sources,
combined with the local source situation, will be made.

2.4.2.3 Operation Mode Suitable to China

    In accordance with the country’s current situation, China can adopt commercially operated
fund mode as the country is not completely covered by big power network and there still existed
many small electricity networks and the independently run PV Power system is not limited
by the grid connection while some regions which have yet to be covered by power grid
should adopt the appointment mode rather than fund mode with a special management
department in charge to be appointed by the government.
    According to the analysis, China can not copy the current practice of other countries. We
must take into consideration the current situations and market of the power sector and should
choose the mode of universal service in electricity suitable to local conditions.

2.5 Compensation Mechanism of Universal service in electricity

      There are many sorts of compensation mechanisms for power-supply enterprises. In spite of
the fact that the power management system adopted and the scope and quality of universal service
in electricity stipulated by countries differ from one to another, countries across the world appoint
power-supply enterprises to undertake the obligation of universal service. At the same time,
governments adopt political, legal and economic means to ensure that power-supply enterprises
provide universal service. Countries both at home and abroad mainly take the following measures
to guarantee that power-supply enterprises perform the duty of universal service.

2.5.1 Using Monopoly Right to Guarantee Universal Service Provided by Power-Supply
Enterprises

      The state should guarantee the monopoly right of power-supply enterprises. Only in this way
can it ensure power-supply enterprises gain reasonable profits so as to provide universal service in
electricity. In addition, thanks to the presence of State Grid and China Southern Power Grid, the
capital for universal service in electricity may be temporarily born by power network companies.
As China is vast in size, cross subsidy can be carried out, with developed regions subsidizing


                                                 44
underdeveloped regions.

2.5.2 Providing Tax Preference

     The cost of universal service should be entitled to part of tax preference, enabling the limited
 capital to play a bigger role. Besides, reduction and exemption of taxes should be granted to
 power-supply enterprises providing universal service so as to make them more enthusiastic in
 doing so.

2.5.3 Government Establishing Universal Service Fund

     Internationally, governments of many countries directly establish a fund special for universal
 service, compensating those who undertake the obligation of universal service. For example,
 “Chapter Three Universal Service� of the Postal Law of Germany stipulates that “When
 operators demonstrate that their cost outnumbers revenue due to long-term provision of universal
 service, they can apply to the controlling authority (Note: postal responsible department of the
 government) for subsidy.� “Time of granting subsidy may be at the end of the fiscal year of such
 deficit, and the volume of subsidy equals cost minus revenue in providing such service.�

2.5.4 Government Compensating Universal Service By Means of Transferring Business
Revenue

     The government should, through legislation, transfer a certain proportion of the revenue of
 regions that do not undertake or take less obligation of universal service to regions undertaking
 more obligation of universal service. For example, the government may take part of the sales
 revenue of the developed regions in eastern costal areas of China and give it to power-supply
 enterprises in western China that are engaged in universal service in electricity.

2.5.5 Direction Financial Allocation by the State to Compensate the Deficit of Universal
Service

     The government may grant direct financial allocation to power-supply enterprises to
 subsidize their deficit of universal service. For example, the Swedish government allocates 200
 million Kronor to Post of Sweden each year to subsidize the latter for its cost in retaining the
 postal service networks so as to provide the Swedish masses with universal service.

2.5.6 Business Compensation

     The government helps power-supply enterprises handle some profitable businesses by
 administrative and economic means to expand their revenue and offset part of the cost
 expenditure in providing universal service. For example, most of the quality service of power
 network companies is free of charge, and therefore, the government may support the companies
 in question in collecting some labor fee and material fee for compensation.




                                                 45
2.5.7 Establishing Power Rate Regulatory Mechanism

     The government establishes power rate regulatory mechanism by law to ensure that
 enterprises undertake the duty of universal service. Charges of universal service shall be
 controlled by the state. When power-supply enterprises that undertake the duty of universal
 service have no ability to undertake such duty due to deficit, they may report to the supervisory
 and controlling institution for power rate regulation so that the compensated power rates can
 break even.

2.5.8 Policy Preference

     Apart from taxation, the state may also provide support in other aspects. For example, the
 purchase of wind power and solar power systems can enjoy more financial subsidy.

3. Supervision Framework of Universal Service in

Electricity
3.1 Supervision Target

     Based on the experience of other industries in the national and international perspective, the
 continuous development and advance of relevant technologies and businesses will have the
 concrete content and targets of the universal service in electricity evolved accordingly. At present,
 China witnesses the diversity of the economic development and electricity development as well
 as the demands of various communities in various areas. Therefore, the targets of the universal
 service in electricity shall be achieved by phases and levels.
     The targets of the universal service in electricity determine its supervision targets.
     Specifically, the supervision targets of the universal service in electricity are carried out
 mainly in the quantity, quality and fund raising and using in concern with the universal service in
 electricity.

3.1.1 Quantity

     As it has been stated, on the basis of the research results, the minimal target is to ensure a
 minimal 10 kW•h for one household in every month around the country. In addition, in
 consideration of the current conditions and development outlook in China, the program is to set
 up targets and specific standards. The targets constitute three groups who are under poverty in
 urban low-income groups, rural areas and outlying areas. Respective standards for basic
 subsistence and well-off life scenarios are set as follows to meet the basic demands of urban
 residents and to propose an outlook for the universal service in electricity based on energy-saving
 technology promotion.
     Under basic subsistence and well-off life scenario, the low-income urban households shall
 consume no less than 151 kW•h and 597 kW•h every year; the rural households shall consume
 no less than 121 kW•h and 497 kW•h every year; and the household in the outlying areas shall
 consume no less than 120 kW•h and 497 kW•h every year.



                                                 46
3.1.2 Quality

     The power industry gives its priority to safety as ever. The first reason is that the electricity
safety is essential to the power industry and the society. The accident of power network causes
loss to itself, e.g. casualty and physical injury, equipment damage or production suspension on one
hand. It greatly takes effects on economic activities and people’s life as well as the overall society
on the other hand. For example, between 1960s and 1970s, the blackout paralyzed the metropolis
like New York and Tokyo. Then, it is believed that “the accident of the power network is a disaster
in a society.� Secondly, the power industry is one based on hi-technologies. Andy operation
violating the rules and electrocution in particular will cause physical injury and casualty. Such
cases arose from the occurrence of power industry. There are hundreds over thousands dead from
electrocution nationwide every year. The power authority makes physical electrocution one of the
five prevention issues. The universal service in electricity should adopt effective measures to ward
off accidents of physical electrocution. Thirdly, the targets of universal service in electricity are
subjected to the vulnerable crowd whose rights deserved need to be safeguarded by the
government according to the supervision regulation.
     It is the principal promise that the power network maintains the uninterrupted power supply
for its users. Modern life is indispensable to the power. In addition, power breakdown will incur
huge loss to the production, processing and control system and computers. It is impossible for
each power supply unit or power generation unit to uninterruptedly supply or generate power.
Hence, the layout of equipment and construction of the network shall be sufficient as well as
enough quantity of standby application. This is where the power industry differs from other
industries. In order to maintain the equipments, equivalent average effectiveness can represent
equipment supplying and generating power; power supply ratio represents power supply system.
The universal service in electricity shall be achieved through the sophistication of these two
indicators and in connection with the international standards.
     The power quality indicator refers to frequency and pressure at present. As an indicator of
network, frequency shall be ensured in the respect of the grid; the pressure is safeguarded
collaboratively by the various networks within a system. The safe operation of the system needs
control on the pressure of the pressure centre unit in the acceptable scale and also monitor the
real-time pressure of the pressure monitor point. Besides the frequency and pressure, the power
quality indicator includes harmonic wave and flicker which take effect on the specific process and
control equipment. For users, it is not possible for users to measure the frequency and pressure if
setting up monitoring point in the distributing system for the accounting the pressure on the local
area. So, it is necessary to monitor the power grid in regular time and adopt measures based on the
results therefore, in consistence with the supervision of the power grid operation and the relevant
authorities
     The universal service in electricity shall offer cheap price. The supply-demand relations
between the power grid and users can be described as absolute monopoly, which is defined by the
nature of scale economy of the power grid. Therefore, the relation between the user’s demand and
power price is rigid. For the protection of the user’s interests, the power grid company shall pursue
the power sale price as low as possible and the power supervision authority shall monitor the cost
of the power grid company and limiting it for its super profit.
     The quality of the electricity universal services is determined by the quality of power supply,
including:

                                                 47
     In rural areas, besides the service standards defined by the above-mentioned scenarios, the
quality of power supply service set for the universal service in electricity shall also achieve
following targets: to ensure electricity safety, to improve power supply service quality, to increase
the annual average time free of electricity breakdown and to reduce average repairing time as
much as possible.
    In outlying areas, besides the service standards defined by the above-mentioned scenarios, the
quality of power supply service set for the universal service in electricity shall also achieve
following targets in terms of systematic technology: to ensure electricity safety, to improve power
supply service quality, to increase the annual average time of centralized power supply system and
household power supply system free of no electricity breakdown and to reduce average repairing
time as much as possible.

3.1.3 Fund raising and using.

    Based on the researches, the research team suggests the follows points. Funds are collected for
the universal service in electricity. The state power grid and the south power grid are responsible
for the implementation of the universal service in electricity. The collection of the fund and the
investment payment are carried out by the four state-owned banks. The Ministry of Finance is
responsible for the approval of fund using and the authorization of fund distribution. The Power
Supervision Commission implements the overall supervision, auditing the fund using planning,
annual financial budget and engineering financial budget of the universal service in electricity
processed by the national power grid and the south power grid, safeguarding the fund using for the
specified purpose or in transparent way. As a result, the target of the universal service in electricity
can be realized.

3.2 Supervision and Control Principle

3.2.1 Supervising and Controlling According to Law

    Universal service in electricity involves the interests of governmental institutions and all sorts
of customers. Experience drawn from other countries shows that law must be made on the basis of
speeding up universal service in electricity and that a legal system in accordance with socialist
market economic system and trend of international power reform, promoting sustainable, stable
and healthy development of the power industry and improving the efficiency of the power industry
as well as China’s overall competitiveness must be established as quickly as possible. Thus,
universal service in electricity will be legalized to guide and standardize behaviors of various
aspects and a legal basis will be laid for the supervision and control of universal service in
electricity.

3.2.2 Consistent Rights and Duties between Subjects and Objects

    In the first place, subjects and objects of universal service in electricity should be clearly
defined. According to the attributes of universal service in electricity, namely, availability,
non-discrimination and affordability, it is required that each citizen shall be entitled to reliable,
continued and sufficient power supply at a reasonable price, which is goal rather difficult to attain
if we purely regard enterprises or the government as the only subject of service. Therefore,

                                                  48
governments at all levels and power enterprises together make up the mixed subject of universal
service in electricity, which not only is in line with China’s national conditions but also
corresponds with the developments of China’s power industry. This is because: first, universal
service in electricity needs the government to draw up policies and issue measures, especially
needs institutional arrangement of measures, establishment of compensation mechanism of
universal service and more continuous input into and policy support of universal service; second,
the objective, plan, standard content and scope should be standardized by state legislation, guided
by government policies, supervised and controlled by government departments and organized and
implemented by power enterprises.
      Universal service includes subjects at three different layers, with the government as the
subject of responsibility, power network enterprises as the major subject of implementation and
state electricity supervisory body as the subject of supervision.
      Objects of universal service in electricity refer to the targets receiving the service, which can
be further divided into objects in the broad sense and objects in the narrow sense. Objects in the
broad sense refer to all social population within the territory, that is, the vast number of power
users who have normal access to electric power without the restriction of time and space. Objects
in the narrow sense only refer to those still uncovered by power network and with no access to
electricity up to now, to social vulnerable groups who can not afford electric equipment and power
rates, as well as to units and individuals without continuous access to electricity as demand
exceeds supply, resulting in seasonal and regional lack of electricity, and due to unfair power cut
and power limit. All objects of universal service in electricity are entitled to safe, stable, sufficient
and continuous power supply. This topic makes objects of universal service in electricity in the
narrow sense as the major subject of study
    Next, the rights and duties on the part of subjects and objects should be clearly defined, and
the supervisory and controlling principle of consistency between rights and duties should be
observed. In the implementation of universal service in electricity, rights and duties of the
government, power generating enterprises, supervisory and controlling institution and targets of
service should be made clear.

3.2.2.1 Deciding Projects and Project Legal Persons through Bidding and Changing
Disorderly Competition

     The reform plan of power system has clearly stated that the legal person of power project
should be selected through market competition. This is an important part of China’s reform of its
power investment system and a significant measure taken to change the disorderly competition in
the development of power projects. In addition, this demonstrates that the government carries out
fair, open and just control and service for all power project investors and creates favorable
environmental foundation and conditions for universal service in electricity.
     With regard to deciding projects and project legal persons through bidding, the basic
requirements are as follows: the government authority in charge approves power development
plans at the country and region level and make them public and issues project tenders stating name
of the project, limit of investment volume, expected online power rates, basic external conditions,
expected value of major technological and economic targets of the project, dates of
commencement and completion and environmental and ecological requirements. The authority in
charge may work out qualifications and conditions for access and specific measures of bidders and

                                                   49
employ project legal persons around the whole society. Meanwhile, the responsible authority must
impartially judge the bids and approve project legal persons when approving projects.

3.2.2.2 The Power Network Transmitting and Distributing Electricity without Interruption

    It has been put forward in the reform plan of power system that big users may choose power
suppliers to purchase electricity and conduct experiments on the reform of transmission system.
Authorized big users also become one subject of power market transactions. Therefore, one
question has come out as to how to provide universal service to these users and all distribution
companies.
    Big users may freely choose power generating enterprises with the pre-condition of
unobstructed power network, otherwise, the input made by power network to overcome and
remove the obstruction should be compensated in a reasonable manner. This sort of compensation
may be provided by universal service fund retained by the entire market or by one or several
relevant big users. As for its priority of transmitting electricity to distribution companies across the
country or big users, the demand of all distribution companies should be met first. When
transmission cannot be implemented based on the optimal plan due to big users’ independent
choice of power suppliers, additional loss of power network should be reasonably compensated.
    When, after calculation, power network enterprises can not provide universal service of
selected purchase of electricity to users or need to conduct technological innovation and
infrastructure construction concerning the volume limit of power network, these issues should be
included into mid- and long-term plan and annual plan and considered when appraising and fixing
the transmission rate of power network enterprises.

3.2.2.3 Ensuring Supporting Services So that Power Networks Can Function Safely and
Transactions Go Successfully

    Plant-and-network separation gives rise to the emergence of shared burden of other services
engaged in power transmission. In accordance with current international practice and given
China’s practical conditions, in the process of building power market, universal service in
electricity in particular, the supporting services mainly perform the following functions: providing
power networks with peak and frequency adjustment, system reserve, reactive compensation and
dark start-up. Some of these services are provided by power plants to power networks, while some
are just the opposite. But all services will be delivered to users, and therefore the cost involved in
providing supporting services need to be rationally apportioned and allocated.
    First of all is adjustment of peak and frequency. The load of power networks is subject to
fluctuation. By comparison, the load fluctuation of power plants is relatively stable. Under such
circumstances, operations will increase loss and decrease efficiency and benefits. A large number
of load arrangements are made through contract negotiation and balancing the interests of the two
sides with price. Daily load fluctuation of power networks may also have power plants
compensated when they bear load fluctuation by means of price competition, but fluctuation
beyond price competition should resort to supporting services. That is to say, if power plants
undertake additional adjustments besides normal load adjustment, they must be compensated
according to the public standard. Additional adjustments also include adjustment of mode of
operation under the condition of accidents, and the part generated due to deviation from normal

                                                  50
mode of operation should also be compensated.
    Second is system reserve. Current system reserve generally includes reserve for load,
maintenance and accident. Apart from maintenance reserve which can be regulated and controlled
by working plan, other reserves are quite arbitrary. From the perspective of system, it is absolutely
essential for power plants to provide it with reserve. However, on the part of power plants, it is
kind of give and sacrifice, thus they deserve compensation. Moreover, the electric power and
electric quantity purchased by the system from power generation operators should be absolutely
guaranteed. Power generation operators should set proper reserves so as to fulfill the agreement.
Thus, all-network reserve should have kind of segmentation mechanism. If power generation
operators promise power networks electric power and electric quantity without any arrangements
of reserves and in need of the system to provide reserves, and then power generation operators
should also pay for the cost of purchasing reserves.
    Third is reactive compensation. Reactive power source of the system mainly falls into two
categories: one is that power generation operators transmit active power and reactive power at the
same time, but long-distance transmission of reactive power is extremely uneconomical; and the
other reactive power source is the rotating or static reactive compensation equipment installed in
local power networks by power network operating enterprises. Some reactive electric power and
electric quantity installed on the side of users only exist between power network enterprises and
users and are realized through “adjustment of power factor�. With plant-and-network separation,
there is a reasonable distribution of the provision of reactive power among all power generation
operators, thus becoming a composing part of the universal service provided to power generation
operators by power network operating enterprises. The solution is still economic means. However,
the formation of China’s power system has its own history and different power plants have
different positions and roles in the system. There are some written items concerning the reactive
facilities of all power plants in the originally designed system power factor. As a result, history
should be respected and appropriate measures taken in the process of market reform.
    Fourth is dark start-up. Dark start-up refers to the power needed by system for recovery after
major accidents.
    Fifth is other service. E.g. stable controlling service and automatic generation control.

3.2.2.4 Obligatory Acquisition

    Among China’s energy policies, there is sort of power in line with environmental and
ecological guidelines as well as industrial policy, but it is visibly more expensive than
conventional sources of energy. After the market pattern of online price competition took shape
due to market reform, this kind of electric power is not competitive at all in terms of price. At
present, such electric power mainly refers to electricity generated by some renewable resources
and new energy, for example, electricity generated by wind power, solar power, biomass energy
power and small-scale hydroelectric power plants. This sort of electric power must be included for
universal service in institutional arrangement, but special policies must be formulated and issued
as encouragement, which mainly include:
    First of all, the government determines the share of renewable energy power within power
network. The maximum amount (or proportion) of such share should be examined and verified
based on the development and bearing ability of resources.
    Second, the price of renewable energy power may be determined or guided by the government.

                                                 51
The government should be prioritized to make adjustment and authorize power network
enterprises concerned to carry out obligatory acquisition.
    Third, profits produced from acquisition should be apportioned throughout the country. New
energy and renewable energy for the purpose of providing universal service in electricity should
be compensated by appropriate fund and subject to the examination and check of power
supervisory and controlling department.

3.2.3 Separating the Functions of the Government from Those of the Supervisory and
Controlling Institution

    Whenever there is an independent supervisory and controlling institution, supervision and
control and the formulation of industrial and public policies should be implemented by two
different departments, that is to say, the functions of the government should be separated from
those of the supervisory and controlling institution. For example, formulating relevant industrial
and public policies on “West-East electricity transmission project�, development and utilization of
clean energy and universal service in electricity should be the responsibility of the energy
department of the government, namely National Development and Reform Commission.
State Electric Power Regulatory Commission takes part in it, and major implementation units such
as power network enterprises and some business departments concerned should also take part in it.
State Electric Power Regulatory Commission should promote the legislation of universal service
in electricity, urge governmental sectors concerned to draw up industrial and public policies
concerning universal service in electricity, implement the supervision and control of universal
service in electricity in accordance with law, accumulate experience in the process of supervision
and control and put forward suggestions regarding how to adjust and amend industrial and public
policies.

3.3 Task and Substance of Supervision and Control

3.3.1 Universal Service Open to the Entire Society

3.3.1.1 Providing Various Sorts of Information Service

    Releasing necessary information on universal service in electricity is an important link for
monopoly enterprises to improve service, put themselves under the supervision of the entire
society and change the current pattern of asymmetric information. As market information is
diversified, for power network enterprises, information service in the following aspects is the most
important.
    1) Information on market demand and supply. In order to create a transparent market
environment for users as well as power suppliers, power network enterprises should, on a regular
basis and at the level of regional and provincial power markets, release the concrete results of
power consumption and expected power demand supply in future periods of time.
    2) Information on supply of resources. Here, resources refer to those already exploited or to be
exploited in the region, including information on project construction of power sources and power
networks.
    3) Transaction and price of electric power and electric quantity. Opening information in this


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regard facilitates the supervision and control of the supervisory and controlling institution and the
masses.
    4) Information on relevant industries. This means providing information on the possibility and
feasibility of service of electricity to the relevant industries, thus playing a supporting role in
guiding industrial investment.
    5) Information on total volume, structure, regional distribution and other major issues of the
power resources in this region. Power network enterprises should provide the information above in
an open and free-of-charge manner.

3.3.1.2 Formulating Industry Stipulations and Rules and Enhancing the Social
Responsibility of Power Enterprises

     Universal service in electricity is not the behavior of any individual enterprise but rather a
cause which deserves the attention of the whole industry. Therefore, it has become an objective
requirement to sum up existing experience and turn the experience into industry stipulations and
regulations. After a study on the service stipulations and rules for power-supply enterprises, China
Federation of Electric Power Enterprises provided some valuable suggestions on how to provide
excellent service in the power industry.
     First, customers come first and their demands should be prioritized. The goal is to meet
customers’ demands, with marketing focus laid on customers. The concept of “survival through
providing excellent service� should be established and each staff member should cultivate a sense
of responsibility——“everyone is serving others�. With customers’ demands satisfied, the
economic benefits on the part of power-supply enterprises should be in line with the social
interests of the vast number of customers.
     Second, the supply of electricity should be safe, reliable and good in quality. Improving the
structure of power networks and reducing the frequency of accidents in order to ensure safe and
reliable supply and utilization of electricity; attaching great importance to safety in production and
reducing the number of deaths and casualties resulted from electric shock so as to guarantee safe
use of electric equipment; reducing pre-arranged frequency of power cut and shortening the time
for maintenance through careful organization to diminish the loss imposed on customers; and
ensuring the quality of electricity with the voltage no less than 95 percent at users’ terminal.
     Third, seeking high efficiency and energy conservation and promoting management of
demand. Management of demand for electricity means kind of method and technique which
reduces electricity consumption, improves load and brings the supplying property of resources
into play on the basis of reasonable and efficient use of electricity. Also called as load
management, it is a method and technique that benefits the entire society. Management of
demand for electricity, a key composing part in combination of resource planning and an advanced
resource management method and technique currently advocated throughout the world, is
applicable to the operational mechanism of market economy, encourages competition of resources,
values cost benefit and promotes economical, top-grade and highly-efficient energy service. Thus,
its application in the power field has scored remarkable success.
     Management of demand for supply refers to managerial and administrative activities in which
power companies take effective incentive and guiding measures as well as appropriate mode of
operation, work together with customers to improve the ration of economical utilization of
electricity and reduce power consumption and demand for electricity while satisfying the need for

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the same power function, aiming at saving energy, protecting the environment and providing
resource service with the lowest cost. Major measures include load shaping techniques. Power
peak load shifting and changing the shape of the load curve can be used to improve the load ratio.
As to the control means that can be taken advantage of, besides direct load control and indirect
power peak load shifting, there is interruptible load control, which is suitable to some techniques
that do not require high compatibility of power supply. Power rates for such interruptible load may
be paid at a lower price. A large number of effective electricity-saving techniques are adopted
through controlling the terminal so that electricity can be utilized in an economical and efficient
way under the same conditions of electricity service. Economic means should be employed to
strengthen the management of demand for power supply, with the most effective means being
implementing different power rates for peak and bottom periods and seasonal power rates.
Management of demand for power supply is a huge systematic project. The reason why it is
included into universal service in electricity is that it brings benefit to the entire society and needs
the support and participation of all customers.
     Fourth, guided by science and technology, the service should be rapid and convenient. A rapid
and convenient procedure of reporting for installment of and access to electricity should be
established. Business offices handling the business of reporting for installment of and access to
electricity at the level of county or above should have no days off. Rapid-in-response system of
maintenance should be maintained and 24-hour maintenance service provided to customers. The
systematic function of the customers’ service center should be brought into play with their needs
and voices reflected promptly and efficiently. Service information of enterprises should be
transmitted so as to work as a bridge of communication between the two sides. A highly-efficient
and orderly marketing and managerial system should be set up to standardize the behavior of
enterprises’ service.
     Fifth is management in accordance with law and fulfillment of “openness, fairness and
justness�. Sticking to management in accordance with law and standardized administration and
working together with customers to ensure an orderly power market; making public the whole
process of handling business and strictly carrying out the power rate policies and charging
regulations of the state, with no charging items and standards in any form separately established.
Implementing an open, fair and just bidding mechanism to prevent any equipment of inferior
quality from going online and any unqualified construction team from getting involved and
affecting the safety of the power networks.
     Sixth is polite and civilized, sincere and devoted service. The mode of service should be
innovated in an up-to-date manner so that customers will increase their demand for electricity with
pleasure. Highlighting the focus of service with due consideration for all concerned and enhancing
the goal and management of service with a clear aim and striving to satisfy customers with special
demand for electricity.
     Seventh is social supervision and fulfillment of all promises. Establishing a smooth
supply-and-demand channel of exchange, strengthening the transparency of power-supply service,
improving feasible service supervisory mechanism and publicizing complaint hot-line telephone
and informants’ hot-line telephone, with the former replied within five working days and the latter
replied within ten days. Severely punishing and rectifying acts of breach of rules and disciplines,
setting a corporate image featuring promises honored and faith and honesty valued and earnestly
accepting the supervision of the government, society and all customers.


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3.3.1.3 Ensuring Users’ Equal Right of Enjoying Service of Electricity

     First of all, the subjects of universal service in electricity have the duty and responsibility to
safeguard and guarantee all social members’ equal right of enjoying service of electricity at a
reasonable price, which is total significance of universal service in electricity. a) Undeveloped and
backward regions where residents can not afford electricity. Their earliest access to electricity is
undoubtedly the top priority of universal service. b) Remote and sparsely-populated country areas
where the expenditure of building infrastructural networks is high, resulting in prohibitively
expensive service of electricity; and c) some special groups, such as the disabled, laid-off workers,
retirees above a certain age, backward areas inhabited by minority groups, low-income families,
households enjoying the five guarantees, compulsory education institutions and non-profit medical
institutions in underdeveloped regions. Different preferential service should be granted based on
practical conditions and targets. Comprehensive measures need to be taken when extending
universal service in electricity to some vulnerable groups in economically underdeveloped regions,
for example, reducing and remitting power rates, namely, formulating a standard of reducing and
remitting power rates for poverty-stricken peasants. Poor peasants should be provided with
electric equipment at a preferential price to help increase their per capita electric quantity. The
additional cost and loss of revenue on the part of power network enterprises due to the reduction
of power rates and cost of electric equipment should be reported to local Development and
Reform Commission, State-owned Assets Supervision and Administration Commission or State
Economic and Trade Commission and get compensated by the fund for universal service in
electricity with their approval. For those remote mountainous areas uncovered by power networks,
especially deep mountainous areas and regions extremely sparsely-populated, where the
construction cost of power networks and cost of electricity are high, the possibility of starting
business is quite low due to inconvenient transportation. The sparsely-distributed residents only
use electricity for illumination and electric household appliances. Therefore, their electricity
quantity is rather low and the load is quite small, resulting in huge loss. The unit cost of setting up
power-supply equipment is prohibitive because of harsh natural conditions, thus the power-supply
cost is accordingly high, and power network enterprises usually lose money if they implement the
existing power rates. This problem can be solved by the following means. First, after comparison,
small-scale hydroelectric power plants, wind power, solar power, biomass energy power or diesel
electric power stations should be established when local energy resources are available. Electricity
should be supplied separately and low-voltage networks built locally. Second, if there is no energy
resource that can be exploited available, power networks should be extended and electricity
transmitted to every user. Increase of power rates due to the prohibitive construction cost and huge
loss should be compensated by the fund for universal service in electricity.
     Next, with the development of rural economy and increase in the disposable income of rural
residents, the major task of providing universal service to rural areas is to reform and construct
power networks, expand amount of power supply, improve service facilities and the quality of
service, remove institutional obstacles, reduce power rates and lighten the burden of peasants.
     In the first place, supplying electricity to each county, township and village of rural areas
should be absorbed into the annual task of normal universal service in electricity. Plans must be
drawn up so that breakthroughs can be made during the 11th Five-Year Plan period. Of the capital
for reforming and constructing rural power networks, part should be set aside for projects aimed at
supplying electricity to all counties, townships and villages. These projects should be built by

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government bonds. As a result, the number of peasants without access to electricity will be
significantly reduced.
    Second, continuing the practice that urban and rural areas use the same power network and
enjoy the same power rates regarding residential consumption of electricity.
Same-network-and-same-price is an important measure taken to implement universal and equal
service in rural areas. In light of the end position of rural power networks, relatively backward
technical equipment, long-distance transmission, huge loss and consumption, plus some
managerial factors, power rates in rural areas far exceed that in urban cities, which fall short of the
requirement of universal service in electricity. The following measures might be feasible to change
such situation: the government or power-supply enterprises subsidize rural areas for the power
rates, which will add to the financial burden and reduce power enterprises’ profits for a long time;
another measure is to practice cross subsidy between urban and rural areas and implement
same-network-and-same-price policy with regard to the residential consumption of electricity of
urban and rural residents. That is to say, the urban and rural residents of a region with access to
electricity, with the precondition of not decreasing the business revenue of power-supply
enterprises, put the electric quantity and power rates of urban residents and those of rural residents
together and get an average power rate. Generally speaking, urban residents will pay more power
rates in this case with rural residents paying less, thus alleviating the burden on peasants. In the
comment given by the State Council to On Accelerating the Reform of Rural Power System and
Strengthening Rural Power Administration (guo fa (1999) Document No. 2) promulgated by the
State Economic and Trade Commission, it has been made clear that “In provinces (autonomous
regions or municipalities) where the conditions are ripe, a uniform price may be promoted; while
in provinces (autonomous regions or municipalities) where the conditions are still not ripe, for
counties which are under the direct supply of electricity and management within the provinces
(autonomous regions or municipalities), city-and-township uniform price may be promoted, for
other counties, ‘one county, one price’. Rural and urban cities should gradually realize the
comprehensive arrangement in terms of power rates and practice same-network-and-same-price.�
    After reform, in 2001, Jiangsu and Shanghai realized the practice of
same-network-and-same-price throughout the province (municipality); some regions, cities and
counties of Zhejiang, Shandong, Henan and Gansu realized same price; and the counties of some
provinces realized same price. According to statistics, by the end 2001, there had been more than
200 counties where urban and rural areas shared the same power network and the same power
rates regarding residential consumption of electricity. Practice has approved that such measure is
in accordance with China’s national conditions and that the implementation is stable.
    Third, the reform of rural power system should be further deepened. Promoting and improving
the reform of stock-holding system and establishing modern enterprises’ system in an active and
stable manner; reforming the subsidiaries of the power-supply enterprises of counties which are
under the direct supply of electricity and management; and gaining lessons and proposing
measures concerning the improvement of the reform based on pilot projects. Reforming the
power-supply stations at county and township level is the key of rural power system reform. So far,
over 95 percent of China’s counties and townships have their own power-supply stations and a
new-type rural power-supply management mode has been established, with rural power market
constantly standardized and level of service visibly raised. The power-supply stations at county
and township level consolidate and improve rules and regulations, raise level of operation and


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have realized the management mode of “three open� (open electric quantity, open power price and
open power rate), “four to each household� (selling to each household, copying the meters of each
household, charging each household and serving each household) and “five uniform�(uniform
power price, uniform receipt, uniform meter-copying, uniform accounting and uniform check),
thus rooting out the three headaches of rural utilization of electricity. The phenomena of “gratitude
electricity, authority electricity and relationship electricity� should be strongly prohibited.

3.3.1.4 Deepening Traditional Electric Service and Including It into Universal service in
electricity

    Traditional electric service should be deepened with the aim of establishing a “civilized
industry�. Standardized service of power-supply business in cities above the level of prefecture
should be carried out and model windows of power-supply business in rural areas set.
Commitments of power-supply service should be made public and supervision from the whole
society actively accepted.
    First of all, service provided to users by power-supply enterprises should be standardized and
institutionalized and become the voluntary act of enterprises and staff. A complete customer
service system should be established. This system includes institutes organizing service, business
flow and operational rules and regulations. Currently, most power-supply enterprises have set up
customer service center, which is a window unit accepting customers’ application for business,
information inquiry, reporting for maintenance, complaints, issuing power-cut forecasts,
reminding arrears and providing information on supply and consumption of electricity.
    Second, from the long-term perspective, market development will gain increasing significance
and the business mode of “waiting for customers and power rates to come� will undoubtedly be
eliminated. Marketing service agency should change its attitude from passive to active, aiming to
meet customers’ demand and gain more profits for enterprises. The marketing service agency
should also analyze market environment, carry out market research, establish marketing
information system, formulate marketing strategies and innovate means and mode of service.
    Third, directing distribution network system to operate and practice, handle accidents and
ensure secure and stable operation of power networks. Various technological measures should be
adopted to improve the quality of electric energy. Directing engineering service agency to look for
and clear all the trouble based on the information provided by the information service agency.
    Fourth, paid technological service may be provided, such as maintenance of users’ equipment,
check of relevant projects, instruments and meters and training for workers engaged in electric
service.
    Five is commitment to social service. As early as 2001, the then existing state power
companies put forward a uniform eight-point commitment concerning electric service to
standardize power-supply service, which evoked strong responses in the entire society. Quality
service should be provided continuously in the future.
    Six, individual innovations of all power-supply enterprises should be respected, all kinds of
quality service activities promoted and relevant rules and regulations summarized, formulated and
improved.




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3.3.1.5 Power Enterprises Should Continue to Expand the Content of Service and Improve
Its Quality

    First is changing the concept. In order to open the market, introduce the competitive
mechanism, and enhance staff’s sense of serving the customers voluntarily, overseas power
enterprises have conducted a series of cultural reforms: calling users customers and building up
the concept of respecting customers; calling distributing electricity as supplying electricity and
meeting customers’ needs; changing electricity management into customer service and building up
the concept of “Excellent Service + Quality Products=100% Victory�; and changing controlling
electricity to popularizing electricity and recommending top-grade electric products and
instrument to customers so as to use electricity more frequently and more efficiently and expand
the market.
    Second is extremely considerate service. Power enterprises offer various means of paying
electricity bills to help customers find one way acceptable to them. Major means of payment
include payment in cash at proper places, payment in check, payment of an agreed odd amount
each month or each quarter and pre-payment by meter. The network of payment provides
considerate service seven days each week and can re-supply electricity within one day after arrears
are collected. New customers can get power supply within 24 hours after the installment of
electric equipment is proved to be safe. Maintenance workers will arrive at the spots of power cut
within one hour after being notified and make emergency repair. Customers who will be affected
by planned power-cut will be notified in advance. Customer consultant group and regional
customer consultant committee should be established, customer opinion card, customer quarterly
journal prepared and service commitment and survey of customers’ opinions done so as to
strengthen communication with them. Customer service center provides 24-hour service every day.
Customers’ inquiry calls should be received within four rings. It is not allowed that customers wait
for more than 20 minutes in the service center to make an inquiry. No matter what business
customers need to handle, power enterprises must do a good job in helping get their business done.
Neglecting customers is never permitted.
    Third one is users with particular needs. Many overseas power companies have formulated
Code of Conduct for serving senior and disabled users and set guarantee standard and
comprehensive standard. Guarantee standard is kind of standard that must be attained in every
individual case. If the required standard has not been attained, power companies have to
compensate the affected customers. Comprehensive standard refers to the pre-determined minimal
service standard which common users are entitled to expect and which is not suitable for
individual guarantee. As for users with particular needs, like senior citizens, the disabled, chronics,
and users in urgent need of such electric equipment as dialyser and artificial oxygen respirator,
power companies will arrange registration for them. Then, the specially-trained staff will give free
assistance to these users, provide them with various adapters and controlling facilities on a larger
scale, install sets of secure and reliable instrument in senior citizens’ homes and reserve a spare
mains in case of overload. Telephone calls or family visits may be employed to help users improve
energy efficiency and change the position of electricity meters for free so as to facilitate the
checking by the disabled and senior citizens. Users with difficulty in eyesight, hearing and
speaking should be provided with “oral electricity bill�, printings with big-sized characters and
Braille electricity bills and allowed to entrust a third party, either relatives or friends, to handle
electricity bills or other issues. All power companies ensure the safety and reliability of power use

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for vulnerable user groups by means of password.
     Fourth is preferential power price. China’s preferential power price is the legacy of planned
economy, which, in essence, is another form of financial subsidy, as then electricity was controlled
by the state. Basically state policy-rated, preferential power price is mainly granted to the
following several categories: first, northwest China, especially a particular kind of agricultural
irrigation in Ningxia Xihaigu and Hexi Corridor of Gansu; second, important lifeline enterprises,
military industrial enterprises and enterprises with special nature controlled by the state, such as
individual plants engaged in nuclear industry; and third, particular techniques of some competitive
enterprises, such as electrolytic aluminum enterprises. The two power network enterprises formed
after reorganization of the power industry continue the preferential power price, transferring
government subsidies to power network operating enterprises, which is against exchange at equal
value of market economy. Therefore, such situation should be gradually transformed with the
reform of power price. One feasible measure is to cancel such price subsidy. Subsidy for rural
power supply should be replaced by governmental transfer payment; and as for industrial
enterprises, the problem should be solved through tax adjustment.
     Fifth is electrification. Electrification is a particular situation in China’s power supply, which
mostly occurs in mines and family communities of some enterprises. On the one hand, extension
of public electric power networks is not economical. On the other hand, the existing power
network of enterprises can supply electricity quickly and conveniently. Therefore, Article 20 of
Regulations on Power Supply and Use stipulates that: “For regions uncovered by public
power-supply facilities, power-supply enterprises may commission units nearby capable of
electricity transmission to supply electricity.� According to China’s realities, conditions should be
actively created to cancel to electricity in a gradual manner.
     Sixth is families short of fuels. In order to alleviate the difficulty faced by families short of
fuels, power enterprises, all natural gas companies, the government and regulators as well as the
consumers should work together and establish a “task group� to solve the problem and help
families with particular needs improve their energy efficiency free of charge. Power companies
have adopted power price for small quantity use of electricity and canceled fixed power rate for
users consuming small quantity of electricity.

3.3.1.6 Guaranteeing the Safety of Power Networks

    Power network enterprises constantly enhance the reliability and ability of recovery of power
networks so as to reduce the negative impact imposed by external factors such as climate and trees.
Long-distance power network control and the automation of transformer substations have greatly
reduced accidents of power-cut. The installment of long-distance control and remote devices in
main transformer substation also has significantly reduced the time needed for recovery. Projects
transforming the power systems in downtown areas and suburbs, automation of power-supply
system and aerial cable innovative projects all have enhanced the reliability of electric power
supply.
    After the reorganization of China’s power industry and the establishment of a new system,
universal service in electricity is faced with new problems. That power network operating
enterprises provide numerous power generating operators with universal and equal service should
be a pioneering task of universal service in electricity, which should be continuously developed
and improved in practice.

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3.3.2 Construction of an interactive system in universal service in electricity

    The universal service in electricity is related to government, power grid enterprises in and
power generation enterprises. The integration of the users’ interests to the universal service in
electricity has to set up an interactive system, namely the interactive system of the comprehensive
power services.

3.3.2.1 The construction of customer assessment system and the increasing of the public’s
participation

    The power industry used to follow up the firm performance assessment or contesting among
service units which are organized by the government or an authority. However, these activities
depend too much on the subjective standard and thus lack of recognition in the public. In order to
make up this recognition, it is worthy making use of the methods in the foreign country, which
means to establish customer trust and assessment system, namely, a customer satisfaction indicator.
In the West, this indicator results from that the industry has fully aware of the industry on the
importance of customers and pursued for their satisfaction. In the meanwhile, this indicator can
help increase the competitiveness and directly present the strategy of economic effect. Finally, this
indicator can be used as an important mean to enhance the firm’s operation.
    The customer’s satisfaction refers to a status of being enjoyable or disappointed with a product
or service in result of a comparison between the effect (or the result) of recognition and his or her
expected values. The satisfaction degree is the qualitative of customer’s satisfaction in percentage
as used by many countries from 100 down to 0 by maximum to minimal satisfaction.
    Each enterprise can choose various customer samples, the total of which shall not less than 0.1
percent of the aggregate customers. The questions on each sample should be designed on the
ground and completely reflect the services and their depth of the enterprise. At the same time, a
couple of indicators are set to discover the feedback of customer, for example, customer
expectation, recognition quality, recognition value, satisfaction degree, and customer complaint.
The customer satisfaction is calculated based on three variables: the total degree of satisfaction,
the diversity of the expected recognition and quality, the distance between actual product/service
and the expected product/service. The customer satisfaction for each enterprise goes between 0
and 100 and it for the industry therein is the levied average of sales income.
    The inspection on the indicator of customer satisfaction undergoes to the enterprise itself and
the assessment throughout the whole industry shall stress its objectivity and justice by means of
the industry union or association.

3.3.2.2 Effective Complaint Management

    The indicator of customer satisfaction presents the overall level of the universal services of
power grid firm but may not reflect the course of dialogue between individual behaviour and
society. Therefore, it is necessary to legally formulate a complaint management.
    There are two kinds of complaint management. The one is set up by the enterprise or its
superior enterprise (or its receiver) based on the enterprise’s regulated issues related to the
complaints, which are clearly defined by the Regulation on Power Supply and Utility and the eight
items of commitment undertaken by the power enterprise to the public. Furthermore, the power


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enterprise shall regularly issue the result of the complaint management to the public, where the
complaint management shall be disclosed to and inspected by the public. The other one is
established by power inspection authority. According to the responsibilities defined the power
inspection commission and its branches shall have their own complaint management sector which
mediator and arbitrate the dispute on the power use between power grid enterprise and the
customer and on the power purchase between power grid enterprise and power generation firm.

3.3.2.3 The establishment of risk management for an enterprise

    For the power grid enterprise, the different understanding on one issue may be disclosed by
media or reported to the relevant authorities. It may take effect to a great extent, sometimes. An
accident caused for some season or major force to the power grid may involve the users. It is
called the risks of the power grid enterprise. On the condition that the power grid enterprise is
much related to the producer of power resource and customer, it is particular to adopt the power
grid enterprise and risk management to the universal service in electricity.
    The risk management for an enterprise includes three aspects as follows:
    The first is risk recognition system. The enterprise shall assign a function department to
undertake the work recognize risks which include complaints and reports from all walks of society,
the letter of inquiry sent by the superior firm or the adverse issues published by the media. The
risk recognition shall be quickly bewared and reported. At the very first moment when risk occurs,
it shall be informed to the decision-maker. The risk recognition system shall organize some
personnel to consult and judge the risks and offer the strategic suggestion on the risk management.
    The second is risk management command system. The enterprise shall appoint a top
decision-maker to take charge of the overall works on risk management, set a temporary risk
management command team and a standing department for daily works. The decision-maker of
risk management shall be authorized a special power of command. The works on risk management
shall be undertaken by relevant business department so as to avoid interest conflict between the
departments.
    The third is an early warning system and risk management preparation. The early warning
system makes use of technical means to analyze variables incurred in the process of operation, to
monitor the status which is compared with the indicator of preset status and then conclude the risk
possibilities and the risk prevention. Meanwhile, based on the analysis on the historical risk
management the enterprise shall extract some basic experience for the preparing solution. Once a
risk occurs in the enterprise, the preparing solution can be process to avoid the expansion of the
risks and improve the effect of the risk management.

3.4 Supervision Institutes and Their Responsibilities.

     According to the targets, discipline, tasks and content of the supervision on universal service
in electricity and also considering the state conditions and concrete situation, the State Power
Commission take responsibilities to undertake the supervision on the universal service in
electricity. In the process of supervision, the Commission’s main responsibilities are to monitor
the implementation of the universal service in electricity in respect of the quantity, quality and
fund raising and using for the universal service in electricity, to coordinate the problems produced
in the process of services, to accept complaints and advise on the solutions, to timely conclude and

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promote the experience of the comprehensive services, to feedback the service problems and to
prepare and carry out yearly working plan.
     The State Power Supervision Commission’s short-term responsibilities for the universal
service in electricity are as follows:
     The first is to clear off the concept of the universal service in electricity through a research, to
define the content, scope, width of this service and the operating depth in connection with the state
conditions, and to approach a concord understanding between governments at all levels,
enterprises and users and operates all works in the platform of the universal service in electricity.
     The second is to intensify the publicity on universal service in electricity in form of national or
international research meeting to expand the concept of the universal service in electricity to the
enterprises at all levels, in particular the heads of enterprises and users, to expand the influence of
this concept for the self-protection awareness of people to the services.
     The third is to make full investigations and researches on the universal service in electricity
undergone to the power suppliers nationwide, analyze relevant issues and prepare for the legal
making of the universal service in electricity. Also, it shall develop an ad hoc research and
topic-based research and define its key works.
     The fourth is to develop the investigation and research on the quality of the universal service
in electricity. The format contract set by the power-supply enterprise containing unequal terms and
conditions such as statutory obligation of “final interpretation�, reducing and exempting its own
responsibilities, including notice, announcement, notification and so-called industrial conventions
is against the discipline of the universal service in electricity and the mission for the people. This
shall be one of the key works for the electricity supervision commission.

4. Policies and Suggestions on Universal service in

electricity

4.1 Setting a Multilevel Goal of Universal Service That Corresponds with Economic and
Social Development

     According to international experience, the concrete content of universal service in electricity
should also keep evolving with the development of power technology and the expansion of
business. Policies of China’s universal service in electricity with a multilevel goal should be
worked out upon such basis and carried out in a stage-by-stage and layer-by-layer manner.
     The goal of universal service should be different at different stages, namely, short-term goal,
mid-term goal and long-term goal. Goals for different stages, for example for 2008, 2010 and
2020 may be set. Goals should also demonstrate regional differences based on the unique
conditions of the eastern, middle and western parts of the country. Business types of universal
service should be gradually expanded in regions where the conditions are ripe to reflect the level
of economic level.

4.2 Establishing and Improving the Relevant Legal Guarantee System

   China’s universal service in electricity has a late take-off. Up to now, there has been no
complete set of laws and regulations to supervise and control it, which directly affecting the

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progress of related work. Thus, at present, it is urgent to formulate relevant laws and regulations in
this regard. In order to ensure that universal service may develop in a more standardized, orderly
and healthy manner, the following principles should be followed in actual practice:
      First is principle of integration with international standard. The establishment of universal
service mechanism should help break monopoly, protect competition and promote development;
be conducive to supervision and control so that the fund will be operated in a more open, just and
transparent manner, help constantly improve public welfare and guarantee the sustainable
development of national economy.
      Second, principle of defining the rights and duties on the part of subjects and objects clearly,
that is, every individual shall be entitled to the basic right of enjoying universal service and every
operator shall have the duty to provide universal service.
      Third, principle of sustainable development, that is, the objective of universal service must
keep updating with economic and technological development; and the level of service needs to be
continuously improved, which shall be going hand in hand with the development of the power
industry instead of simply being an expedient.

4.3 Formulating a Special Plan for Universal Service in Electricity and Forming a
Corresponding Target System

     Universal service in electricity has a bearing on the overall situation of building up a
harmonious socialist society. Therefore, it needs concerted efforts of all governmental departments
concerned and all enterprises of the power industry, needs comprehensive consideration within the
framework of development of the power industry, and needs a well-coordinated relationship
between it and the development of renewable and new energy resources. Based upon the
considerations above, it is suggested that the governmental department in charge formulate a
special plan for universal service in electricity after connecting it with other relevant plans and use
such plan as the guiding document to coordinate all departments concerned in a joint effort to
promote all kinds of relevant tasks.
     Given China’s vast territory and that the level of economic development and the condition of
power supply vary from region to region, it is impossible find out a uniform and qualitative
standard. It is quite crucial for the improvement of the level of universal service in electricity to
formulate different standards and adjust the standards with the change of relevant factors
according to different period of time and different regions. It is suggested that the governmental
department in charge set up a dynamic mode of measurement and determine universal service
standard by quantitative means based on different situations of the regions at different periods of
time.
     Factors need to be considered in the standard mainly include: GDP, GPI, per capita income,
proportion of power expenditure in residents’ consumption, regional ratio of access to electricity,
per capita consumption of electricity and power rate. Quantitative measurement of the
implementation of universal service can help provide a basis for state’s legislation concerning
universal service in electricity and further promote the development of universal service in
electricity at the same time.




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4.4 Improving the Regulatory Mechanism of Universal Service

4.4.1 Regulatory Institution

     According to the managerial experience of power public welfare fund both at home and
abroad, the fund management institution has three modes: the governmental department, power
enterprises and independent non-profit agencies. From the perspective of realities, the fund for
universal service in electricity should be managed by the governmental department rather than
power enterprises.
     Notice Concerning Printing and Issuing the Reform Plan of Telecommunications System by
the State Council (guo fa〔2002〕Document No.5) clearly puts supervision and control of
implementing policies concerning the universal service in electricity into the responsibility of
State Electric Power Regulatory Commission. And the State Electric Power Regulatory
Commission also defines its duty in Regulatory Measure for Power Supply Service (Trial). The
subjects regulating universal service in electricity should be the State Electric Power Regulatory
Commission and institutions appointed by it.
     The subjects carrying out universal service in electricity are mainly power-supply enterprises
and the objects subject to regulation are such enterprises as are engaged in power-supply
businesses within the territory of China and have obtained power business license in accordance
with law, including State Grid, China Southern Power Grid and other local power-supply
companies.
     Given China’s vast territory and huge differences among regions, the management authority
of universal service under the State Electric Power Regulatory Commission may adopt the mode
of “vertical establishment and level-by-level management�, that is to say, the regulatory structure
can be divided at the level of central government and provinces (autonomous regions and
municipalities).
     Major responsibilities of the State Electric Power Regulatory Commission for regulating
universal service in electricity include: researching into policies and measures of universal service;
assessing the cost of universal service and organizing the collection and distribution of universal
service capital; determining the target and scope of universal service, editing and reporting the
budget and final accounts of the income and expenditure of the fund; monitoring, appraising,
supervising, checking, and rewarding and punishing universal service; and proposing various
suggestions on universal service to the governmental department in charge.

4.4.2 Regulatory Measure

      The rules and regulations of the regulatory measure of China’s universal service in electricity
shall be formulated in accordance with Article 5 of Regulatory Measure for Power Supply Service
(Trial) promulgated by No.8 Order of the State Electric Power Regulatory Commission: “Electric
power regulatory institutions shall supervise and control the implementation of universal service
in electricity by power-supply enterprises. Power-supply enterprises shall, in accordance with the
provisions of the state, perform their duty of providing universal service in electricity and ensure
that everybody shall have access to basic power supply at a universal and acceptable price.�




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4.4.3 Principles and Objectives of Regulation

     The objective of the regulation of universal service in electricity should be the same as what
has been described in Article 5 of Regulatory Measure for Power Supply Service (Trial):
“Power-supply enterprises shall, in accordance with the provisions of the state, perform their duty
of providing universal service in electricity and ensure that everybody shall have access to basic
power supply at a universal and acceptable price.�
     As for the regulation of universal service in electricity, principles of in accordance with law,
independence, justness and transparency should be adhered to through formulating definite
regulatory legal provisions and transparent regulatory procedures. Fair competition should be
encouraged while competition in chaos opposed so as to improve the efficiency of regulating
universal service in electricity.

4.4.4 Regulatory Means

      Regulatory means for universal service in electricity include legal and administrative means,
economic means and corresponding technological means.
      The State Council has clearly defined the responsibility of the State Electric Power
Regulatory Commission for the regulation of universal service, but the corresponding regulatory
system still needs much improvement. Close attention should be paid to the formulation of
regulatory laws and regulations on universal service in electricity so that the regulation has laws
and regulations to go by from the very beginning. With regulations to go by, it means defining
power-supply enterprises’ duty of providing universal service and the scope, goal and standard of
their duty in legislation. According to the need of regulation, formulating, amending and
abolishing law should go hand in hand upon the basis of sorting out the existing law. More efforts
should be made to improve the laws and regulations concerning the subjects of power regulation
and to set up a system of law, regulations and rules concerning the regulation of universal service
in electricity.
      Fund management mode means to strengthen the economic means of regulating universal
service in electricity. Market competition mechanism should be introduced into the economic
means of universal service in electricity. On the one hand, power-supply enterprises’ duty of
universal service in electricity should be enhanced and part of the universal service capital should
come from their sales income. On the other hand, commercialized operation mode and marketized
distribution mechanism should be introduced so that in the process of universal service in
electricity, power-supply enterprises who work more are paid more, work less are paid less, and
those who do not finish their tasks should be severely punished. Economic lever should be
employed to stimulate power-supply enterprises’ enthusiasm in this regard.
      System of informationization of regulation should be constantly improved. At the same time,
the regulatory authority will do more research into the operation mechanism of universal service
capital to avoid fake information, deception and moral risk that may possibly arise from the
process of implementing universal service in electricity. Regulatory system, informationization of
examination and approval, and publication of information of administrative affairs should be
completed in a step-by-step manner. Finally, a complete three-layer system of informationization
of regulation consisting of report forms, reports and examination and approval will be formed. The
regulatory authority itself should also improve regulatory means, publicize information of

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regulation in a timely manner through Internet and subject to social supervision in accordance
with law so as to enhance the transparency of the administration of the regulatory authority and
safeguard the principles of justness, fairness and openness.
      Proactive regulation and supervision should be strengthened. Though proactive regulation
and supervision will increase the cost on the part of those subject to regulation and supervision,
the increase is relatively small. As violation already happens, violators are usually faced with
relatively huge losses, so they are willing to break the rules at a higher price. Strengthening
proactive regulation and supervision in universal service in electricity can help reduce cost of
violation and improve the efficiency of regulation and supervision.

4.5 Formulating Relevant Supporting Policies

     Universal service in electricity is a welfare project which brings benefits to the masses.
Therefore, the government should give cost compensation to the power enterprises providing
universal service and grant them a series of preferential treatment though state macro-regulation
and control so as to enhance their enthusiasm for providing universal service.

4.5.1 Loan Policy

     Power industry is an investment-intensive industry. As for rural areas where the cost of
universal service is higher and remote areas with no access to electricity, the government should
give scope to its role of macro-regulation and control and grant interest-free or low-interest loans
to projects providing universal service in electricity.
       Projects providing universal service in electricity may obtain loans from state policy-related
financial institutions and commercial banks. As projects providing universal service in electricity
are risky and non-profitable, it is not easy for them to get loans from commercial banks. State
policy-related financial institutions, established by the government to realize particular social and
economic goals, have the duty to serve the policy purposes of the government in terms of
determining prospective borrowers and loan volumes and should bear the responsibility of
providing financial service to projects supplying universal service in electricity.
     Power enterprises providing universal service may choose one from such state policy-related
banks as State Development Bank, the Export-Import Bank of China and China Agricultural
Development Bank as the loan provider. And the state policy-related banks should seriously
consider the special characteristic of universal service in electricity and grant some preferential
policies to the power industry. Specifically speaking, the policies include reducing loan interest
rate or providing interest-free rate and extending the deadline for returning the loan. At the same
time, consideration should be given to low-interest loans like loans granted to old revolution base
areas, areas inhabited by minority nationalities, frontier areas and poverty-stricken area for
economic development and aid-the-poor discount loans.
     At present, long-term loans obtained by power enterprises are largely loans on credit. In light
of the special characteristic of universal service in electricity, loans on mortgage or pledged loans
should be taken into account. Power enterprises may arrange a loan from a bank by mortgaging
the facilities or equipment of the project or choose other flexible means of guarantee like
“pledging the earning right of power rates�, “mortgaging the assets of project under construction�
and “pledging the rights and interests of the shareholders�. The loan term for hydroelectric

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projects currently can be extended to 15 to 30 years, thermal power projects 15 to 20 years
(including grace period) and power network projects 20 years.

 4.5.2 Tax Policy

      With reasonable tax rate, the state ensures that power enterprises obtain a certain amount of
accumulation capital in production and operation and then use the capital for extended
reproduction so as to promote the development of power cause. Specifically speaking, the
preferential tax policies that may be adopted are as follows:
      1) Investment in universal service in electricity should enjoy tax-free policy so as to boost
investment in this regard, reduce investors’ losses and compensate cost of universal service in
electricity. To be more specific, it includes: investment in universal service in electricity enjoying
tax-free policy for the purpose of attracting power-supply enterprises’ investment of power
building for remote and underdeveloped areas; following the tax-collecting method of agricultural
network building fund, capital used in power building only subject to value-added tax (VAT) and
free from other taxation.
      2) The actually collected power rates of universal service in electricity should be based on for
tax dues accounting. Currently, arrears of electricity users are a quite grave problem. For the sake
of social stability, with arrears uncollected, power enterprises themselves pay for the tax dues with
capital for production and operation based on the power rates payable, thus leading to a short-term
capital deficiency in the power industry. Universal service in electricity mainly serves low-income
groups, so collecting power rates is more difficult in this case compared with that of common
users. Therefore, it is suggested that power enterprises implementing universal service in
electricity work out the tax dues on the basis of the actually collected power rates.
      3) Alleviating the tax burden upon the renewable energy used in universal service in
electricity. In light of high VAT rate for and heavy hidden tax burden on hydropower and wind
power, it is suggested that hydropower and wind power enterprises carrying out universal service
in electricity be allowed to depreciate fixed assets and use spare parts or tools with high value as
income-tax countervailing, or appraise and fix a proportion and “first collect and then return�.
Meanwhile, reducing the VAT rate of hydropower and wind-power should be taken into account.
In order to share the tax burden with coal-power in a fair manner, the VAT rate of hydropower may
be reduced by 13 percent. Compared with hydropower, the actual VAT burden of wind-power is
even higher due to its smaller proportion of purchase of raw materials. In order to show the
encouragement for environmental-friendly and renewable energy of the state, the VAT rate of
wind-power should be reduced to 6 percent and equal that of the small-scale hydroelectric power
plants.

4.5.3 Financial Policy

     As a fundamental industry and an important link in national economy, the state should grant
appropriate financial aid and preferential treatment to power industry and other fundamental
industries and make vigorous efforts to support its development. Universal service in electricity is
a welfare project. The government should seriously consider the special characteristic of the
business of universal service in electricity operated by power-supply enterprises and grant them
some preferential policies and financial aid, which can be summed up into the following:

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     1) Relaxing the Control of Projects Concerning Universal service in electricity Property
     When planning, examining and approving the infrastructure of the same region, National
Development and Reform Commission should give top priority to power-building projects,
projects extending power networks and new energy generation projects in particular. New energy
is encouraged to be used for supplying electricity to remote areas so as to resolve such issues as
power supply tension and high cost of power supply in those areas. As for projects in need of the
same materials and resources, power-building projects should be prioritized. The special
characteristic of universal service in electricity should be considered during the process of
developing the power industry, and priority should be given to power-building projects.
     2) Granting Preferential Policy to Power Generation by Renewable Energy Resources
     As an effective measure to realize the universal service in electricity, power generation by
renewable energy resources should enjoy preferential policy: as for the land used by power
enterprises during their supply of electricity to remote areas, the state authorities concerned may
consider reducing the datum price of land for industrial use, the tax burden of land use tax upon
power enterprises and the cost expenditure of power-supplying enterprises.

 4.6 Pushing Universal Service in Electricity Forward with State Energy Policy Combined

     As the development of renewable energy and new energy has special significance in pushing
universal service in electricity forward, it is suggested that governmental department in charge
should grant more preferential policies to renewable energy and new energy in building the
implementation framework of universal service in electricity.
     In order to promote the building of a resource-conserving and environmental-friendly society,
the government should, in the process of carrying out universal service in electricity, especially
granting direct subsidy to targets of universal service, consider the effect of input as compensation
and energy conservation in a comprehensive manner so as to avoid new waste of electric resources
because of the provision of direct subsidy. It is recommended that the governmental department
concerned, in the process of implementing management of demand for electricity, promoting
energy-conserving household electric appliances and buildings as well as constructing cheap
renting houses and economical houses, combine the goal of energy conservation and that of
universal service and plan the utilization of the two parts of capital from an overall perspective so
as to maximize the utilization ratio of the capital and public interests of society. It is also
suggested that the department concerned implement the goal of scientific outlook to development
while meeting the basic daily needs of the targets of universal service.




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