CHINA Law and Practice Contributed by: Yan Gao, Yilin Wang and Zhuohui Li, Zhong Lun Law Firm
mechanisms more commonly applicable to transmis- sion line corridors. For underground cable corridors associated with dis- tribution networks in urban areas, the same compen- sation-in-lieu framework described in 4.4 Eminent Domain, Condemnation and Expropriation Rights to Construct and Operate Transmission Lines and Associated Facilities applies, and the provincial leg- islation cited in that section is equally applicable to distribution cable installations. 5.5 Monopoly Rights for Electricity Distribution Entities The monopoly position of electricity distribution enti- ties in China is more nuanced than in the transmission sector, reflecting the structural changes introduced by the incremental distribution network reform since 2016. Under the traditional framework, supply enterprises held exclusive rights to provide distribution and sup- ply services within their respective designated supply service areas. The Power Supply and Use Regulations provide that only one supply business institution may be established within a given supply service area, and that supply enterprises must provide supply services to all users on a continuous and non-discriminatory basis. The exclusive right to operate within a supply service area is derived from the Electric Power Busi- ness Licence for Power Supply issued by the NEA, which specifies the licensed service territory. The incremental distribution network reform has intro- duced a significant qualification to this framework. Qualified non grid-enterprise investors, including pri- vate and foreign-invested enterprises, may obtain the exclusive right to provide distribution services within a designated incremental distribution area by winning the competitive selection process and obtaining the requisite licence. The Implementation Measures for the Division of Distribution Areas for Incremental Dis- tribution Network Business and the Notice on Further Promoting the Reform of Incremental Distribution Net- work Business provide the legal basis for this regime. Outside the incremental distribution reform frame- work, the construction and operation of distribution
networks by private or foreign-invested entities as independent distribution operators, is generally not open under the current regulatory framework. 5.6 Electricity Distribution System Charges and Terms of Service Provincial Grid Distribution Tariffs For distribution services provided through the net- works of the three major state-owned grid enterprises, distribution charges form part of the combined trans- mission and distribution tariff established under the Measures for Pricing Provincial Grid Transmission and Distribution Tariffs, as described in 4.6 Transmission Charges and Terms of Service . These tariffs are set by the NDRC on a permitted revenue methodology, reviewed on a three-year regulatory cycle, and differ- entiated by voltage level and user category. Incremental Distribution Network Tariffs For incremental distribution networks, a separate dis- tribution tariff is established by the relevant provincial price authority and filed with the NDRC. Under the Guiding Opinions on Formulating Distribution Prices for Local Grids and Incremental Distribution Networks (NDRC, effective 29 December 2017) and the Notice on Further Promoting the Reform of Incremental Dis- tribution Network Business, the distribution tariff is generally calculated as the difference between the applicable provincial grid transmission and distribu- tion tariff at the relevant voltage level and the tariff at the voltage level at which the incremental network receives power from the public grid. Regulatory Principles Supply enterprises are required to charge end-users in accordance with government-approved tariffs and may not levy additional fees outside the approved tariff structure. The Power Supply Business Rules specifically prohibit non-grid supply enterprises from adding operational or maintenance costs for common facilities to end-user electricity charges beyond what is permitted under the applicable pricing policy. Appeal and Complaint Mechanisms Transmission and distribution tariffs constitute gov- ernment-set prices under Article 18 of the Price Law (effective 1 May 1998), which provides that prices for goods and services involving natural monopoly
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