Chinese power companies are trying hard to make a big fanfare about the urgent need to raise the price of electricity to avoid the country's worst power shortage in decades.

The country's leading power distributor, State Grid Corp, warned on Monday that some 26 provincial regions will suffer combined power shortages of 30 million kilowatts this year.

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Should that be the case, enterprises should brace themselves for a long, hot and dark summer since the power distributor has already made it clear that it will prioritize power supplies for residents, hospitals, schools and other public facilities. Nevertheless, should policymakers take such a warning at face value?

The government will by no means tolerate widespread blackouts. Hence, the answer is definitely no, unless the power industry can compellingly prove that its spare generating capacity is left idle out of necessity.

Admittedly, the severe drought that is plaguing both agricultural production and hydropower generation across the country has lent some credence to the claim that the country's power supplies will fail to meet the growing demand. It is also obvious that the long-term contradiction between the market-oriented coal pricing mechanism and State-controlled electricity pricing system has seriously eroded power companies' profit margins.

While consumer prices for electricity largely remain unchanged to help fight inflation, rising coal prices have led to a short supply of relatively cheap thermal coal and forced power plants to purchase more expensive coal, which means they generate electricity at a loss.

Under such circumstances, it is understandable that power plants may want to make use of the current tight supply of power to raise electricity prices for businesses in order to cover their losses.

A considerable hike in electricity prices is not that unthinkable in China given that much of the environmental cost associated with power generation has yet to be included in the bill. In fact, if the country is to aggressively embrace environmentally friendly and energy-saving growth, dearer power prices are only a matter of time.

However, it is quite another thing to raise power prices in the face of soaring inflation simply to improve the balance sheet of State power companies that boast a salary level far above the national average.

Some thermal power companies argue that the national grid takes too big a share of the power industry's total profits. Statistics show that in the first 11 months of 2010, China's grid made a profit of 59.2 billion yuan ($9.1 billion), 42 percent of the power industry's total profits. So redistribution of profits between the State power plants and State grid companies might thus be needed.

Unstable power supplies do not justify a dearer power bill for corporate interests but rather a thorough review of the operation and regulation of this powerful industry.

China Daily

(China Daily 05/25/2011 page8)