(Yicai Global) July 12 -- Enterprises with bad pollution records may be disqualified from participating in electricity trading activities in China in the future. The energy supervision and regulation office of Zhejiang province carried out a special on-site inspection campaign to review environmental compliance records of power trading participants, the office said in a notice released online yesterday.

Power transactions conducted by 86 companies this year were found to be illegal as they had received penalties for environmental pollution in the specified period. However, the notice stated local environmental protection authorities verified in writing that the penalties imposed on 13 companies were not pollution related, and so they are still eligible to take part in the power trading pilot program.

Investigators found that the remaining 73 firms illegally participated in the pilot program, so they have been disqualified as direct power trading participants for the rest of the year. Municipal economic and information technology bureaus will instruct their subordinate departments at the county or district level to inform the companies of the decision and the reasons. The office has requested State Grid Zhejiang Electric Power Company to collect electricity charges underpaid by the companies through direct power trading this year, and report the outcome in writing to Zhejiang Provincial Development and Reform Commission. This means that regulators have added environmental impact as a precondition for participation in power trading.

"The decision has significant implications, and other enterprises will be very careful about environmental compliance in future," Lin Boqiang, head of China Energy Economy Research Center at Xiamen University, told Yicai Global in an interview, because it set a precedence for relevant authorities to identify environmental violations by reviewing past transactions, and "offenders will be punished once discovered."

"Differential power rates through direct trading is substantially lower, and this [recovering the undercharges)] has a significant impact on them [the 73 companies]," Lin added. The punishment imposed on the 73 firms will act as a deterrent to other local enterprises participating in direct power trading, "as well as to participants in other parts of the country," he said.