Fukushima crisis spells change in power rate system

Bloomberg

The government plans to change the electricity pricing system as early as this month to restrict the type of business costs regional utilities can pass on to household power bills.

The power utilities, which typically hold regional monopolies and may raise power rates, will be prevented from passing on endowments and some advertising expenses, a government panel said Thursday. Bills will continue to reflect costs for personnel, maintenance and fuel.

The report didn’t give an estimate for how much household power prices will be lowered by the new regulations, though Hirofumi Kawachi, an energy analyst at Tokyo-based Mizuho Investors Securities Co., said the changes are cosmetic and won’t reduce rates.

“Utilities will need to raise power tariffs sooner or later unless the government allows a restart of a nuclear reactor,” he said by phone.

Scrutiny of the utilities’ billing practices follows a government investigation of Tokyo Electric Power Co. in September prompted by the Fukushima nuclear disaster. The investigation report said Tepco overestimated costs used to calculate electricity prices for as many as 10 years.

The utilities had ¥10.7 trillion in loans outstanding at the end of December, the highest in more than nine years. That’s the result of the Fukushima disaster, which forced the power producers to switch on oil and gas plants and pay higher fuel bills as most of the country’s nuclear reactors were shut for safety checks.

Utilities that rely heavily on nuclear power, particularly Kansai Electric Power Co., may need to raise electricity rates for households at least by about 10 percent to return to a profit, Kawachi said.

The changes will come into effect by the end of March, Hideharu Sakata, deputy director of electricity markets at the Ministry of Economy, Trade and Industry, said Friday.

The ministry, which overseas the power industry, hasn’t estimated how much the new pricing system would help reduce power rates, Sakata said.

“As utilities with a regional monopoly don’t face a competition risk, the average personnel cost of general companies should be used as a benchmark to decide that of electricity companies,” the report said.

The average annual income of Japan’s power companies is ¥6.8 million per employee, while that of companies with more than 1,000 employees is ¥5.4 million, according to the report.

Tepco plans to raise electricity rates for corporate customers by an average of 17 percent, it said in January. Tepco is considering increasing power prices for households in the latter half of the year, three sources said in February.

Tepco hasn’t decided the scope of the rate hikes for households, which will be incorporated into a business plan to be drawn up by the end of March, said Naoyuki Matsumoto, a spokesman for the utility.