Tradeoff in nuclear power

by Takamitsu Sawa

Trade and industry minister Yukio Edano was quoted by a major vernacular paper earlier this year as saying that the government is contemplating changing the policy of promoting nuclear power generation as a national project in which operations are entrusted to private sector electric power companies.

According to the Jan. 6 issue of Yomiuri Shimbun, Edano said in an interview that the government will consider entrusting the operation of nuclear power plants to public-sector organizations and changing the form of ownership of nuclear power stations.

The law on compensation for damage from nuclear power generation obliges an electric power company to pay full indemnities to those who suffer from an accident at a nuclear power plant.

In the fiasco at Tokyo Electric Power Co.’s Fukushima No. 1 nuclear power plant, however, it has become indisputably clear that the costs for repairing the plant, paying damages to the victims and ultimately decommissioning the reactors far exceed what Tepco alone can afford to bear.

The government has no choice except to give financial support to Tepco, and a new government agency has been established to help expedite indemnity payments by funneling public money to the utility.

Since this money is limited to paying indemnities, the government will have to pour much larger sums into Tepco to clean up the mess caused by the accident and to eventually decommission the reactors. In return, Tepco will need to offer to the government preferred or ordinary shares of stock whose value is equivalent to the government money it receives.

At present, Tepco stock trades at about ¥200 per share. If the government gives ¥1 trillion, it will end up holding two-thirds of Tepco’s shares, thus becoming the leading shareholder. And it will mean the nationalization of the power company.

In 1998, following the burst of the economic bubble in Japan, the government nationalized two large banks — Long-Term Credit Bank of Japan and Nippon Credit Bank — which had been beset with huge nonperforming loans. Both banks recovered quickly under sound management by 2000 and their preferred stocks, held by the government, were sold back to private entities at home and abroad. They now operate under the names of Shinsei Bank and Aozora Bank, respectively.

Edano stated that it would be “socially impermissible” for Tepco to revive itself by separating itself from the obligations of paying compensation and decommissioning the reactors. This, he said, makes it all the more likely that the company will be placed under direct government control.

Edano added, however, that since, in principle, the private sector should be responsible for supplying electric power, the government does not contemplate owning Tepco into the distant future.

The problems surrounding Long-Term Credit Bank of Japan and the Nippon Credit Bank were resolved within a couple of years after bad loans totaling several hundred billion yen were disposed of.

In the case of Tepco, the government would have to pour in tens of trillions of yen. Therefore, it will be nearly impossible for the government to sell government-owned shares back to nongovernment entities, although such sales would be a prerequisite for Tepco’s resuscitating itself as a private enterprise.

While, in Japan and the U.S., the operation of nuclear power plants is in the hands of private utilities, it is under government control in France, Britain, Russia, South Korea and China. In the U.S.,operations by private utilities are under close scrutiny by the independent and neutral Nuclear Regulatory Commission.

I have long argued that promoting nuclear power and liberalizing power generation and distribution are incompatible with each other — evidenced by the fact that, in many countries, nuclear power plants are operated by the public sector. There is a tradeoff between the pursuit of efficiency exercised by private firms and safety assurance.

Liberalizing the generation and supply of electricity forces a utility company to become an ordinary private company that seeks to improve efficiency in a competitive environment. It must be recalled that to ensure safety, redundancy (backup systems) and additional investment are needed to maximize robustness of its facilities. In other words, efficiency takes a back seat to safety assurance.

Liberalization of the power industry was aimed at lowering the prices of electricity. Most of the cost of nuclear power generation is the depreciation cost of the huge initial investment. The life span of a nuclear reactor has long been regarded as 40 years, although there is no legal provision on that.

2010 marked the 40th anniversary of the start of operation of Japan’s two oldest nuclear power reactors — the Tsuruga No. 1 reactor of Japan Atomic Power Co. and the Mihama No. 1 reactor of Kansai Electric Power Co., both in Fukui Prefecture. The same year, the Nuclear and Industrial Safety Agency granted, without hesitation, a 10-year extension to their life spans.

On Feb. 7, 2011, about one month before the earthquake and tsunami hit the Fukushima No. 1 nuclear power plant, the same agency granted a 10-year extension to the operating life of the plant’s No. 1 reactor — just after the reactor marked the 40th anniversary of the start of its operation. That decision was based on a technical evaluation report submitted by Tepco that claimed that the life span assumed in the designing of the reactor could be extended to 60 years.

On Jan. 6, Goshi Hosono, environment minister in charge of nuclear accident settlement and nuclear policy, announced government legislative bill that will, in principle, limit the duration of the operation of nuclear reactors to 40 years. The bill, submitted to the Diet on Jan. 24, is the first attempt on the part of the government to place a legal limit on the length of the operational period of reactors.

On Jan. 17, however, a clause was included in the bill, which stipulated that in exceptional cases, the operator of a reactor may be granted a one-time extension not exceeding 20 years. This came when Hosono was on an overseas trip. It is not known whether he knew of the new clause. It is obvious that such an exception will only emasculate the regulatory law.

Every nuclear reactor is required by law to go through a scheduled inspection. The law requires an inspection within 13 months after the restart of operations following the previous inspection.

But the law was revised in January 2009, and it is now stipulated that a new inspection must be conducted either (a) within 13 months, or (b) within 18 months or (c) within 24 months after the restart of operations following the previous inspection and that the government will decide on the length of the period.

The longer the reactor is allowed to operate between inspections, the higher becomes its operational rate.

The recent history of nuclear policy clearly shows that the government and the private sector have strenuously pursued prolonging the life span, and the operational period between regular inspections, of nuclear reactors.

It is unfortunate that the accident at the Fukushima No. 1 nuclear power station served to verify my long-standing assertion that a tradeoff exists between the pursuit of efficiency and ensuring of safety.

Takamitsu Sawa is president of Shiga University, Japan.