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The power reform charade

On July 13, “Basic Policies for Reforming the Electric Power System” was released by a panel of experts organized by the Ministry of Economy, Trade and Industry (METI). It was subtitled “Aiming for an Power System Open to All Citizens.”

The two main policy pillars are: (1) separation of electricity generation and transmission, both of which are now controlled by the power companies and (2) retail liberalization of electric power.

A look at these slogans may give the impression that the power industry has surrendered to public demands for thorough reform of the system of electricity generation and supply, which the utility companies now monopolize in the regions they service.

A closer read of the basic policies, however, suggests that they would not lead to a system “open to all citizens” and that reform pursued along these lines would assure the power companies’ survival indefinitely. The general public would continue to be deceived.

A ranking power company official confided that the basic policies are “very well composed” and that the “worst scenario for the industry has been averted,” at a time when the power industry has borne the brunt of criticisms and accusations following the catastrophe at the Fukushima No. 1 nuclear power plant of Tokyo Electric Power Co. (Tepco).

As for separating electrical generation and transmission, the basic policies would provide all consumers nationwide with an “electricity platform” that is fair and liberalized. But this is far from acceding to the public call for full separation.

The METI panel differentiated separation by function from separation by ownership. With functional separation, the design, construction and operation of transmission lines would be spun off while the power companies would continue to own the transmission lines. Ownership separation, meanwhile, would shift actual titles to the power lines from the utility companies to other business entities.

The METI panel’s basic policies state that ownership separation is a subject for further study, which — in bureaucratic language — means the issue has been shelved indefinitely.

The power industry is said to have long opposed the separation of generation and transmission in general. In fact, members of the industry fear separation by ownership. Depriving them of owning the transmission lines could open the way for outsiders to enter the business of serving corporate and individual consumers.Newcomers could charge the power companies high prices for using transmission facilities. This could lead to the collapse of the regional utility “empires.” This scenario has been averted by the indefinite shelving of the ownership separation scheme.

On the crucial issue of liberalizing the retail delivery of electricity, the basic policies call for abolition of the regional monopolies now enjoyed by the utilities. This may sound like an attempt to usher in a new era of competition, but the power companies have succeeded in ensuring their survival through various tricks, such as by arguing that they are responsible for providing baseline “universal services” to every resident in the country regardless of location or cost. By law, the power companies are obliged to provide universal services, as are the providers of gas, water, mail and telecommunications.

Because of this obligation, the power companies incur structural losses from having to supplying electricity to remote islands — for example, more than ¥10 billion in the case of Kyushu Electric Power Co. To make up for these losses, the METI panel proposed that surcharges be imposed on electricity sold to households and enterprises throughout the country. Yet, despite the surcharges, the universal service obligation is to remain, thus making it difficult for newcomers to enter the retail electricity business.

Perhaps even more important than the issue of universal service is reform of the power generation system itself. The basic policies call for maximum utilization of high-efficiency sources of power generation. The most representative of these sources is none other than nuclear power. It is a known fact among insiders that nuclear power generation remains part of “reform” as a matter of policy.

There is also a latent attempt to spin off nuclear power generation from Tepco. A ranking METI official said Tepco’s Fukushima No. 2 nuclear power plant and its Kashiwazaki-Kariwa nuclear power plant in Niigata Prefecture have not been operated in an optimum manner despite their potentially high efficiency. He said if these nuclear power plants become excessive financial burdens for Tepco, they could be converted to public property.

He added that there may be a public solicitation of bids to construct and operate Tepco’s Higashidori nuclear power plant in Aomori Prefecture, although construction has been suspended.

Spinning off nuclear plant operations would be a big relief for Tepco and an ideal way for METI to publicize its success in reforming the power industry.

The separation of generation and transmission facilities as well as the retail liberalization of electricity — as described in the METI panel’s document — cannot be considered meaningful reform of the power industry. They amount to a rescue plan for the power industry and an opportunity for METI to publicize its claims of reform. When the METI panel released the policy document, the media merely took it at face value and reported that long-awaited reform was on the way.

It appears that many citizens will not understand the real intentions behind the policies. This almost smacks of deception by the state. All the while, Tepco is cracking a big smile of relief.

This is an abridged translation of an article from the August issue of Sentaku, a monthly magazine covering Japanese political, social and economic scenes.