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Electricity and gas deregulation

The Abe administration has readied two bills for finalizing the liberalization of the nation’s electricity and city gas industries. Yet both pieces of legislation include a provision that leaves room to put off the last phase of deregulation if supply and financial conditions are unfavorable to the utility companies. The government needs to ensure that complete liberalization takes effect without delay.

Under a bill to revise the electricity business law, power transmission and distribution sections of major power companies will be spun off in April 2020. A bill to revise the gas business law, which calls for full liberalization of the gas retail market by 2017, mandates that major gas companies in Tokyo, Nagoya and Osaka separate their gas pipe management sections into new entities in April 2022.

The first bill represents the final stage of Japan’s moves to deregulate a power market dominated by regional monopolies, which has been gradually liberalized since 1995. Companies from various sectors have already entered the business of selling electricity to large-scale users such as plant operators. In 2014, these entrants deprived major suppliers of a market share worth some 3 million kW of electricity, equivalent to the output capacity of three nuclear power plants combined.

As part of the earlier phase of deregulation, an organization will be set up next month to smooth the transmission of power across regions now monopolized by the major suppliers. The retail sale of electricity to households and other small-lot users will open to new entrants in April 2016. The goal of deregulating the electricity and gas industries is to lower utility charges and diversify services by increasing competition.

SoftBank is reportedly considering a discount package to households that will subscribe to its electricity supply and mobile phone services. Oil wholesalers will be able to sell both gasoline and electricity to consumers. Companies from various other sectors such as cable TV operators and nonlife insurance firms will be able to add power supply to their products and services. Environment-conscious consumers may choose to buy electricity made from renewable sources, although the fees may be higher.

The proposed legislation will also lower the barrier separating the electricity and gas industries. Tokyo Gas plans to offer a package of electricity and city gas to households when deregulation kicks in.

The government initially sought to separate the transmission and distribution functions from regional power monopolies between 2018 and 2020. The Abe administration chose the final year in the target range for implementing the spinoffs. It is believed to have taken into consideration power companies’ contention that the spinoffs should be delayed as long as possible because their financial condition has grown weaker since the nuclear power plants were shut down following the 2011 meltdowns at Tokyo Electric Power Co.’s Fukushima No. 1 plant. They apparently hope to have restarted their nuclear plants and stabilized their earnings before the industry shakeup.

The three major city gas companies, meanwhile, have expressed opposition to the separation of their gas pipe management sections over what they say is the possibility of safety problems.

Amid such arguments by the utilities, the government attached a supplementary provision to the two bills stipulating that when the time nears for separating the power transmission and distribution sections, as well as the gas pipe management sections, the supply-and-demand situation must be examined and steps taken to prevent spinoffs from destabilizing supplies. That could mean, depending on the situation, a delay in liberalization.

The administration should give priority to the deregulatory goal of improving benefits and convenience for consumers.

It is said that power market liberalization in Japan lags behind similar moves in Europe and North America by more than 10 years. Given the opinion of the majority of people that Japan should reduce its dependence on nuclear power, it would be disingenuous of the government to plan to delay liberalization of the energy market until a substantial number of nuclear power plants are restarted.

  • Starviking

    “The government needs to ensure that complete liberalization takes effect without delay.”

    Yes, let’s do it tomorrow. Let’s shut down all the old suppliers. I want to have power only when the sun shines enough, and the wind blows enough. That would be grand!

    “It is said that power market liberalization in Japan lags behind similar moves in Europe and North America by more than 10 years. Given the opinion of the majority of people that Japan should reduce its dependence on nuclear power, it would be disingenuous of the government to plan to delay liberalization of the energy market until a substantial number of nuclear power plants are restarted.”

    Ah! The old switcheroo! Letting us think the piece is about energy liberalization, but it’s actually just another JT Anti-Nuke Piece.