Japan's electricity shake-up gives power to the people

Japan’s electricity market receives a fundamental shake-up on Friday, with the introduction of greater competition for households and small businesses. Until now, regional utilities have monopolized supply.

There will be some unfamiliar names among the new entrants, bringing with them a wide range of choices and benefits.

Following are questions and answers about deregulation in the household electricity market:

What does it mean for me?

Consumers can now choose their electricity provider.

Previously, the 10 regional utilities, including Tokyo Electric Power Co. and Kansai Electric Power Co., were the sole providers for their areas. But with deregulation, a wide range of companies can sell power. As of March 25, 266 firms had registered to become electricity providers.

Consumers should benefit as providers compete on price and incentives.

Users can also choose providers by the way they generate electricity, such as picking those that avoid nuclear or use renewables.

How will rate plans differ?

Many new players claim their rates will be lower than those charged by the regional utilities.

Tokyo Gas Co., a major gas supplier in the Kanto region and one of the new electricity providers, says a household that uses 4,700 kilowatt-hours a year can save ¥8,500 a year by switching to its plan from the one offered by Tepco.

There may be conditions attached. Tokyo Gas clients need to get their gas from the company to qualify for a ¥270 monthly discount.

Cellphone carrier KDDI Corp. is entering the market. It will return up to 5 percent of monthly power rates in the form of electronic cash credits, but only to its cellphone subscribers.

Will switching provider entail rewiring my home?

No. The new suppliers will use a household’s existing power cables.

However, electricity meters will be replaced, at no charge, with so-called smart meters.

Is there a risk of brownouts with small providers?

Basically, no.

Electricity quality will not change, and if a new provider comes up short for some reason, other companies will supply power to make up for the shortage.

Why are so many firms getting involved?

Some operators say electricity supply is not that profitable. But it is a good chance for energy-related firms to expand their businesses, while companies in other fields see electricity provision as a way to draw customers to their core pursuits.

“As an energy business operator, we always wanted to be a one-stop provider of gas and electricity,” said Kawori Koya of the Residential Sales Strategy Department at Tokyo Gas.

Tokyo Gas dominates the household gas market in Kanto and is widely expected to become a strong player in the electricity market.

It also provides electricity for large-scale business users, whose market is already liberalized, so it is only natural for it to enter the household market, Koya said.

As consumers focus on prices and companies’ reputation in choosing their provider, she said Tokyo Gas has an edge because its rates are some of the lowest and the firm has established a name as a reliable gas provider.

Tokyo Gas said that as of Feb. 24, it had about 54,000 contracts from customers waiting to jump ship from Tepco.

It aims to have a 10 percent market share in Kanto by 2020.

Firms whose main businesses are unrelated to power supply include KDDI and rival cellphone carrier SoftBank, railway operator Tokyu Corp. and travel agency H.I.S.

Shinichiro Takiguchi, senior manager at Japan Research Institute, said these firms will use their electricity supply to promote their main businesses.

“Electricity is something that everybody uses, so they can approach a wide range of customers,” Takiguchi said.

Will regional utilities be able to retain their market share?

Possibly. Tepco spokesman Kiyomitsu Kawamoto says while it is true the market environment has changed, Tepco sees the liberalization of the household market as an opportunity, since regional utilities will be able to sell electricity outside their boundaries.

Kawamoto admits that when it comes to price, the newcomers are ahead. Utilities were required to get government approval for their rates and therefore could not set a high profit margin. They have already been lowering their prices, leaving little room for further cuts, he said.

He said Tepco, which has about 20 million household customers, needs a strategy that does not focus on rates alone.

Tepco has partnered with more than 15 firms to provide benefits. For example, SoftBank subscribers can receive discounts on their phone bills.

As well as promoting such deals with partners, Tepco believes its customer service know-how, which the firm has built up over decades, is a strong selling point.

In some countries, shaking up the market resulted in higher prices. Will this happen in Japan?

Takiguchi said rates may rise: Market liberalization has started with way too many players, so prices will fall in the short term due to competition, but a lot of players will not survive and will drop out.

“The competition will become weaker, and the competition to lower . . . rates will also weaken,” he said.

He also said Japan’s push to boost costly renewable energy, such as solar and wind power, could lead to higher rates.