Editorials

Liberalizing the power market

The revised law on electricity business enacted in June will end the decades-long monopoly of Japan’s regional power companies by liberalizing the retail sale of power to households in 2016.

Consumers will be able to choose which power suppliers to buy from, and the government hopes the influx of new entrants to the liberalized market will pave the way for discount rates and new services. Policymakers and businesses should stick to the bottom line of the reform — to reduce the cost of electricity through greater competition in the market.

The amendment is the second phase of a three-stage reform of the nation’s electricity system. The regional monopoly of major power companies have been gradually eased since 2000, with power supplies to large and medium-size industrial users already thrown open to competition.

In 2016, retail of electricity to households and small-scale business operators — a ¥7.5 trillion market that accounts for roughly 40 percent of the nation’s power demand — will be opened to new entrants.

Behind the push for the liberalization was the power shortage that hit customers of Tokyo Electric Power Co. in the wake of the March 2011 Great East Japan Earthquake and the meltdowns at its Fukushima No. 1 nuclear power plant. The rolling blackouts imposed on Tepco users exposed the vulnerability of the regional monopolies by major utility firms.

The reform is aimed at beefing up the power supply network by increasing the number of firms that sell electricity across regions.

Companies from a variety of sectors such as gas, oil refinery and communications already engaged in the electricity business are eyeing entry into the household market two years ahead. Businesses with an established base of household clients and a sales network may offer discount power rates in packages with their own services, such as cellphones and gas.

For their part, the major power firms are bracing for the end of their regional monopolies by tapping into demand in areas previously dominated by the others.

Chubu Electric Power Co. began indirectly servicing clients in the greater Tokyo area last October by acquiring an 80 percent stake in Diamond Power Corp., a Mitsubishi Corp.-linked power supplier, which counts the Tokyo Metropolitan Government as one of its customers.

Kansai Electric Power Co. has also started power retail to industrial users in the areas serviced by Tepco. Such competition from other regional power firms has reportedly resulted in Tepco losing clients worth about 10 percent of its power-generation capacity as of this summer.

Tepco is also joining the competition across regional borders by starting to supply electricity to outlets of retail chain Yamada Denki Co. in the Kansai and Chubu areas next month. The firm is believed to have offered Yamada cheaper rates than those charged by Kansai and Chubu Electric. Tepco plans to expand sales in other regions to ¥170 billion within 10 years by supplying power to Kansai and Chubu area outlets and plants of Tokyo-based firms.

Electricity rates have risen substantially since 2011 as power companies passed on the costs of increased fuel imports to run thermal power plants to cover the shortfall caused by the shutdown of their nuclear power plants.

For households, the higher utility charges add to the burden of rising prices and the consumption tax hike. Efforts are needed to ensure that the upcoming deregulation will result in lower electricity costs.

Companies other than the 10 major power firms accounted for a mere 3.5 percent of the nation’s total electricity demand in fiscal 2012. The key to increasing new entrants to the business is fair access to power transmission networks.

In the third phase of the power business reform, the government plans to submit a bill to the Diet next year to mandate the separation of power generation and transmission entities by 2020. Concern lingers, however, that new entrants could be left at a disadvantage if the major utilities separate their power transmission units but still effectively control them under a holding company.

The process of electricity business reforms requires ongoing scrutiny to ensure it results in fair competition.