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Wednesday, Nov. 7, 2012
Cut costs before raising power rates
Five power companies that suffered deficits in the first half of business year 2012 (April-September) have started discussing the possibility of raising electricity rates. If these companies file official requests with the government for approval of rate hikes, the government should order them to first undertake serious cost-cutting efforts.
Raising electricity rates could have a negative impact on the economy. Nonetheless, two of Japan's 10 major power companies — Kansai Electric Power Co. and Kyushu Electric Power Co. — have already made it clear that they have begun to consider concrete plans to do just that.
In the half-year period, eight of the nation's 10 major power companies registered net losses totaling ¥673.6 billion as they were forced to spend more on fuel to operate their thermal power plants that have been brought online in the wake of the Fukushima nuclear disaster, which has kept all but two of the nation's 50 nuclear reactors offline.
The government and the power industry have long pushed nuclear power generation, saying that it is cheaper than other types of power generation.
It is ironic that a reliance on nuclear power generation has now become the main factor responsible for the deterioration of the power companies' financial conditions. This situation should not be used to justify the startup of more nuclear reactors.
Kepco, Kyushu Electric Power Co., Shikoku Electric Co. and Hokkaido Power Co., which relied on nuclear power generation for around 40 percent of the total electricity they sold in fiscal 2010, suffered a record half-year loss. In contrast, Hokuriku Electric Power, whose nuclear reliance rate was slightly less than 30 percent, and Okinawa Electric Power Co., which has no nuclear power plants, were in the black.
There is a strong call in the power industry to end their financial difficulties by bringing nuclear power plants back online. But under the Nuclear Regulatory Authority's new, post-Fukushima safety standards, which will be enforced from July 2013, some nuclear power plants may not be allowed to go online.
More importantly, storage facilities for nuclear waste at individual nuclear power plants are almost full and there is no proven technology or system to safely store high-level nuclear waste permanently.
Only when power companies slash costs and, together with the government, develop renewable energy sources in earnest will the public accept rate hikes.
There are a number of ways the power companies can cut costs. The current system that allows the power companies to automatically pass increased fuel costs on to consumers should be changed to a system that gives power companies an incentive to buy liquefied natural gas for thermal power plants at lower prices. The prices of LNG that power companies import under long-term contracts are linked to the prices of crude oil and oil products, which has resulted in higher LNG costs.
The power companies should negotiate with LNG exporters to sever these links. They should also lower their employees' salaries, which are higher than the national average.