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Monday, June 27, 2011

SENTAKU MAGAZINE

Power industry's chokehold

The electric power industry in Japan has such strong political clout that nobody, not even the government, seems capable of liberalizing the generation and distribution of electricity, let alone making a dent in the regional monopoly currently enjoyed by each of the 10 utilities.

Indeed, in adopting a scheme for paying damages to the victims of the accidents at Fukushima No. 1 nuclear power plant, the government has ended up guaranteeing the survival of Tokyo Electric Power Co. the operator of the stricken plant. Radioactive substances from Tepco's Fukushima No. 1 plant have contaminated surrounding cities, farms, forests and the ocean.

The 10 regional utilities are solidly united in the Federation of Electric Power Companies (FEPC). The federation's important posts are held by representatives of Tepco.

Even though the FEPC member companies are suspected of colluding with each other in coordinating their business activities, their political strength is so strong that even the Fair Trade Commission cannot look into the matter.

Although the government's scheme for relieving the victims of the nuclear disaster places primary responsibility on Tepco for paying damages, it nonetheless calls for unlimited assistance from the government itself. In other words, Tepco is in effect assured of its survival because it will be able to earn profits for years to come. It has won "the spoils" in the form of possible electricity rate hikes.

FEPC's political clout stems from its intimate relations with both bureaucrats and politicians. A number of ranking civil servants have "parachuted" down to high paying jobs at the utilities. The companies also give priority to those who have been "introduced" by government officials when hiring new college graduates.

For politicians, the electric power industry represents a huge source of votes which they cannot overlook. The number of employees at the 10 utilities alone comes to about 130,000, not counting their families or those working at affiliated or subcontract companies and suppliers. The power companies make political donations to politicians on a regular basis. The industry itself has also sent its own representative as lawmakers to the Diet.

The federation's influence also extends to journalism as a number of reporters have been cajoled. The Energy Press Club, composed of reporters from major newspapers and broadcasting stations, is provided by the federation with a spacious room, telephones and a receptionist, with the federation paying the cost.

Reporters are said to be entertained extravagantly at exclusive nightclubs and restaurants. Influential figures retiring from journalism are given new posts by FEPC at affiliated organizations like the Central Research Institute of Electric Power Industry and the Japan Electric Power Information Center.

Unity among the member firms of the federation appeared for a moment to crack, when companies other than Tepco expressed resentment over the government's scheme for the entire power industry in which it would chip in some money to pay indemnities to the victims of the nuclear plant disaster.

This could have been a golden opportunity to create a schism within the industry and to reduce its influence. But Prime Minister Naoto Kan, in the process of taking steps to ensure the safety of nuclear power generation, ended up missing the opportunity and strengthening FEPC unity.

On May 6, Kan surprised the nation and the power industry when he asked Chubu Electric Power Co. (Cepco) to suspend the operation of its Hamaoka Nuclear Power Plant, saying the plant is in an area that has a very high probability of being hit by a major earthquake in the near future, is very close to the ocean, does not have walls high enough to protect it from tsunami and, therefore, could be vulnerable to the same disaster as Tepco's Fukushima No. 1. After deliberating for three days, Cepco acceded to the request.

This came as a stunning shock to the FEPC, whose members had long had no doubt whatsoever that they controlled politicians, bureaucrats and journalists and that the government could not possibly decide on any national policy related to the power industry without the consent of the industry.

Infuriated by the prime minister's "political decision," the federation regained its unity. The industry was further infuriated as the prime minister's headquarters hinted that the government was thinking of separating power generation and power transmission. The power industry is opposed to the separation of power generation and transmission because the monopoly on power generation and transmission is the foundation of the power companies' current business model.

An observer has pointed out that not a single politician survives after acting against the will of the power industry. In 1997, for example, then Minister of International Trade and Industry Shinji Sato suggested that liberalization of power generation and transmission be studied. Even though he was a son of former Prime Minister Eisaku Sato, his remarks enraged the power industry, and he lost in the subsequent Lower House elections in 2000 and 2003 to an FEPC-supported Democratic Party of Japan candidate.

The federation's staunch opposition to separation of generation and transmission was shown in its rejection of adoption of the "Smart Grid" system that the U.S. is eager to promote — a electricity network that can efficiently and stably deliver electricity supplies by intelligently integrating the behavior of power generation entities and power users. The federation quibbled, saying the Japanese transmission system was "already smart enough." It fears that the Smart Grid might open the way for outsiders to enter the electricity market, thus breaking the monopoly of the nation's 10 utilities.

The power industry is also reluctant to build facilities to change the frequency of the alternating currents, so that electricity generated in the western half of the country, where electricity's frequency is 60 hertz, can be transmitted to the eastern half of Japan where electricity's frequency is 50 hertz, or vice versa — even though such interchangeability would inevitably reduce regional imbalances of supply.

This reluctance is based on a fear that the interchangeability issue may strengthen the argument for separation of power generation and transmission.

Politicians need to muster the determination to stand up against the existing power companies even at the risk of terminating their political career if they want to push the separation of power generation and transmission.

That's easier said than done, however, because there is not a single electoral constituency in the country that is completely free of FEPC's influence.

This is an abridged translation of an article from the June issue of Sentaku, a monthly magazine covering Japanese political, cultural and economic issues.


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