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Monday, Aug. 29, 2011

SENTAKU MAGAZINE

The feudal lords of power

The inherently arrogant nature of the electric power industry in Japan came to light recently when Kyushu Electric Power Co. tried to influence a public hearing on whether to allow the company to resume operation of its Genkai nuclear power stations in Saga Prefecture. Kyushu Electric urged its employees and subcontractors to submit a large number of emails in support of resumption.

Observers view this as a typical example of the power industry boasting of its ability to manipulate public opinion.

The incident also revealed how naive the industry is, as the utility failed to take any precaution to prevent its tactics from becoming publicly known. One critic drew an analogy between the actions of Kyushu Electric and the plot in "Emperor's New Clothes," Hans Christian Andersen's famous short story.

One factor behind such arrogance is the fact that each of the 10 companies of the power utility industry occupies a prominent position in the commerce of its respective region, where it enjoys a monopoly of supplying electric power.

Indeed, except in the three metropolitan areas around Tokyo, Osaka and Nagoya, where major companies are concentrated, the utility companies are usually the largest corporations in terms of gross sales in their respective regions. One notable exception is Chugoku Electric Power Co., whose turnover lags that of Mazda Motor Corp. headquartered in Hiroshima.

The typical power structure in each of Japan's 47 prefectures is an "iron triangle" composed of the prefectural government, regional banks and local newspapers. Beneath this triangle are groups of corporations, such as general contractors, that are linked to politicians.

It is noteworthy that, except in Hokkaido and Okinawa, the regional electric company transcends this powerful triangle because it monopolizes the power supply in two or more prefectures. For example, Tohoku Electric Power Co. covers seven prefectures in northeastern Japan, and even Hokuriku Electric Power Co., with sales of less than ¥500 billion a year, serves three prefectures. This fact has led the utilities to think that they are above the prefectural governments.

In prefectures where nuclear power plants are located, tense relationships exist between governors and power companies. Governors often try to prevent power companies from doing as they like concerning the operation of nuclear power plants. At the same time, governors want to avoid confrontations with companies because of their vote-generation potential.

A bitter confrontation took place in the gubernatorial election in Fukushima Prefecture in 1988. In his first bid to become prefectural governor, Eisaku Sato (not the former prime minister by the same name) faced a candidate backed by Tokyo Electric Power Co. After Sato won, severe conflicts ensued between him and Tepco, which has nuclear power stations in Fukushima Prefecture that supply electricity to the areas it serves.

Sato sought to impose rigid conditions on the operation of the Fukushima Nos. 1 and 2 nuclear power plants and on the use of mixed oxide fuel, which contains plutonium, amid local residents' fears of nuclear power generation.

Although Sato also won subsequent elections, he resigned following his arrest in 2006 in a scandal related to dam construction. Tepco did not come out as the ultimate winner either, as its ranking officials were investigated over their alleged involvement in the same scandal.

Confrontations between power companies and governors have various roots, but the main one is that the former are far more powerful than the latter. This overwhelming influence stems primarily from the enormous investments that power companies make to build or renew facilities to generate, transform or distribute electricity. Such investments have been necessary to keep up with the growing demand for electricity.

During the peak year of 1993, capital investment by Japan's 10 electric power companies exceeded ¥5 trillion, with ¥1.7 trillion coming from Tepco alone. In 2009, Tohoku Electric Power Co., which serves the seven prefectures in the Tohoku region, invested ¥274.7 billion, which accounted for 24.4 percent of total capital investment in the region, according to statistics compiled by the Development Bank of Japan.

Comparable figures were 25.5 percent from Kyushu Electric Power, which serves seven prefectures on Kyushu; 22.5 percent from Chugoku Electric Power, serving the five prefectures in the western part of Honshu; and 27.6 percent from Shikoku Electric Power, which supplies power to the four prefectures on Shikoku.

Officials of power companies occupy the top positions of eight major regional business lobbies, except the Japan Business Federation (Nippon Keidanren).

Although power companies possess undisputed influence, the way they have accumulated it is unusual in the history of Japan's postwar economic development. By contrast, companies in the steel, oil, electronics, precision-machine, automobile, shipbuilding and other industries have had to battle it out for market share domestically before gaining international competitiveness.

Moreover, since the state-controlled companies in the railway, telecommunications and tobacco and salt industries were privatized in the 1980s, it can safely be said that the electric power industry is now the only one enjoying a monopoly under government protection.

Just as an ironclad triangle exists at the prefectural level, there is an even more strong ironclad triangle at the national level, consisting of the power industry, the Ministry of Economy, Trade and Industry, and politicians elected with the help of the power industry.

Power utilities help politicians by providing them with campaign funds; METI helps maintain the industry's regional monopolies; and the power companies provide high-paying positions into which former METI bureaucrats "parachute." The politicians and the bureaucrats jointly promote nuclear power generation, which helps protect the vested interest of the power companies.

As long as the power companies are allowed to behave like feudal lords with predominant influence in their respective regions, the emergence of entrepreneurial ventures cannot be expected there. Because power companies, prefectural governments and local banks have absorbed the more talented local people, free-spirited emerging companies go begging for them.

This is an abridged translation of an article from the August issue of Sentaku, a monthly magazine covering Japanese political, social and economic scenes.


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