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Tuesday, May 17, 2011
When it comes to mighty Tepco, pride goes before the fall
Haughty utility forced to fight for its life as it struggles to control reactors
By ALEX MARTIN
Until quite recently, landing a job at Tokyo Electric Power Co., Japan's largest and most powerful electric utility, meant a lifetime of steady employment and generous paychecks, a status envied and often likened to that of a civil servant.
But those days are gone.
Placed under heavy public scrutiny in the aftermath of the crisis at the Fukushima No. 1 nuclear power plant since the March 11 quake and tsunami, Tepco has been struggling to figure out how it can survive one of the worst nuclear disasters in history.
Below are some questions and answers about Tepco:
What's Tepco's history?
Tepco was preceded by Tokyo Dento, Japan's first electric utility, founded in 1883.
As demand for electricity increased with the rapid industrialization at the turn of the century, Tokyo Dento constructed thermal power plants in several locations across Tokyo.
Various other power companies began sprouting up around that time, intensifying competition and leading to many mergers and acquisitions.
But as Japan's militarization accelerated during the 1930s, the government began strengthening its control over electric utilities, merging them in 1939 under the Japan Electric Generation and Transmission Co., a semiprivate company.
Following the end of World War II and a realignment of electric utilities, Tepco was founded in 1951, handling power services in the Kanto area, including Tokyo and the seven neighboring prefectures of Chiba, Gunma, Ibaraki, Kanagawa, Saitama, Tochigi and Yamanashi.
As the nation recovered from the devastation of war and the economy prospered, Tepco built thermal power plants to meet the need for electricity, until the oil shock hit in the early 1970s and environmental pollution became a hot topic, prompting it to shift to nuclear power.
Tepco's first nuclear power plant—Fukushima No. 1 — went online in 1971.
In recent years, Tepco has been working on an "all-electrification" project to raise corporate revenue by expanding household electricity use from the traditional lighting and air conditioning to kitchen appliances and hot-water heaters that traditionally use natural gas.
How many power plants does Tepco operate?
As of March 2010, Tepco operated 160 hydroelectric power plants generating 8.98 million kilowatts, 25 thermal power plants generating 38.18 million kw, three nuclear power plants in Fukushima and Niigata prefectures generating 17.30 million kw and one wind power plant and one geothermal power plant generating a total of 4,000 kw.
Combined, Tepco could generate 64.49 million kw of electricity before the March 11 disaster, serving 28 million households. Nuclear power accounted for about 27 percent of Tepco's capacity.
The company has been supplying roughly a third of Japan's electricity, and the amount it sells annually equals Italy's total output, according to Tepco's website.
Tepco has also been known for the stability of its electricity, boasting the world's lowest rate of blackouts—approximately three minutes per customer annually.
The situation has dramatically changed since the disaster at Fukushima No. 1, however, forcing Tepco to use rolling blackouts in the Kanto region to avoid a wide-scale failure and launching a publicity campaign to conserve electricity to prevent further outages.
What nuclear problems has Tepco previously experienced?
The utility's reactors have suffered numerous troubles. In 2002, the government revealed that Tepco had falsified reports on government inspections and concealing safety incidents at its nuclear power plants for more than two decades.
While Tepco initially admitted to 29 falsifications, including coverups of cracks in reactor core shrouds in all three of its power plants, it later admitted to 200 cases involving the submission of false technical data.
The scandal led to the resignations of Tepco's president, vice president, chairman and two other executives.
In 2007, Tepco announced that an internal investigation revealed there were even more unreported incidents, including a 1978 case where an operation error led to five control rods at reactor 3 in the Fukushima No. 1 plant to slip down, allowing the core to initiate a self-sustaining nuclear reaction.
And in 2007, a 6.8-magnitude earthquake near Niigata Prefecture caused a fire and radiation leaks that shut down the Kashiwazaki-Kariwa nuclear plant, the largest power plant in the world, leading to its closure. The quake damage forced Tepco to post its first financial losses ever.
How much money does Tepco make annually?
Before the nuclear crisis, Tepco was by far the most profitable of the nation's 10 electric utilities and the fourth-largest in the world.
According to Tepco statistics, in fiscal 2010 it sold 280.167 billion kilowatt-hours of electricity—nearly double that of Kansai Electric Power Co. In 2009, it generated sales of ¥5.016 trillion and an operating profit of ¥284.4 billion.
Tepco is also known for spending more than ¥20 billion annually on advertising, including television and radio commercials, inviting criticism that this prohibited some media companies that have benefited from Tepco's money from holding the utility developing a harsh tone when reporting on the nuclear crisis.
How many people does Tepco employ, and how much do they get paid?
Tepco has more than 36,000 employees who, according to its financial report, received an average annual salary of ¥7.57 million in 2009. This figure excludes salaries for management positions and higher.
That compares with the national average of ¥4.06 million in 2009, according to the National Tax Agency.
In fiscal 2009, Tepco's 21 board members received an average annual salary of ¥34.3 million.
But in a statement released April 25, Tepco said that to cope with the gigantic financial damages and liabilities it has incurred from the disaster in Fukushima, it will cut the salary of board members in half and reduce the salaries of regular workers by 20 percent.
The government, however, has asked that Tepco take further cost-cutting measures, to which President Masataka Shimizu, 66, has responded by ordering executives, including himself, to forfeit their salaries and sell off company assets.
Who are the utility's leaders?
University of Tokyo graduates have traditionally accounted for the bulk of Tepco executives.
Shimizu, is the first Tepco leader in 47 years who is not a graduate of the prestigious school. He graduated from private Keio University.
But Shimizu, who hails from the company's supplies division and was dubbed the "cost-cutter" for his efforts to reduce spending, temporarily disappeared from the media's view after the March 11 disaster, citing health reasons.
Chairman and former President Tsunehisa Katsumata—another University of Tokyo graduate who quit the president's post in 2008 following the earthquake that rocked the Kashiwazaki-Kariwa plant—took over during Shimizu's absence.
Tepco's executive ranks also include six vice presidents who have found themselves under media scrutiny since March 11.
They include Norio Tsuzumi, who has been stationed in Fukushima Prefecture to deal with the disaster, as well as Sakae Muto, who heads Tepco's nuclear energy division.
What is Tepco's relationship with the government?
The government and the utility have been codependent, enjoying a cozy relationship over the years, business strategist Kenichi Ohmae said in a magazine article earlier this month.
"Past administrations led by the Liberal Democratic Party have used Tepco and other utility companies as a tool to boost the economy," Ohmae said.
For instance, if the government needs to stimulate the economy by ¥200 billion, it will ask companies like Tepco to make ¥200 billion worth of investments, he said. The companies will obey and build facilities that are not immediately necessary. In return, the government will grant the company approval to raise electricity rates and build nuclear power plants if they have gained the support of local residents, said Ohmae.
Prime Minister Naoto Kan's administration and Tepco have been promoting sales of Japanese nuclear reactors to developing countries as part of a government project. In August last year, the two sides succeeded in signing a contract to build two reactors in Vietnam.
What will be the cost of the crisis?
The final figure has yet to be calculated, but it is expected to reach a few trillion yen, including payouts to residents and local governments around the Fukushima plant, as well as the cost of decommissioning the damaged reactors.
Tepco has already asked the government to help shoulder the financial burden, and the government is expected to establish an entity to cover compensation fees by issuing government bonds and asking for contributions from other nuclear plant operators.
Tepco has responded by taking further cost-cutting measures, including soliciting voluntary retirement as well as considering cuts in corporate pension payments and firing all corporate advisors.
What will happen to Tepco?
Various rumors have been circulating, including talk of the company being nationalized. It appears more likely, however, that the government will assume a supervisory position to support Tepco and the corporation will survive as a private entity.
Satoru Matsubara, an economics professor at Toyo University, said the government will shoulder part of the compensation while Tepco will have to go through restructuring and everything it can do to produce its share compensation.
While the nation's 10 electric utilities are basically private enterprises, they all benefit from regulations under the Electricity Business Act to maintain their regional monopolies on household electricity use.
Matsubara said that under such circumstances, it would be extremely difficult for Tepco to leave the pack and be nationalized.
"And Tepco has a monopoly in the Kanto area—there will be no substitute if they go down," he said.
The Weekly FYI appears Tuesdays. Readers are encouraged to send ideas, questions and opinions to email@example.com