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Thursday, March 29, 2012

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Going through the motions: Tokyo Electric Power Co. President Toshio Nishizawa bows in apology last month after reporting the utility logged more than ¥600 billion in losses for the April-December period, with the cost of the Fukushima nuclear crisis taken into account. KYODO

Firms furious over Tepco rate hike

Utility should do more to cut its own costs first, companies say


Staff writer

Businesses are displeased to say the least with Tokyo Electric Power Co.'s rate hike taking effect April 1, as it will put an extra burden on their operating costs, especially in those industries that use a large amount of power.

They also say Tepco should make more cost-cutting efforts before implementing the 17 percent average increase, with some large-lot users demanding that the hike be postponed and expressing their intention to refuse paying the added amount.

"Electricity accounts for about 30 percent of running cost for data centers, so if the fee is raised, it will directly impact operating costs," said Michio Ohara of Tokyo-based business group Japan Information Technology Services Industry Association.

About 70 to 80 percent of Japan's data centers are concentrated in Tepco's service area, and some of them would have no choice but to increase customer fees, Ohara said last week.

Faced with mounting costs for fossil fuels to generate power through thermal plants because all of its nuclear reactors are offline, Tepco will raise the fee for its big customers by ¥2.58 per kwh for "extra high voltage customers" and ¥2.61 for "high voltage customers." About 237,000 customers are targeted for the hike.

Tepco, along with other electricity suppliers, are in dire straits due to the shutdown of their reactors as a result of the Fukushima nuclear crisis, but many in the business sector aren't convinced the rate hike is necessary and they certainly aren't happy with what it will do to their bottom line.

Depending on how and when companies use electricity, the rate jumps for some users despite Tepco's claim the increase is 17 percent on average.

"It'll be about a 40 percent increase for our company," said Osamu Nakano, who heads a factory in Tochigi Prefecture run by Tokyo Kohtetsu Co., an iron and steelmaker.

Iron and steel mills use a large amount of power to run furnaces, so many run at night when power is cheaper than daytime.

Nuclear plants generate power 24 hours a day, resulting in excess electricity at night. This allowed utilities to offer discounts to nighttime users.

Tepco plans to increase the price by ¥2.58 or ¥2.61 per kwh during all hours, so the effective increase will be higher for nighttime power users.

The hike is expected to add ¥400 million to the Tokyo Kohtetsu factory's annual power bill, Nakano said.

"Tepco caused the accident at their own plant, so they have to take responsibility. If we break our equipment at our facility, we would have to buy replacements from somewhere else and we wouldn't be able to put the burden on our customers," he said.

While discontent over the price hike is mounting, Tepco has also been criticized for its lack of an adequate explanation of the details.

It was recently pointed out that the utility didn't fully inform customers that they can refuse to pay the margin of increase if their annual contract doesn't terminate at the end of March.

Tepco and corporate customers sign annual contracts for power use, but the way the utility explained the hike made it appear the companies had no choice but to pay the new price starting in April.

Faced with the fierce opposition and criticism, the utility said Tuesday that customers with contracts expiring between Jan. 17 (the date Tepco announced the rate hike) and March 30 can keep their old rate for the next 12 months. However, there are only 5,000 customers that fall into this category.

Those with contracts that expire Saturday will be subject to the rate hike from the following day, while customers with contracts set to expire Sunday or later can maintain the current rate until their current contract expires. For instance, Tokyo Kohtetsu's contract ends March 31, so the firm will be charged with the new price from April.

Along with the rate hike, Tepco has been also criticized by many in the business sector for not doing enough to cut its own costs.

According to the utility's business plan, it aims to slash ¥193 billion in costs in fiscal 2012 and a total of ¥2.6 trillion over the next 10 years, but "Tepco should speed up its cost-cutting efforts . . . otherwise, we can't be convinced of the need for the rate hike," said Shigezo Suzuki, an executive of the Kawaguchi Chamber of Commerce and Industry.

The chamber, which represents business operators around Kawaguchi, Saitama Prefecture, has been prominent in opposing Tepco's move and wants the utility to delay the increase.

Kawaguchi is home to numerous small and midsize casting factories that use large amounts of electricity. The power bill is roughly equal to 10 percent of sales for casting companies, so "the 17 percent hike will significantly affect profit. For small and medium-size companies, this is really a life or death matter," Suzuki told The Japan Times last week.

The chamber of commerce took a survey in mid-February on what member firms think of the hike. The poll, which 276 companies answered, showed that about 70 percent of the respondents are dissatisfied with the hike and don't want to pay.

This is why the group officially decided to promote a movement to refuse to pay the increased portion and has asked its members to participate in the campaign. It has also cooperated with chambers of commerce in other areas and is urging lawmakers to take action.

Suzuki said the campaign probably contributed to Tepco's recent arrangement that those customers whose current contracts run past April 1 can keep paying the same price.

Once the increase takes effect, the Kawaguchi chamber wants the utility to break down what each company would have paid under the old rate and how much the increase has added to the monthly bill.

The chamber is now asking the central government to urge Tepco to delay the price increase until the utility drafts its special business plan, which needs to be approved by the government.

Tepco reportedly intends to include in the business plan a price hike for households, which also requires approval from the government. The utility doesn't need the government's OK to raise the rate for corporate customers.

Suzuki said the price hike for companies shouldn't be implemented until the increase for households is decided.

"We understand the situation Tepco is facing. We are not merely opposed to a hike," he said.

A thorough examination by the government would provide a certain degree of legitimacy for the hike, but the price increase from April "is way too one-sided," said Suzuki.



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