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Tuesday, July 17, 2012

FYI

ELECTRICITY PRICE HIKE

Should Tepco customers foot bill for nuclear fiasco?

METI, consumer agency pressure utility but warn price hike is likely


Staff writer

Tokyo Electric Power Co. is desperately trying to raise prices to cover the drastic rise in thermal fuel costs caused by its triple-meltdown disaster at the poorly protected Fukushima No. 1 power plant.

News photo
Through the motions: Junji Annen, chairman of the trade and industry ministry panel scrutinizing Tokyo Electric Power Co.'s rate hike request, hands a report to his boss Yukio Edano on July 5. KYODO

The utility, which is on the verge of nationalization, is effectively being propped up by taxpayers, who are footing the bill for its efforts to contain the crisis and pay what will undoubtedly be staggering redress for the lives disrupted by the emergency it woefully failed to prepare for.

Tepco applied to the government in May to raise rates this month by an average of 10.28 percent, but the plan is still being reviewed.

Will the rate hike be approved? Following are some questions and answers about what's involved with the decision.

How is the rate hike request being handled?

The request is being scrutinized by the Ministry of Economy, Trade and Industry and the Consumer Affairs Agency.

Normally, if a utility wants to raise household rates, it files a detailed application with METI explaining the size of the increase and why it is needed.

The power utilities are effectively regional monopolies. If one runs into financial difficulty or can't generate electricity, random blackouts could ensue. The utilities thus are allowed to set prices to cover total operating costs plus an "appropriate profit" margin, but any attempt to raise prices must be first be examined by the government.

In Tepco's case, it has been reported that households provide around 90 percent of its income but use only around 40 percent of its power, with the rest going to businesses and local governments.

This discrepancy is what attracted the attention of the Consumer Affairs Agency. METI, the nuclear power promoter that oversees the power industry, has formed a panel of six experts to probe whether the utility is booking unnecessary costs.

After studying Tepco's rate hike plan, the two panels will issue a recommendation that will be discussed by Cabinet ministers. METI chief Yukio Edano will have the final say.

Tepco wanted to hike rates on July 1, so why is it taking so long?

Besides the general public outcry against the hike, the METI panel needs to study the utility's labyrinthine cost structure in depth.

The panel submitted its report to Edano on July 5. The Consumer Affairs Agency's panel is expected to file its report Tuesday.

Media have speculated the hike will be delayed until September.

How did Tepco come up with the 10.28 percent figure?

Tepco claimed its average annual operating costs for fiscal 2012 to 2014 will amount to ¥5.72 trillion. It also faces a jump of about ¥510 billion in annual fuel costs compared with before the nuclear disaster.

But the utility further claims it can generate only ¥5.04 trillion in sales under current electricity rates. To cover this ¥676 billion earnings gap, the utility said it needs the 10.28 percent hike for three years.

How have the government panels responded?

The METI panel wants Tepco to slash ¥50 billion more in operating costs and pare the hike by about 1 percentage point.

It said Tepco should cut about ¥10 billion in procurement costs for liquefied natural gas, which Tepco calculated based on the assumption that LNG prices will continue to soar. But the panel said Tepco should use the latest price quotes and make further efforts to negotiate for price reductions.

The Consumer Affairs Agency panel, which mainly consists of representatives from consumer-related groups, said Tepco's cost cuts should exceed those urged by METI.

Although the METI panel said that Tepco's salary cuts — 20 percent for regular employees and 25 percent for management — are appropriate, the consumer affairs panel said the utility should aim for 30 percent.

The cuts brought the average salary of a Tepco employee down to ¥5.56 million a year, which is nearly on a par with those employed at companies with more than 1,000 employees. The utility, which uses taxpayer money, should reduce its costs more if it wants households to swallow the rate hikes, the consumer affairs panel says.

Tepco President Naomi Hirose asked the public on July 5 to accept its salary plan, saying that the disaster is posing tough challenges that are increasing its employees' workload.

"I'd like to pay (the staff) as much as possible, because they are working under difficult circumstances," he said.

The consumer affairs panel also questions why households should shoulder the ¥48.7 billion Tepco says it costs to keep the crippled reactors at its Fukushima No. 1 plant under control.

Critics meanwhile argue that consumers should not have to pay, via a rate hike, for a crisis that was caused by Tepco and its inadequate safety mindset.

Is there any way to scratch the rate hike?

The government will probably approve it, arguing that Tepco has no choice but to raise rates to cover the massive losses. If approved, it will be Tepco's first household rate hike in 32 years.

Experts warn the increase is unavoidable.

"Tepco probably won't be able to keep supplying power if it doesn't raise rates. Our challenge will be to minimize the increase," Hideki Ide, an economics professor at Keio University and a member of the consumer affairs panel, told consumers on July 13.

Junji Annen, who chaired the METI panel, also said the scrutiny was tough because "whatever decision we make, it affects a lot of people."

If the cut in the hike is too much, it will affect Tepco's management, and if the cut is too little, it will put more burden on consumers, so "it makes no one happy," Annen said after the last panel meeting on July 5.

How are household rates set?

Tepco offers several price plans for the amount of electricity used, but nearly 70 percent of consumers use the same plan.

For that plan, electricity prices basically boil down to three factors — a basic monthly fee, the amount of electricity used per month and a fuel adjustment fee.

The basic monthly fee depends on an individual household's ampere level as contracted with Tepco.

In the Kanto region, this ranges from 10 amps to 60 amps per household. The level is based on what the utility and home designers recommend. Households with higher amperage levels have more available electricity.

The basic monthly ampere fee ranges from ¥273 for 10 amps to ¥1,638 for 60 amps.

As for the amount of the electricity used each month, consumers pay ¥17.87 per kwh for up to 120 kwh, ¥22.86 for 120 to 300 kwh, and ¥24.13 for power use exceeding 300 kwh.

If the 10.28 percent hike takes effect, rates will increase to ¥19.16 for the first 120 kwh, ¥25.71 for the next stage and ¥29.57 beyond 300 kwh.

Tepco says an average household using 30 amperes will pay about ¥480 more a month.

The fuel adjustment fee changes depending on the cost of fuel every three months.

Can households arrange for lower rates?

If households think their ampere level is too high, they can ask Tepco to lower it, and hence the monthly fee.

The Weekly FYI appears Tuesdays. Readers are encouraged to send ideas, questions and opinions to hodobu@japantimes.co.jp



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