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Japan: Utilities’ Deteriorating Financial State a Key Issue for Entire Energy Policy
Source: the-japan-news.com
Source Date: Thursday, April 17, 2014
Focus: E-Procurement
Country: Japan
Created: Apr 22, 2014

The financial circumstances of electricity utilities continue to deteriorate, chiefly due to delays in restarting their nuclear power plants. There are also growing concerns over the adverse impact of electricity rate hikes on general households and the industrial sector.

 

Chubu Electric Power Co. is planning an average increase of 3.8 percent from May. The company had initially sought a 5 percent hike but lowered its request after being asked by the government to take measures such as cutting down fuel costs.

 

Chubu Electric Power is the seventh utility firm to make a “drastic” hike in its electricity rates, which requires government approval. Tokyo Electric Power Co. and Kansai Electric Power Co. have done the same.

 

Following the outbreak of the crisis at TEPCO’s Fukushima No. 1 nuclear power plant, all nuclear power plants have been suspended, causing utility companies’ fuel costs to soar after they switched to thermal power plants. As a result, the utilities have been under strain financially.

 

Of the nation’s 10 utilities, six companies, including Chubu Electric, are expected to post a recurring loss for the business year ending in March. Five out of the six electricity providers are projected to post a recurring loss for a third straight year, a financial situation that may prompt banks to cut off their loans.

 

It was necessary to a certain extent for the government to have approved the power companies’ rate hike requests while calling on them to make thorough efforts to streamline themselves. But it is quite serious that the utility companies are about to enter a second round of rate increases.

 

Government reluctant

Hokkaido Electric Power Co., which implemented a 7 percent to 8 percent increase in the utility rate last September, announced its plan in February to implement yet another hike. The company said it has been unable to restart its nuclear power plant as it had hoped, leaving it unable to improve its business performance.

 

Economy, Trade and Industry Minister Toshimitsu Motegi has in effect put a hold on Hokkaido Electric’s rate hike, saying, “It’s important [for the company] to make efforts to avoid a rate hike.”

 

The government’s reluctance to approve the rate hikes while delaying the restart of nuclear power plants only serves to further aggravate power companies’ financial situation.

 

To avoid becoming insolvent with cumulative deficit, Hokkaido Electric has reportedly been studying the possibility of receiving financial support from the Development Bank of Japan. We recognize the value of the utility’s efforts to avoid a rate hike, but they are merely last-ditch measures.

 

The financial state of other utility companies, besides Hokkaido Electric, is also deteriorating. Shortage of funds will leave utility companies unable to make necessary repairs of their power transmission lines and transformer stations, or to inject sufficient money into the renewal of these facilities, adversely affecting power supply. Such a situation must be avoided at all costs.

 

With these factors in mind, it is essential for power companies to be allowed to restart nuclear power plants that have been confirmed to be safe, so their costs for generating electricity can be reduced.

 

The most important points are for the Nuclear Regulation Authority to accelerate its safety inspections of nuclear power plants and for the government to extend solid support to the power plants that pass those inspections, so restarting operations can proceed smoothly.

 

It is also necessary for the central government to make an all-out effort to explain the situation, to win the support of local governments that host nuclear power plants.

 

Japan’s economic reconstruction depends on a stable supply of cheap electricity. The time has come for both the public and private sectors to seriously reflect on power companies’ deteriorating financial circumstances, and the challenges posed for the overall energy policy of this country.

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