Monday, September 30, 2013

Further Electricity Deregulation coming down the pike

Although the first of three proposed electricity deregulation bills was delayed by this summer's Upper House election, progress on the topic continues within METI and its advisory councils.

The METI electricity system reform subcommittee's working group on "system design" held its second meeting on September 19, 2013.  According to materials presented by the ministry at that meeting, retailers of electricity will be subject to a registration (rather than a full approval/license) system.

The registration will allow for greater new entrants than approval/license system, but will still allow for the ministry to sanction retailers who fail to perform their contracts with customers.  In contrast, companies wishing to engage in transmission business will need to apply for licenses and go through a more rigorous approval process.

Retail competition is targeted for residential and small commercial users in 2016.  Prices will remain regulated for some 5-7 years until 2020-22, in order to protect consumers.  There is a lot more detail (in Japanese, of course) in these proposals to work through -- essential reading for anyone trying to understand what is being planned.

Sunday, September 29, 2013

Cleaning up the power utility poles/lines for the 2020 Tokyo Olympics

The Abe government's schedule for restructuring the Japanese electric power system -- ultimately leading to some kind of separation of generation, transmission and distribution functions -- leads to the year 2020.  

By coincidence, 2020 is also the year of the Tokyo Olympics, which will be the target of an effort by the Ministry of Land, Infrastructure, Transport and Tourism (MLITT?) to bury power cables in core areas of Tokyo.

The story in Nikkei (September 29) indicates that whereas 100% of electric cables are buried in London, Paris and Hong Kong, in Tokyo 23 wards the percentage is more like 40%, Osaka lower yet, and Nagoya only 20%.  Overall in Japan only something like 15% of electric cables are buried.  Indeed, for many decades the mess of overhead cables and numerous reinforced concrete poles criss-crossing the countryside are one of the most remarked-upon aspects of Japan--the nation's worst eyesore. 

As Japanologist Alex Kerr wrote in 1994 in his classic Lost Japan:

"And the electric wires!  Japan is the only advanced nation in the world that does not bury electric lines in its towns and cities, and this is a prime factor in the squalid visual impression of its urban areas.  Out in the suburbs, the use of electric lines is even worse."  

"I was once taken to see the new Yokohama residential district Kohoku New Town, and was amazed at the multitude of enormous steel pylons and smaller utility poles clustered everywhere--a hellish web of power lines darkening the sky above one's head.  This is a site considered a model of urban development. ..."  

The plan just announced is now to eliminate all utility poles from areas in Tokyo near train stations, airports and other places that tourists are likely to visit.  The reasoning is said to be for both improved view/aesthetics and also for greater resilience in event of natural disasters.  The plan covers approximately 130 kilometers (80 miles) of streets.

The total cost is estimated at 78 billion yen (approximately $780 million).  Bear in mind that this price tag will only deal with the issue in the most crowded and central areas of Tokyo -- an area in which 80% of cables are already buried.  The cost will be shared, one-third borne by the national government, one-third by the Tokyo Metro government, and one-third by the electric utilities whose wires will be moved (NTT and TEPCO, in this case).  As a taxpayer to both the national and Tokyo governments and a forced customer of both NTT and TEPCO, I guess I am a significant contributor to the effort. Still, in this case, the expense is long overdue.

Thursday, September 26, 2013

TEPCO Turn-around Effort

September 25 (Wednesday's) evening NHK newscast had coverage of the President of TEPCO meeting with Governor Izumida of Niigata Prefecture to present paperwork including details about plans to make the TEPCO Kashiwazaki Kariwa ("K-K") reactors safer and apply for a restart of reactors 6 and 7.  The last meeting between these two, a few months ago, featured the Governor on camera screaming, loudly, at the much smaller, weaker looking TEPCO president, angry because TEPCO was taking steps to apply for a restart of Reactors 6 and 7 before obtaining the Prefecture's approval.

This time, TEPCO signalled well in advance that it would NOT apply for a restart of the reactors before "gaining the understanding" of Niigata Prefecture.  Also, a flurry of press stories has reported in recent days on TEPCO's dismal finances, the pressure from its banks and bondholders, and the importance of a reactor restart as part of its financial rehabilitation plan.

Instead of a shouting match, the Governor asked why Niigata should trust TEPCO to do things any differently than in the past.  TEPCO President Hirose mumbled something about TEPCO being "reborn" ("Shinsei TEPCO") and having taken the Government's money, ... then pointed out that TEPCO is now planning to install extremely expensive filtered vents that would allow venting of the reactor buildings without release of significant radioactive materials.  Had these vents been in place at Fukushima Dai-ichi, TEPCO would have vented the buildings and avoided the hydrogen buildup which contributed to the problems there -- at least the most visible sign of catastrophe, with hydrogen explosions sending radioactive material high into the atmosphere.

(The K-K 6 and 7 reactors are relatively new, commissioned in 1996 and 1997, respectively, and are "advanced boiling water reactors."  The other reactors at K-K were commissioned between 1985 and 1994 -- also nowhere near as old as Fukushima Dai-ichi 1 and 2, but there are concerns about potential earthquake faults on site that run directly under or very near reactors 1-5 and their turbine buildings.  The K-K complex suffered various types of damage in a 2007 earthquake and the first of its reactors did not reopen until 2 years later.  Also, estimates of earthquake intensity from nearby faults has been increased significantly in the post-2011 reassessment, so it is not clear that the current designs would be sufficient, even absent the on-site faults.)

NHK followed this theme (based on talking points from the central government and TEPCO?) and indicated that reopening the K-K 6 and 7 reactors could add billions to TEPCO's bottom line annually (the NHK report said 240 to 350 billion yen -- 2.4 to 3.5 billion dollars -- annually), helping to avoid another rate increase, more government bailout money, etc.

A story in this morning (Thursday's) Nikkei reports that TEPCO has a refinancing of some debt approaching this autumn, and the financial institutions are indicating that in order to participate they will significantly increase the interest rate charged unless either (1) TEPCO has applied for a restart of K-K 6&7 reactors, or (2) TEPCO has further increased its electricity rate.  The TEPCO management is bending over backwards to try to avoid another rate increase so quickly after its 2012 increase, and so has everything riding on a restart of the reactors.

To put this in perspective, the K-K reactors 6 and 7 each have maximum power output of 1315MW.   Even if they do restart in the next year or two, after very expensive upgrades, TEPCO is very unlikely to achieve a restart of any of the rest of its reactors over that time-frame.  TEPCO's pre-March 2011 nuclear reactors consisted of:

1.  2812MW -- Reactors 1 to 4 at Fukushima Dai-ichi.  These were catastrophically damaged and will be a burden for many decades and, of course, never restart.

2.  1884MW -- Reactors 5 and 6 at Fukushima Dai-ichi.  These were not damaged, but are on the same site and will be decommissioned.  Prime Minister Abe officially requested earlier this month that TEPCO decommission these.

3.  4400MW -- Fukushima Dai-Ni reactors 1 to 4.  This facility is down the coast 20-25 kms from Fukushima Dai-Ichi.  It is highly likely these will never be restarted.

4.  8212MW -- Kashiwazaki-Kariwa (or Kariba) reactors 1 to 7.  Again, the restart of reactors 6 and 7 remains very uncertain and very expensive, while reactors 1 to 5 have additional problems and earthquake concerns that will make them more difficult, if not impossible, to restart.

So out of the total nameplate capacity of 17.3GW of nuclear generation, TEPCO is working toward a possible restart of 2.63GW -- just 15% of the total.

The TEPCO restructuring problem was the subject of an analysis piece in Nikkei Wednesday morning as well, by Chuo University law professor Junji Annen.   Prof. Annen notes that TEPCO has ultimate compensation obligations from the Fukushima Dai-ichi accident of between 5 and 10 trillion yen, that the nuclear compensation body has provided 4 trillion yen (40 billion dollars) of funding (3 trillion of grants/subsidies and 1 trillion yen of capital); that TEPCO raised rates significantly; and yet TEPCO still had an aggregate loss of 700 billion yen (>$7 billion) for the two years ended March 31, 2013.  The loss was recorded despite TEPCO's ability to book the 3 trillion yen (>$30 billion) of the government subsidies as extraordinary income, so the actual situation is far, far worse.  Prof. Annen notes that both a cap on TEPCO compensation obligations (as opposed to government clean-up efforts) AND a reactor restart at K-K are essential for TEPCO's near-term survival, while the longer-term solution will involve some kind of restructuring that divides TEPCO into a "good" and "bad" company.  The "good" company will be freed of impossible burdens, but would pay a share of its profit to fund the "bad" company and meet a portion of such obligations.

UPDATE:  One day after this post, the Niigata government has given TEPCO its "conditional" support for TEPCO to at least proceed with filing its application with respect to K-K reactors 6 and 7.  The prefecture has apparently taken the view that this is not a "final" approval, which will be subject to satisfaction on various safety issues, but only a nod to allow TEPCO to make its filing.

By Friday, the group of all major (and some minor) Japanese banks that faced an upcoming TEPCO refinancing had indicated that, given the restart application for K-K reactors 6 & 7, they would NOT require TEPCO to file for a rate increase and, at least tentatively, that they plan to participate in the refinancing.

On Saturday, the 28th, TEPCO's President was interviewed by Nikkei Shimbun and stated that, in light of the prospect that these reactors might be operating in 2014, TEPCO plans to announce a restructuring plan later this year that would not include further rate increases, and hopes to avoid a loss for the fiscal year that ends March 31, 2014.

A look at TEPCO's implementation of its current restructuring plan does not offer high hopes.

The current plan had proposed restarting K-K reactors 6 & 7 by April, 2013, six months ago.  It also contemplated decommissioning only Fukushima Dai-ichi Reactors 1 through 4, whereas now 5 and 6 also must be decommissioned.  Now, TEPCO hopes to squeeze out additional 10-year cost reductions of 140 billion yen, following its current plan of 336 billion yen in reductions.  And TEPCO also plans to establish an arm to participate in deregulated portions of the electricity market, as Chubu Electric and Kansai Electric also have announced.  Maybe TEPCO will be able to reduce customer outflow if it "counterattacks" in the home regions of other utilities?

We should know before too long if the hope for a profit in the current TEPCO fiscal year is more "happy talk" to support Abenomics and improve the economic mood--a thank you present for well-orchestrated government support to bring Niigata's governor and the financial institutions into line for the time being--or if it can actually be achieved (and, if so, whether it involves the same kind of accounting magic that limited the last two years' losses to 700 billion yen).

UPDATE:  Reuters had a good article today (October 7, 2013) on the TEPCO turnaround effort -- the public relations and the reality.  As one analyst indicates, "it's all kabuki ... It's very much an orchestrated presentation".  I hope my blog post gives some sense of the way these things are done in Japan, at least at the public level.

Also the Yomiuri mentions that the LDP is now seriously considering a "good bank bad bank" approach to TEPCO, hiving off the legacy problem of decommissioning its reactors and dealing with the Fukushima mess.  Since TEPCO does not have the resources to deal with its legacy issues, this is perhaps inevitable.  But if and only if it is done in a manner that ensures the "good TEPCO" will move forward faithfully to implement a competitive market in electricity, including separation of generation, transmission and distribution.