Saturday, November 2, 2013

Good Utility, Bad Utility

An LDP committee responsible for studying ways to accelerate the Tohoku recovery from the March 11, 2011 tsunami and nuclear disasters is recommending that TEPCO be separated into two separate companies, one of which would deal with the "bad" Fukushima clean-up and decommissioning problems, and the other of which would take over the remaining “good” businesses.

Of course, like a “good bank” and “bad bank” strategy for resolving a financial institution, this would allow “good” TEPCO to go forward, raise capital, provide service and function as an electric utility.  

But unlike a bank resolution, the bad TEPCO contains not just an uncertain recovery on existing assets, but a huge and uncertain future liability for Japan’s taxpayers.  The government and taxpayers will bear the cost of the cleanup and decommissioning, cost of securing and preparing sites for medium-term storage of waste from the massive Fukushima clean-up.  TEPCO's bondholders and banks get a free pass.  Of course, the report does not mention this, and the LDP committee argues that a "good utility, bad utility" structure is all part of making sure that the Fukushima clean-up goes forward properly, with the government assuming a bigger role after TEPCO's failures.

The same committee is apparently considering a relaxation of the Fukushima accident compensation rules, to allow additional nuclear accident compensation payment if residents are prevented from returning home for more than 6 years.

Splitting up TEPCO is not such a bad idea, but this division does nothing to help with the reform of the industry structure, it merely frees TEPCO from a problem that even TEPCO lacks the financial and organizational resources to deal with.  Why not also consider a broader division – splitting off generation, transmission and distribution into 3 companies and paving the way to a new energy future?

Meanwhile, TEPCO itself has announced a plan to place all of its Fukushima clean-up and decommissioning-related activities into a separate subsidiary.  They plan to recruit an outsider to run the operation. The internal reorganization seems a pre-cursor to the government takeover of clean-up responsibility, both financial and operational.

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