Sunday, June 15, 2014

Denjiren Personnel Moves and Hope Still for Deregulation

Denjiren, the "Federation of Electric Power Companies of Japan" or in Japanese the 電力事業連合会, is the organization through which the incumbent electric power regional monopolies cooperate on numerous fronts, including regulatory matters and lobbying, as well as public relations and education.

The organization traditionally included strong representation from Tokyo Electric (TEPCO), given TEPCO's status as the largest utility by far.  But in new leadership announced last week, there are NO TEPCO representatives among the board-level or top management, down from 3 previously.

Since TEPCO's quasi-nationalization after the Fukushima accident, TEPCO management has been replaced, and the company has been effectively under METI-led conservatorship.  TEPCO has not been in a position, as a company, to defend the utilities' regional monopolies, or to oppose efforts to infuse the industry with competition and lower costs.  The press has reported previously on Denjiren meetings where the "real" meeting starts after TEPCO leaves the room.  Since TEPCO's bailout, its representatives have been seen as mere proxies for METI.

And on the TEPCO side, the Vice Chair of Denjiren has been Mr. Shigeru Kimura.  He was forced out of his TEPCO position in 2012, but to the surprise of many held on to the position as Vice Chair of Denjiren.

According to Nikkei (June 14), the utilities fiercely fight to maintain their prerogatives.  Indeed, Nikkei indicates that the reason Denjiren has never formed a legal entity is to avoid any governmental leverage from a tax audit.  And Denjiren managed to completely shred METI's effort at electric industry reform in the 1990s.

Needless to say, the utilities continue to take a cautious (in Japanese "shincho") attitude toward deregulation and structural changes such as the separation of generation and transmission.  For a conservative organization like this to say it is "shincho" about a government initiative is just polite Japanese for "we will fight it to the death"!  And the utilities have significant influence within the LDP, even without TEPCO at the head.

Of course, the utilities also have some very serious needs from the government.  They continue to be in poor financial condition, even if some have moved back into the black temporarily -- beneficiaries of favorable accounting changes so they can continue to include nuclear assets in the rate base, even if the assets are not operating and, under the new standards of the NRA, many of them will never reopen.

One idea that seems to be surfacing -- shift the entire nuclear industry to government ownership.  This would lift a huge burden from the utilities (and onto the taxpayer ... but away from the ratepayers, who are pretty much the same -- everyone in Japan -- but who will bear the costs in very different proportions).

The nuclear restart is still not happening, even though the utilities (of course) and the LDP have been promoting it actively for a year and a half, and the NRA now is considering applications for 19 reactors in 12 facilities.  The utilities at this point might be delighted if the government would take the nuclear "assets" and liabilities off their hands.  It would be a huge bailout -- especially for entities such as Japan Atomic Power Company and its utility shareholders, whose assets are likely worthless under the NRA standards, and for the banks and other financial institution creditors of the industry.  This might be a decent trade for all concerned in exchange for utility (i.e. Denjiren) support of thorough deregulation, including a real, not just cosmetic, separation of generation and transmission assets and a host of other reforms -- not to mention aggressive support for introduction of renewables and other distributed generation.

Mark Ramseyer of Harvard Law School argues that the fact that the cost of accidents are ultimately borne by taxpayers, with a few paying a great deal, whereas the benefits of cheaper, stable electric power supply are shared by many  (voters) explains why public ownership of nuclear power assets does not necessarily improve decision-making about safety.

Prime Minister Abe has taken to saying, at the Davos World Economic Forum in January, among other venues, that no vested interests will be exempt from his deregulatory "drill" over the next two years. The Government of Japan's official public relations materials list the electric utility industry as one area "under the drill".  Time will tell.

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