METI Proposes Gradual Implementation of Residential Retail Electricity Competition

At the conclusion of Japan's late-1990s effort to deregulate the electricity generation and distribution businesses, when many other countries had recently done so, Japan was left with a system still dominated by regional monopoly utilities, though competitive electricity supply is permitted to larger users.  The monopoly is enshrined in law for smaller commercial and residential users (anyone under 50kW).   The late-1990s deregulatory effort was first stalled then cut-off completely by the electric utilities and other powers that be, citing the negative examples of the bankruptcy of Enron, manipulation in the California market, etc.

Post-Fukushima, in rebuilding an electricity system that will rely upon diverse supply sources (including renewables), and where massive investment is needed to implement smart-grid metering, dynamic pricing and other innovations, as well as to encourage conservation, there is widespread acknowledgement that market-based competition of some type will be needed.

The debate is about how quickly such competition should be implemented, how much regulation shoul be retained, and how competition can be layered onto the heavily strained current system.  All of the existing transmission and distribution infrastructure, and 90%+ of the generation, is within the monopoly utilities.  There is no independent grid operator.  And the utilities already suffer from huge imported fuel costs, potentially massive asset write-downs if they cannot get their existing nuclear plants back into operation, and, of course, for TEPCO, the actual clean-up and decommissioning costs of Fukushima Dai Ichi.

METI's advisory committee on power system reform (headed by Prof Motoshige Ito of Tokyo University) last week rolled out a proposal for transition to full liberalization and retail competition.

The proposal would:

--first end the legal monopoly on distribution to sub-50kW users, but would maintain regulated rates for some transition period.

--set a period for continued provision of power at regulated rates for users who request it.

--promote competition by a separation of generation and distribution/grid assets to permit eventual removal of regulated rates.

--include a system for widely borne surcharges to support subsidies that achieve reasonable rates on delivery to users in remote areas.

--permit METI to retain authority to police unfairly high rates.

Based on press reports, the proposal does not make a decision about one of the most important steps, of how to go about separation of the generation and distribution businesses of the electric utilities.  Current proposals would involve either true "legal" division into separate companies, or mere "functional" separation.

And electricity deregulation is one area where the upcoming election (December 16) could have an impact on future course of debate.