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12 June, 2015

FEPC Chairman Urges Improved Power Supply in Advance of Power System Reform

On June 9, the Committee on Economy, Trade and Industry of the Upper House of Japan's Diet (the House of Councillors) discussed a bill submitted by the Lower House (the House of Representatives) to partially amend the Electricity Business Act (Cabinet Law No. 29).

FEPC Chairman Yagi

Summoned as an unsworn witness, Chairman Makoto Yagi of the Federation of Electric Power Companies (FEPC) spoke about the three stages of electricity system reform.

In the first stage, he said, the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) was launched in April of this year, to play a central role in enhancing transparency and fairness in transmission and distribution operations. The FEPC will continue contributions to OCCTO’s operations as a member.

Regarding the second stage — involving full retail competition from 2016 — Yagi said that the FEPC would continue to cooperate in designing a detailed system truly beneficial to consumers.

As for securing neutrality within the transmission and distribution sector, as well as full deregulation of retail electricity rates in the third stage, he called for the early abolition of regulations on retail prices. As the reason for that, he cited various situations illustrating the purpose of power system reform, which is to secure a fair and neutral competitive environment.

Turning to potential issues for operators when carrying out power system reform, Yagi stressed the importance of carefully establishing a mechanism for stable supply, and of providing rules, including those to prevent the deterioration of power quality by ensuring frequency adjustment.

He also noted the need for a cooperative system between power generators and transmitters in emergencies, in the context of mandating neutrality in the transmission and distribution sector of conventional power companies.

Given that much of Japan will lack the desired reserve capacity to supply power this summer — particularly in the west of the country — and that power companies’ balance sheets remain shaky due to substantial increases in fuel costs for thermal power plants, Yagi strongly supported the need to swiftly restart the country’s nuclear power plants so as to shore up the power supply and meet expected demand, predicated by ensured safety.

The FEPC chairman added that it was necessary to ascertain whether it was suitable for retail electricity rates to be fully deregulated and whether the transmission and distribution sector could be legally unbundled.

Yagi referred further to the nature of nuclear power, saying it was strong in the areas of energy security, economic efficiency and environmental protection — the so-called 3E’s — and that it was positioned as an important base-load power source by the government.

However, due to the fact that nuclear power requires a tremendous amount of investment and long-term commitment while ensuring safety, he said that various systems had been arranged so far to maintain a certain level of predictability in business, including the fully-distributed cost method.

Finally, the FEPC chairman urged the Japanese government to discuss a new optimal form of “private businesses in line with state policy,” and to present a direction ahead of retail deregulation. In that way, he said, those companies shouldering the business of nuclear power would be able to maintain the predictability of their operations even if the country’s dependence on nuclear power were to be reduced by policy change or power system reform.

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