Japan govt takes aim at electricity monopolies

NATIONAL GRID

Japan's ability to smoothly transfer power between regions is also hampered by it having two different frequencies dividing its eastern and western sides.

That is supposed to change in the first stage of the reforms, slated to be carried out over the next seven years. The government has submitted legislation to create a national grid company in 2015, with the bill also laying out a schedule for the following two phases of reform.

Hopes to pass the bill in the current session ending June 26 may be fading with some members of parliament holding up debate, according to a government official involved in drafting the legislation.

"We expect Minister Motegi to make a strong statement (to get parliament to start debating the legislation)," the official said.

In the second phase, the government plans to liberalize the market for homes, an important source of earnings for power companies.

The market to supply to customers using more than 50 kilowatts was opened up in 2005, but utilities can still block supply from independent power producers as they control transmission lines.

The final and most ambitious phase envisages breaking the monopolies into separate generation and transmission companies by 2020 and abolishing all price controls.

WATERING DOWN?

While the ultimate aim is to reduce electricity prices for Japanese business and voters, one of those who helped draft the scheme questions whether the reforms will drive down costs.

"Consumers in Europe and in the US often found there was a rise in electricity bills after power sector deregulation," said Hiroshi Takahashi, a research fellow at Fujitsu Research Institute and a member of panel that advised on the reforms.

Subsidies for renewable energy, environmental taxes and higher fuel import bills kept prices in some countries from falling after deregulation, he said.

While the energy companies say they support the thrust of the proposed changes, they have repeatedly urged the government to prioritize stable power supply and to slow reforms if this cannot be guaranteed.

And the utilities may have had some success in watering down the legislation, Takahashi said.

"When compared with the METI panel's proposals in February, the bill looks to be somewhat weakened in terms of the authority of the (national grid company)," he said.

'REAL OPPORTUNITY'

Still, trading houses and other companies are watching the developments with interest, sensing this time around might be different.

"This a real opportunity I reckon, especially with Tepco in the state it is in," said Koji Takayanagi, a senior managing executive officer, at trading house Itochu Corp, when asked about the reforms at a recent earnings briefing.

Japan's trading houses say they are keen to enter or expand power generation businesses and they have plenty of funds, while the biggest regional electricity monopolies recently posted combined losses of $16 billion for a second year.

The shutdown of most of Japan's nuclear reactors for safety checks in the wake of the Fukushima disaster, has also sparked a search for alternative power sources such as renewable energy.

"The trading companies, and also other companies such as real estate companies, gas companies ... and telecoms companies such as Softbank have already entered the electricity market," said Fasol. "To some extent that is an avalanche, which will be difficult to stop now."