The industry ministry has proposed new guidelines that will push electric power companies to cut personnel and advertising expenses before approval is given to increase rates. But there are limits to efforts on restraining such rate hikes because about 70 percent of the costs used in calculating electric rates are beyond the control of the electric power companies.
The industry ministry has proposed new guidelines that will push electric power companies to cut personnel and advertising expenses before approval is given to increase rates. But there are limits to efforts on restraining such rate hikes because about 70 percent of the costs used in calculating electric rates are beyond the control of the electric power companies.
Officials of the Ministry of Economy, Trade and Industry presented their proposal for limiting expenses on Feb. 3 to an expert committee, which has been considering the items to be included in calculations of electric rates since November. A final decision on the guidelines is expected in March.
The new guidelines will be used when Tokyo Electric Power Co. submits an application to raise electric rates of households this spring. Any approval of higher electric rates is not expected until the summer at the earliest.
The ministry’s proposal covers such expenses as personnel and repair costs over which electric power companies can make decisions to cut outlays. The panel is considering encouraging electric power companies to make further reductions or more efficient use of expenses rather than rubber-stamp the estimated costs presented by the utilities.
However, such expenses as depreciation and fuel costs, which make up about 70 percent of the costs going into electric rates, are much more difficult to reduce by the discretion of electric power companies alone.
Until now, electric power companies have applied for electric rate hikes by compiling estimated expenses for various costs. They have used their own average salary scales in calculating the personnel expenses included in electric rates.
Under the new proposal, the personnel expense estimate presented by TEPCO will be checked against the average for companies with more than 1,000 employees.
Currently, electric power companies have pay scales that are about 20 percent higher than companies with more than 1,000 employees. The average annual salary for employees at electric power companies is 6.77 million yen ($88,900), while the average for companies with more than 1,000 employees is 5.43 million yen.
The proposal will also only allow advertising expenses for ads that are needed to notify users about safe electricity use. Ads designed to improve the company image or encourage consumers to switch from gas to electricity-powered appliances will also not be allowed.
When TEPCO applied for an electric rate hike in fiscal 2008, it included advertising expenses of 21 billion yen as part of the costs to be included in the electric rate.
TEPCO will also not be allowed to include donations to local governments or advertising in industry organization media in the costs for the rate.
The move to reduce as much as possible any proposed rate hike made by TEPCO follows a detailed investigation into TEPCO's management situation following the accident at its Fukushima No. 1 nuclear power plant.
That study found that TEPCO had been including various expenses into the rates paid for by households.
It may also be difficult to exclude certain expenses because TEPCO and other electric power companies have until now not publicized the amounts they donate to local governments, often those that host nuclear power plants.