Higashidori Mayor Yasuo Echizen traveled from northern Aomori Prefecture to the nation’s capital to plead for the survival of his rural village. One of his first stops was the headquarters of Tokyo Electric Power Co.
Higashidori Mayor Yasuo Echizen traveled from northern Aomori Prefecture to the nation’s capital to plead for the survival of his rural village. One of his first stops was the headquarters of Tokyo Electric Power Co.
“We will continue to develop the village through harmonious coexistence with the nuclear power plant,” Echizen told TEPCO President Toshio Nishizawa on Feb. 2. “We ask you to take action in a responsible manner as a company.”
What prompted the mayor’s visit were the halt to construction of a nuclear reactor at a power plant in Higashidori and TEPCO’s indication that it will stop providing generous donations to the village.
Higashidori has received 15.7 billion yen ($202 million) in donations and other forms of funds from TEPCO and Tohoku Electric Power Co. over the past three decades or so.
The money came from electricity bills paid by consumers under a generous system that allows utilities to calculate electricity rates charged to households.
To calculate the charges, utilities like TEPCO estimate the necessary costs, including fuel and personnel expenses, and add profits. But they are also allowed to factor in donations to local governments, contributions to industry associations and other expenditures not directly related to the power supply.
During normal times, the system proved highly beneficial for a tight web of interests, including the utilities, host communities and preferred subcontractors.
But following the disaster at TEPCO’s Fukushima No. 1 nuclear power plant, calculations for electricity rates have come under greater scrutiny. Reforming this system could seriously hurt those long dependent on it, including Higashidori.
Half a century ago, the village assembly adopted a resolution to attract a nuclear power plant. Tohoku Electric Power started operations of its No. 1 reactor at the Higashidori nuclear power plant in 2005.
Tohoku Electric Power and TEPCO have plans to build their second reactors at the plant.
TEPCO started construction of the No. 1 reactor at the Higashidori plant in January 2011, but work has been put on hold since the March 11 Great East Japan Earthquake crippled the Fukushima No. 1 nuclear power plant.
Mayor Echizen never received an answer from Nishizawa on the prospects of resuming construction of the reactor. The TEPCO chief only said that the subject will be included in a special business plan to be compiled in March.
Echizen also asked a vice industry minister to resume construction at the Ministry of Economy, Trade and Industry the same day.
“We have planned village development and business operations centered on the nuclear power plant,” the head of the society of commerce and industry in Higashidori said. “If it is gone, it will be a life-and-death issue.”
TEPCO has earmarked about 2 billion yen a year for donations to local governments in Aomori, Fukushima and Niigata prefectures where it operates nuclear power plants and other facilities.
That is expected to change.
The government’s investigation committee on TEPCO’s management and finance, set up after the Fukushima accident, estimated that the costs used in the calculations for its electricity rates were 600 billion yen higher than actual expenditures over the past 10 years.
Besides the donations, TEPCO’s transactions with affiliated companies have inflated the costs.
TEPCO buys goods and services worth more than 1 trillion yen a year, often from 250 group companies in areas ranging from telecommunications to the environment.
Many companies rely heavily on profits from their transactions with TEPCO, with some using those funds to cover losses in deals with other companies.
The setup is common in the electric power industry.
“We use group companies even if we know we can cut costs by placing orders with outside companies,” said an employee at another regional electric power company. “We cannot ignore the group companies because they accept our employees after retirement.”
The industry ministry reviews TEPCO’s cost estimates and seeks consumers’ opinions at public hearings when the utility applies for an increase in household electricity charges.
But TEPCO has not raised electricity charges for about 30 years, except for increases under an automatic system introduced in 1996 to reflect changes in fuel prices, which does not require government approval.
When electric power companies lower electricity charges, they only have to report such plans to the government since the procedures were changed in 2000.
“Electric power companies became bureaucratic after the oil crises in the 1970s, adopting a do-as-your-neighbors-do mentality,” said Takeo Kikkawa, a professor of management history at Hitotsubashi University.
Electricity supply was under state control during World War II. The current framework, consisting of nine private-sector regional utilities, started in 1951.
While the companies simultaneously raised electricity charges three times during the first four years, no simultaneous hikes were implemented for about 20 years after that.
The regional monopolies the companies enjoy, coupled with the generous system to calculate electricity charges, guaranteed stable operations. But they cut costs to avoid rate hikes, Kikkawa said.
The industry supported the nation’s high economic growth, providing electricity on a stable basis and at a low cost.
But the oil crises changed the industry’s character as fuel costs surged. Across-the-industry rate hikes were repeated from 1974 to 1980, resulting in a nearly threefold increase.
Now facing a financial crisis due to compensation payments for the Fukushima accident and decommissioning of the damaged reactors, TEPCO plans to raise electricity charges for large corporate users by an average of 17 percent from April. Government approval is not required because retailing for those users have been liberalized since 2005.
Other regional utilities are reluctant to raise electricity charges. They are making efforts to restart nuclear power plants shut down after the accident at the Fukushima No. 1 plant, although increased fuel costs for thermal power generation have dented their earnings.
“If we want to raise electricity charges, our costs will be strictly examined like TEPCO’s,” said a senior official at an electric power company.
The government is considering liberalizing electricity charges for households. However, electric power companies will be able to set rates at will if their regional monopolies are maintained.
(This article was written by Toru Nakagawa and Takuya Kitazawa)