Kepco's commitment to reducing costs questioned

May 14, 2015

EDITORIAL: We need to hear Kansai Electric's vision for future power sources

http://ajw.asahi.com/article/views/editorial/AJ201505140039

Kansai Electric Power Co. will raise its electricity rates for households in June. The standard monthly rate of 8,058 yen will go up to 8,220 yen.

The increase comes only two years after the last increase. In May 2013, the utility jacked up its power charges by nearly 10 percent.

Kansai Electric attributed the increase to swelling fuel costs due to the expansion of thermal power generation forced by the continued shutdown of its nuclear power plants.

But how much has the company done to cut costs to avoid a rate hike during this period?

The utility, during the government’s review of the rate hike plan and public hearings over the issue, failed to provide persuasive arguments that it was committed to cost reductions.

One aspect of the company's operations that has cast doubt over its seriousness to cut costs concerns executive pay.

At the time of the previous increase, the government asked the utility to lower the average annual remuneration of the board members to 18 million yen. But Kansai Electric kept it at 21 million yen until the end of last year. After being criticized for failing to cut its executive salaries, President Makoto Yagi promised on May 12 to lower the average to 16 million yen.

The utility initially hoped to raise its power charges by more than 10 percent in April. But the government limited the hike to 8.36 percent, saying the company could do more to boost its cost efficiency.

An increase in electricity rates has a direct impact on people’s livelihoods. The utility needs to demonstrate that it has made every effort to slash costs. That is a basic premise.

Since the catastrophic accident at Tokyo Electric Power Co.’s Fukushima No. 1 nuclear power plant, which led to a shutdown of all nuclear reactors in Japan, it has been impossible to resume nuclear power generation at pre-disaster levels.

Nuclear power accounted for half of Kansai Electric’s overall power output before the accident. The utility now should make more serious efforts to wean itself from its dependence on atomic energy.

In spite of this, the company has said it will keep using nine of the 11 reactors it owns.

It appears that Kansai Electric is proverbially waiting for the storm to pass by pinning its hopes for earnings recovery on eventual restarts of its reactors.

Last month, the Fukui District Court issued an injunction to prevent restarts of two reactors at Kansai Electric’s Takahama nuclear power plant in Fukui Prefecture. The court cited safety concerns in issuing the injunction in response to a request from local residents.

There is strong opposition to plans to bring offline reactors back on stream, especially in areas around Fukui Prefecture.

The utility should take more seriously the changes in the social environment caused by the Fukushima triple meltdown.

Kansai Electric’s latest business plan also calls for greater efforts to build state-of-the-art thermal power plants with higher fuel efficiency and introduce renewable energy sources for power generation.

If it is serious about pursuing these goals, we suggest the company lay out a vision for its future power sources before the government’s policy debate on the nation’s future energy mix is concluded.

In its long-term growth strategy unveiled in 2010, the company pledged to raise the share of non-fossil fuel power sources, mainly nuclear energy, to a level of 60 to 70 percent in 2030. The target must now be reconsidered as a result of the disaster that unfolded in March 2011.

If the company sets clear numerical targets for lowering its dependence on nuclear power in 10 or 20 years, more constructive debate on its business plans will be possible.

The power retail market is slated to be fully deregulated next spring, which will allow households to freely choose their suppliers of electricity.

As the power market for industrial consumers has already been liberalized, more than 5,000 companies and local governments terminated their contracts with Kansai Electric, which raised the rates, and switched to new power suppliers by the end of March.

Unless it is willing to reform its management policy and structure in response to the changes of the times, Kansai Electric could lose many more customers.

--The Asahi Shimbun, May 14