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Liberalise the electricity market?

February 19, 2013


Editorial: Concrete measures needed to implement true electricity reforms



A report on electricity system reforms compiled by a panel of experts for the Ministry of Economy, Trade and Industry has outlined plans to fully liberalize the electricity retailing market in Japan and separate electricity production at major power firms from power transmission and distribution, specifying times for achieving the changes.

The plans bring Japan a step closer to electricity system reforms designed to transform regulations and market monopolies into liberalization and competition. Officials must now put their heads together and make concrete plans for a system to improve services and restrain electricity prices.

The government report states that full liberalization of the retailing market for home electricity will be implemented in three years' time, and that the separation of power transmission and distribution will be carried out in five to seven years. If electricity retailing is liberalized, home users will be able to purchase electricity produced by major utilities located in other areas, as well as new forms of electricity produced by market newcomers. This should spur competition between power companies, and produce a more convenient system for users.

To ensure fair competition, companies must be able to freely use the transmission and distribution networks held by major utilities. Separation of power generation and transmission is one step to boost the neutrality of such facilities and help secure fairness.

Previous plans to fully liberalize the electricity market in Japan, presented under the previous administration of Prime Minister Shinzo Abe, were derailed by resistance from major power companies and Abe's own Liberal Democratic Party (LDP). There is greater opposition to separation of power generation and distribution -- which would pressure major utilities to make organizational changes -- than to mere liberalization.

As the latest report provides targets for implementing reforms, it can be considered a step forward. These plans are expected to be legislated in the near future. Officials must not backtrack on the plans when they are screened by the ruling government parties.

Of course, there are outstanding issues to be addressed, such as how to ensure a stable supply of electricity and make sure electricity prices on remote islands and depopulated areas are kept to a reasonable level. Careful preparation is needed to overcome these issues and ensure that electricity users benefit from the changes.

Noteworthy in the government is the mention of establishing two new bodies. The first is a "wide-area grid organization." This body would facilitate arrangements within power companies to transmit and distribute electricity from areas with power surpluses to areas facing power shortages, and create plans for maintaining national power transmission and distribution networks. It would play a vital role in ensuring a stable supply of electricity and preserving infrastructure. We want to see legislation giving this organization a powerful measure of authority in its dealings with major utilities.

The second body is a "regulatory organization" to ensure the effectiveness of reforms. It will check the extent of liberalization of electricity retailing, neutrality in the power transmission and distribution sectors, and activity within the electricity wholesale market.

Past reforms failed to draw newcomers into the market because the system lacked a means to verify market fairness. Officials may create a spectacular system, but poor operation will only water it down. Electricity reforms must not go down the path of allowing former government bureaucrats to parachute into high-profile jobs through the practice of "amakudari."

We call on the government to make sure the new bodies and their internal organizations are effective, thereby preventing the reforms from turning out to be nothing more than a pie in the sky.



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