Raising power prices (effects of-)

August 2, 2014

Editorial: Power companies can't ignore problems when raising electricity prices

http://mainichi.jp/english/english/perspectives/news/20140802p2a00m0na004000c.html 

Hokkaido Electric Power Co. has applied to the Ministry of Economy, Trade and Industry to charge its consumers more for power, as prospects for restarting its Tomari Nuclear Power Plant in Hokkaido remain unclear and its expenditure on other fuels has adversely affected its business performance. If the company increases its fees, the move may prompt Kansai Electric Power Co. and Tokyo Electric Power Co. to follow suit.

If electricity rate increases are directly linked to rises in fuel costs stemming from the suspension of nuclear power plants, then it will have a major impact on the domestic economy. The government and power companies cannot waste time sidelining problems in anticipation of the restart of nuclear reactors.

Hokkaido Electric Power Co.'s planned price hike follows an increase in September last year. Households face an approximately 17 percent increase, much more than the roughly 7.7 percent implemented last year. Corporate customers for which government authorization of a price hike is not required, meanwhile, face a roughly 22.6 percent increase. Such a drastic price hike, however, will have a major adverse effect on the regional economy. The Ministry of Economy, Trade and Industry is likely to approve a price hike from November, but it needs to urge the utility to step up streamlining of its operations to limit the extent of the increase.

Hokkaido Electric Power Co. should do its utmost to cut costs. It must be noted, though, that a streamlining plan had accompanied the application for the first hike, and the extent of further cost-cutting measures will likely be limited.

It is a problem that the power company has had to apply for a price raise again after just one year. In the wake of the disaster at the Fukushima No. 1 Nuclear Power Plant, the government has revised the way in which electricity rates are calculated, from year-by-year calculations to an average for a three-year period. Government officials apparently expected nuclear reactors would be restarted within three years, leading to reduced fuel costs and modest price hikes. But this was a case of counting their chickens before they had hatched. In effect, they were adopting a lax outlook and putting problems on the backburner.

If Japan's nuclear power plants are not restarted, then business models that had envisaged their operation will crumble. Hokkaido Electric Power Co., which relied heavily on nuclear power, has seen this firsthand. The model is the same for other utilities including Tokyo Electric Power Co., operator of the Kashiwazaki-Kariwa Nuclear Power Plant, and Kansai Electric Power Co., which relies on the Oi and the Takahama nuclear power plants.

It would be simplistic to say that nuclear reactors should be restarted because the companies rely on them. In light of the grave consequences of the Fukushima nuclear disaster, there is evidently a need to reduce reliance on nuclear power as soon as possible. And in that case, we will probably have to accept a degree of price increases. When the electricity supply is not increasing, efforts will also need to be made to conserve power.

Japan's economy cannot stand if the suspension of nuclear power plants is linked directly to price increases. The basic energy plan adopted by the administration of Prime Minister Shinzo Abe has presented a policy of reducing dependence on nuclear power. While confirming that premise, the government and people of Japan must put their heads together to find ways to control electricity prices.

To reduce the costs of power generation through liquefied natural gas, which can replace nuclear power, Japan needs to strengthen its bargaining ability in its negotiations with gas-producing countries. However, it must not rely on relatively cheap coal-fired thermal plants, which run counter to measures against global warming.

Reforms to the power system that aim to diversify services and control prices by introducing principles of competition are also important. We call for the establishment of an effective system for Japan's power industry.