TEPCO and its costs

July 27, 2012

Reducing Tepco's costs

http://www.japantimes.co.jp/text/ed20120727a2.html

Trade and industry minister Yukio Edano, consumer affairs minister Jin Matsubara and Chief Cabinet Secretary Osamu Fujimura on July 20 decided to let Tokyo Electric Power Co. raise its electricity rate for households by an average 8.47 percent from Sept. 1. On Wednesday, Mr. Edano eventually set the increase at an average 8.46 percent. This is down from Tepco's initial plan to raise the rate by an average 10.28 percent. Since the rate hike will apply to small-scale factories, supermarkets and convenience stores alike, its effect will be great.

Judging that Tepco is likely to achieve the goals of its special business plan, the government will soon give Tepco a capital injection of ¥1 trillion, acquire more than half its voting shares, and virtually nationalize the power utility.

Therefore, it is all the more important for the government to strictly watch whether Tepco is making serious efforts to reduce costs and whether all costs included in its business plan can be justified. Tepco should make its cost details transparent.

In asking for the 10.28 percent rate hike, Tepco said its financial conditions are deteriorating because of the halt in nuclear power plant operations following the severe accident at its Fukushima No. 1 nuclear power plant and the resultant increase in the cost to purchase fuel for thermal power plants, whose weight in power generation became greater after the Fukushima nuclear crisis.

Mr. Edano ordered a panel of experts to review Tepco's rate increase request. It managed to decrease costs by ¥50 billion. In addition, a panel for the Consumer Affairs Agency and pertinent Cabinet ministers managed to cut costs by ¥33 billion.

Although the panel for the Consumer Affairs Agency argued that depreciation costs for the Fukushima No. 2 nuclear power plant as well as for the Nos. 5 and 6 reactors at the Fukushima No. 1 plant should not be included in Tepco's costs, this idea was not included in the rate increase decision.

Tepco's rate hike plan assumes that the reactors at its Kashiwazaki-Kariwa nuclear power plant in Niigata Prefecture will restart, one after another, from fiscal 2013. Currently Tepco's electricity supply without nuclear power generation has overcome any shortfalls due to power-saving efforts by the citizenry and businesses. The government should soon work out a road map for weaning Japan away from nuclear power.

The current electricity pricing system, which allows power companies to add certain markups to costs, should be changed so that they will make serious efforts to buy liquefied natural gas for thermal power plants at cheaper prices.

Comments

[plumbing supplies]

In most electric power systems, some or all consumers pay a fixed price per unit of electricity independent of the cost of production at the time of consumption. The consumer price may be
established by the government or a regulator, and typically represents an average cost per unit of production over a given timeframe (for example, a year).