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Toward liberalisation

May 20, 2012

Panel seen urging liberalizing power



A government advisory panel has agreed to recommend that retail sales of electricity to households be totally liberalized, sources said.

The Economy, Trade and Industry Ministry panel of experts on reforms of electrical power systems, chaired by Prof. Motoshige Itoh of the University of Tokyo, said Friday the electricity retail business, including supply to households, should be completely liberalized.

The panel also said the current method used by electric power companies to decide charges should be abolished to introduce competition to the industry. Currently, utility charges are calculated by totaling such costs as labor and fuel and adding a percentage as a profit margin.

The panel also is expected to call for accelerating other steps to liberalize the electricity business, such as separating power generation and distribution of electricity by regional electric power companies, to prevent utilities from having monopolies in their service areas and keeping electricity rates at high levels even after liberalization.

If the reforms are realized, households will have more choices in selecting electricity suppliers, which is expected to result in lower electricity bills.

The liberalization plan for household-use electricity will be included in a new basic energy plan the government plans to compile this summer.

As the electric power industry is expected to accept the plan, the government plans to submit a bill to revise the Electricity Business Law as early as spring next year.

After a period during which the public will be notified of the changes, the new scheme will go into effect as early as around 2015, the sources said.

If the electricity retail business is totally liberalized, consumers will be able to freely choose suppliers from among not only current regional electric power companies but also power producer and supplier firms, which may provide electricity at lower prices, and retail firms specializing in renewable energy resources.

If the current pricing method is abolished, the system that requires the ministry to approve power companies' applications before raising electricity charges will also be scrapped. As a result, power producers and suppliers will be able to freely set power rates.

The ministry on Friday presented to the panel a reform plan for the electricity industry, proposing the creation of a wide-area power distribution network that will enable utilities to supply electricity to each other, and establishment of a new nationwide organization to manage the network.

The ministry has begun negotiations with the electric power industry and other parties concerned to realize the plans.

The industry had opposed such liberalization for many years, but it apparently changed its policy due to the government's hard-line stance.

This spring, the government reviewed the utilities' current billing methods and decided to set upper limits on labor costs that can be reflected in electricity charges.

Electric power companies apparently concluded it would be to their advantage to accept the billing limits because they will make them more competitive when newcomers enter the market under liberalization, according to observers.

The ministry will separately consider measures to ensure electricity supply to remote islands and rural areas where depopulation is under way.

Liberalization of electricity retail businesses has been gradually implemented since 2000.

But even today, households and small stores, whose power consumption accounts for about 40 percent of total electricity use, can buy power only from regional electric power companies in their respective areas.

Earlier this year, Tokyo Electric Power Co. decided to drastically raise electricity rates.

Because ordinary households have no choice but to buy electricity from TEPCO despite the hike, there has been mounting criticism among the public toward the current system, rapidly boosting public support for liberalization.

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