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2014年5月11日 (日)


May 10, 2014
EDITORIAL: Time for electric utilities to abandon follow-the-crowd strategy

Fiscal 2014, which began April 1, will likely shape up as a crucial year for Japanese electric utilities. The situation surrounding their businesses will sorely test their ability to think unconventionally and make bold strategic moves based on accurate predictions for the sector.

Six of the 10 major electric power companies that effectively monopolize the regional retail power markets have reported losses for fiscal 2013. Five of them lost money for the third consecutive year.

Hokkaido Electric Power Co. and Kyushu Electric Power Co. have decided to receive fresh capital from the government-financed Development Bank of Japan.

Even after the accident at the Fukushima No. 1 nuclear power plant, Japan’s established power utilities, except for the operator of the crippled plant, Tokyo Electric Power Co., have basically maintained their traditional management policies.

Despite the Liberal Democratic Party’s return to power, things have not turned out the way the companies had hoped. Although the Abe administration has decided to keep nuclear power generation in Japan, it has been cautious about allowing utilities to restart idle nuclear reactors or raise electricity rates because of concerns over a likely public backlash.

Some utilities are finally beginning to talk about decommissioning aged reactors that are unlikely to generate sufficient profits to enable them to recoup the huge investment needed to make the reactors meet new tighter safety standards.

In Japan, people have become so sensitive to the issue of nuclear safety that even minor troubles will force utilities to stop the reactors to identify the problems and work out remedial measures.

Atomic energy can no longer be claimed to be a cheap and stable power source in this nation.

At some utilities, sections other than the ones in charge of nuclear power operations are beginning to argue that the limited resources of the companies should be used to build state-of-the-art, energy-efficient thermal power plants or reinforce their power grids.

Given the current harsh business environment for established utilities, it is hardly surprising that anxiety is growing among them about the possibility that sticking to the policy of maintaining nuclear power generation could jeopardize their future.

The proposed power market reform will also have a huge impact on the industry. The current pricing system, which allows utilities to pass all costs on to consumers through electricity rates, and their regional monopolies will eventually be abolished as part the reform. That will make it necessary for them to pay attention to even more “variables” than now in mapping out their business strategies.

Signs of change are emerging within the region served by TEPCO.

Since it cannot build new power plants, the utility, which has received a large injection of public money, is seeking alliances with other companies.

The Tokyo metropolitan area, the largest power market in Japan, will become a key battlefield for electricity suppliers as power deregulation proceeds.

In addition to electric utilities, domestic and foreign companies from different industries, such as gas suppliers, steelmakers and trading houses, are showing interest in entering the market.

The large utilities could make the fatal mistake of failing to keep up with the vital changes in the market if they remain wedded to their traditional follow-the-crowd strategy.

Chubu Electric Power Co. and Chugoku Electric Power Co. are planning to enter the Tokyo metropolitan power market in partnership with companies with which they have close business ties.

The situation poses some serious strategic questions to Kansai Electric Power Co., which is struggling to stay above water because of its heavy dependence on nuclear power. As its plight is drawing much attention, the utility that serves the Kansai region around Osaka is finding it hard to make an effective response to the changing business environment.

But the challenges now facing established utilities are basically the same as those that Japanese companies in other industries had to tackle as they responded to such earth-shaking trends as deregulation and globalization while experiencing bitter failures and industry shakeouts.

Utilities need to take the opportunity offered by this make-or-break fiscal year to reinvent their futures and become ordinary companies competing in a free market.

--The Asahi Shimbun, May 4


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