Japan Power Industry Bill Gets First Nod to Break Up Monopolies

The first phase of a proposal to revamp Japan’s 16 trillion yen ($166 billion) electricity industry and spur competitition by making utilities split power generation and distribution passed a lower house committee.

The plan, which calls for the creation of a new body around 2015 to coordinate power supply and demand, was approved today in a meeting of the lower house’s economy and industry committee broadcast on the Internet.

The overhaul, which needs to pass the full lower house and then the upper house, aims to modernize Japan’s grid and follows a model in Europe introduced in 2009 when the European Parliament approved legislation to force utilities to open access to their transmission networks. In Germany, RWE AG (RWE), the country’s second-biggest utility, sold majority control in its grid company in 2011 to satisfy regulators.

Since the Fukushima nuclear disaster in 2011, the public has demanded more independent oversight of the utilities as the disaster showed Tokyo Electric Power Co. ignored warnings of earthquake and tsunami risk. That followed revelations the power producers falsified maintenance reports for decades.

Japan’s cabinet, led by Prime Minister Shinzo Abe, in April approved the reform plans. Parts two and three of the effort include fully liberalizing the nation’s electricity retail business by 2016 and spinning off utilities’ transmission and distribution operations between 2018 and 2020.

Monopoly Utilities

The 10 regional utilities monopolize Japan’s electricity business, owning more than 70 percent of generation capacity and controlling distribution and transmission, the trade and industry ministry said in a report in November.

With almost no competition among the regional monopolies and few new entrants, the country’s electricity prices were twice those in the U.S. before the Fukushima disaster increased Japan’s electricity bills, the report said.

Abe earlier this month unveiled parts of his growth strategy, the “third arrow” of an economic revival push, that included plans to encourage competition and create jobs in the electricity market. The prime minister pledged to spur 30 trillion yen of investment in the electricity industry.

Abe Arrow

The government will hold a meeting of its industrial competitiveness council tonight in Tokyo to discuss the draft strategy, the trade and industry ministry said in an e-mail yesterday. Economy Minister Akira Amari is scheduled to hold a press conference around 7:40 p.m., according to the e-mail.

The ruling Liberal Democratic Party and the opposition Democratic Party of Japan have agreed to pass the electricity reform bill at a plenary session of the lower house tomorrow, sending it to the upper house, the Mainichi newspaper reported last week. The bill is expected to be enacted into law before the current Diet session ends on June 26, the newspaper said.

Japan, the world’s fifth-biggest carbon dioxide emitter in 2010, last year introduced a feed-in-tariff program that pays renewable energy producers above-market rates for their output, aiming to spur investment in wind, solar and other renewables.

The country is reviewing its target to cut greenhouse gas emissions by 25 percent by 2020 from 1990 levels after the reactor shutdowns post-Fukushima forced the nation to rely on oil-, gas- and coal-power plants.

To contact the reporter on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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