Chubu Electric Steps Into Tepco Turf With Diamond Power

Chubu Electric Power Co.’s purchase of a small electricity supplier with customers in eastern Japan edges the utility closer to Tokyo Electric Power Co.’s market ahead of government reforms meant to weaken power monopolies.

The move by Chubu comes as the regional utility serving the Nagoya region faces a loss for the third consecutive year after the shutdown of its Hamaoka nuclear power station. The purchase expands where Chubu can sell electricity.

Other utilities may follow as the government pushes a liberalization plan that would give power-generating companies access to each other’s transmission lines, promising a better deal for customers, said Hiroshi Takahashi, an energy policy specialist at the Fujitsu Research Institute.

“It’s a very good announcement in terms of competition,” Takahashi said. “That kind of behavior should change the traditional structure of the power industries.”

Chubu yesterday said it will buy 80 percent of Tokyo-based Diamond Power Corp. from Mitsubishi Corp., making it the first of Japan’s 10 regional utilities to set itself up to serve customers in another’s territory in more than seven years. The purchase is scheduled to be completed Oct. 1.

Reform Push

Chubu’s shares fell 24 yen, or 1.7 percent, to 1,396 yen at the close in Tokyo trading. The Nikkei 225 Stock Average declined 1.6 percent.

Japan’s utilities have traditionally enjoyed virtual monopolies in their regions through what critics have called a gentleman’s agreement not to compete with one another.

While power companies have been able to vie for industrial customers under a previous round of reforms that began being implemented in 1995, few new companies have emerged to seek that business and only one utility has tapped demand on a peer’s turf. That was Kyushu Electric Power Co., which signed a contract in 2005 to provide electricity to a supermarket chain in Chugoku Electric Power Co.’s territory operated by Aeon Co.

Japan’s government has now devised a new set of reforms, which have yet to be voted on in the legislature. They would compel Japan’s utilities to split their generation, transmission and retail operations into separate entities that could buy and sell electricity to whomever offered the best price.

Coal-Fired Plant

The entry by Chubu into Tepco’s territory positions it to take advantage of that shift, said Takahashi. Tepco is Japan’s biggest utility, with 28.8 million customers. Chubu’s 10.5 million customers makes it Japan’s third-biggest utility.

Chubu said in yesterday’s statement that it would be involved with the construction of a 100-megawatt coal-fired power plant in Shizuoka prefecture near Tokyo. Mitsubishi will hold 80 percent of the entity that will own the planned 2.6 billion yen plant, with Nippon Paper Group owning 20 percent and Chubu 10 percent. The plant will begin operation in May 2015, Chubu said.

The company was considering the sale of electricity to the sections of Japan that use a 50-hertz frequency for power transmission, which includes Tokyo and other parts of the country’s eastern half, Chubu said.

The company appears to see Tepco as being in a financially weakened state due to costs related to the March 2011 accident at its Fukushima Dai-Ichi nuclear plant and is eager to offer business to the capital area’s big energy users, Takahashi said.

Diamond Power buys excess power from utilities and other suppliers and then sells it to office buildings, shopping centers, hotels and hospitals, according to its website.

“In the field of business, when competitors are losing power, of course companies should compete more aggressively,” he said. “It’s a very economical, rational decision for Chubu Electric to try to enter this market. Until now there was no such rational competition in the power industry.”

Before it's here, it's on the Bloomberg Terminal.