Allow Larger Scale Operations Rather Than Demanding Separation Between Power Generation and Transmission

Akihiro Sawa, Japan’s leading expert in the field of analysis and research on policies, published his suggestions for Japan’s national energy policies, proposing a new framework for Japan’s national policies on energy and nuclear power with a view to compensation for the Fukushima Daiichi nuclear accident and the need to ensure a stable supply of electric power.

The Fukushima Daiichi nuclear accident has highlighted the unclear responsibility for Japan’s national energy policies, particularly concerning nuclear power. The Kan administration, in dealing with the nuclear accident and preparing a compensation scheme, maintained its stance of avoiding taking final responsibility.

The compensation scheme prepared by the government in May holds the Tokyo Electric Power Company (TEPCO), a private company, primarily responsible for compensation while the government is to provide TEPCO with so-called “logistic support.” Since the compensation scheme does not set an upper limit on the total amount of compensation to be paid by TEPCO, its liabilities for nuclear damages are bound to persist for decades. As a result, in terms of financial and human resources, TEPCO’s performance as an electric utility will be seriously compromised.

Even though the government is allowed to provide the utility with financial aid in exceptional cases, such as when “the stable supply of electric power is endangered,” any initiative for such aid, like any other initiative for actually implementing the Act on Compensation for Nuclear Damage, is likely to be met with strong resistance against the spending of public money. Moreover, financing from private entities and the issuing of corporate bonds may become impossible. As long as the government continues to adhere to the chosen policy of private companies continuing nuclear power generation, the compensation scheme in its present format is not sustainable. The scheme must be reviewed and modified within the next few years.

When reviewing the compensation scheme, the following two points should be considered. Firstly, the victims should not be left in a helpless state, which requires a new mechanism for the government and TEPCO to assume joint responsibility for compensation. To remove the vagueness that has existed since the Act on Compensation for Nuclear Damage was established, clear decisions should be made concerning the sharing of responsibilities between the government and utility. To help decide how much compensation should be made and by whom, the cause and effect relationships should be studied by an independent investigation committee. The payment should be handled by the government by issuing compensation bonds, and TEPCO should then reimburse the amounts determined by the investigation in a manner that will not make the company insolvent.

Secondly, the government should help finance electric utilities that are legally obliged to continue supplying electricity. Since TEPCO must continue to pay compensation for a long period, it is difficult in practice for the company to find new sources of financial support. Moreover, the compensation scheme produced by the government requires other electric utilities to bear part of the compensation costs. This arrangement is not prescribed by the Act, and the careless reliance on an arrangement like this will hit private investment and financing for other electric utilities as well.

We must calmly consider whether TEPCO should continue to exist in order to pay compensation for as long as several decades. Sentencing TEPCO to life imprisonment in this way will delay its recovery as a private company, undermine the motivation of its employees and make it difficult to attract staff, thus causing its core business of supplying electricity to deteriorate. A more reasonable approach would be to split the company in the near future into an organization in charge of compensation and an organization responsible for continuing to supply electricity.

If TEPCO is split into two organizations, one for taking over compensation liability and another for pursuing new investment in power generation, the latter organization should be made to do business on a greater scale so that it can safely fulfill its fundamental obligation to continue the supply of electricity. The new company should go beyond the conventional framework of a regional electric utility enjoying a monopoly in a given region of Japan. With an expanded service area, the new company should be made more capable of optimally siting power sources including nuclear power plants, as well as flexibly procuring and distributing power in an emergency. Doing business on a greater scale would help the company to procure funds for investing in power systems at lower cost, thus helping to stabilize electricity prices.

In order to protect the victims and ensure a stable supply of electric power in the long term, it is urgently necessary to reorganize the industry to produce a strong private entity that can safeguard the cost and quantity of energy, rather than pursuing renovation by splitting organizations into smaller units.

The International Environment and Economy Institute (NPO): http://iee-i.org/

The full original version of this paper was published in WEDGE issued in July.

WEDGE Inc.: http://www.wedge.co.jp/

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WEDGE OPINION

Allow Larger Scale Operations Rather Than Demanding Separation Between Power Generation and Transmission by Akihiro Sawa

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