BY JAPAN NRG TEAM
The fuel cost adjustment system is supposed to act as a shock absorber between volatile international energy markets and Japanese electricity consumers. This system, however, seems to have reached its limits.
Kansai Electric is the clearest example. The average fuel price used for its regulated tariff calculation has remained above the ¥40,700/ kL upper limit since the March 2022 billing month – more than four years. Kyushu Electric also remained at its ceiling continuously between July 2022 and June 2025. And after just over a year below the limit, it has now reached the cap again.
These are not isolated cases. Several EPCOs, the former regional power monopolies, have spent years unable to pass further fuel-price increases through regulated tariffs. And while the automatic adjustment mechanism plays an important consumer protection function, it also pushes the risk onto the electricity supplier.
Obviously, this cuts into a utility’s profit margins. A system intended to smooth ordinary changes in commodity prices is now regularly asked to absorb extraordinary ones. Wars in Ukraine and around Iran have turned into a protracted crisis, with global fuel prices inching upward. And as margins get squeezed, so does the capital these companies need to invest heavily in generation, grids, storage, and other infrastructure.
The fuel adjustment framework was created for an industry in which utilities could recover costs over long periods and financing conditions were forgiving. Today, EPCOs operate in liberalized markets, are attuned to shareholder scrutiny of their returns, and need to borrow in a rising interest rate environment. At the same time, geopolitical disruptions appear to be occurring with greater frequency and lasting longer.
While the government has yet to update policy to reflect the changing realities, the EPCOs are taking matters into their own hands. The adjustment mechanism is getting adjusted.