The power sector requires trillions of yen in investment to upgrade to a net-zero economy. But there’s growing concern about the sector’s ability to raise the funds or carry out the long-term investment programs required for decarbonization. In addition to seeing their profits squeezed by high fuel prices and a weak yen, Japan’s major power utilities have been rocked by numerous scandals. None are bigger than the claim that the companies, which used to operate as regional power monopolies, failed to adapt to the new competitive landscape. State probes found that several of the utilities, known also as EPCOs, illicitly passed on competitor data to their retail units. Now, the companies face a record 101 billion in antitrust penalties.
The problems don’t seem to be limited to a few poor individual decisions. Criticism has swirled also about the role of the regulator and govt officials. In an effort to appease the public, in April, the METI Minister Nishimura vowed to make amendments to the Electricity Business Act that will strictly penalize wrongdoing. But many industry players say that this is not enough. While stricter laws should help, their impact will mean little without stricter enforcement.
The Electricity and Gas Market Surveillance Commission (EGC) was created to oversee the newly liberalized utility markets. The power sector was fully opened to new players in 2016, with the gas sector following in 2017. The EGC, however, is what is known as a “soft regulator”. It can issue advisories but not orders. It cannot impose fines. Such powers are reserved for ANRE and METI. So, is it time for Japan to rethink the role of the regulator?
Japan NRG interviewed Hatta Tatsuo, the very first chair of the EGC, who served in the role from 2015 to 2021. Hatta is a former professor of economics at Osaka University and presently a member of the Cabinet Taskforce to Review Renewables Regulations. He is also chair of the state-run Asian Growth Research Institute.
Basic reforms: amending the Electricity Business Act
Q: How should the Electricity Business Act change to make power sector regulation more effective?
A: The Electricity Business Act is a weak law. This needs to change more than anything else. The law’s major flaws are: 1) It is not aimed at promoting competition, and 2)