Contributed By Nagashima Ohno & Tsunematsu
The Electricity Business Act (Act No 170 of 1964, as amended) governs the electricity business in general.
The structure of the power industry of Japan was formulated during General Headquarters' (GHQ’s) occupation after World War II when nine vertically integrated companies (together with Okinawa Electric Power Company, Incorporated, 'Major Utilities') were incorporated on 1 May 1951 pursuant to a GHQ directive. Each of the nine companies was granted a regional monopoly (in 1972 when Okinawa was returned from the USA, Okinawa Electric Power Company was incorporated and it monopolised the electricity business in Okinawa). The exception to such vertical integration was limited to two wholesale electricity generators, (i) Electric Power Development Co, Ltd. (also known as 'Denpatsu' or, since 2002, 'J-Power'), which was incorporated in 1952 as a State-owned company (with 40% of the shares being held by Major Utilities) to supplement the generation capacity of the nine companies, and (ii) Japan Atomic Power Company, which was incorporated in 1957 to promote the development of nuclear power plants by Major Utilities and J-Power.
The vertical integration and the regional monopoly in the generation sector, the transmission and distribution sector and the retail sector have been gradually relaxed and liberalised since 1995.
With respect to the generation sector, the regime of independent power producers (IPPs) was introduced and the generation and wholesale of electricity was liberalised.
The retail sector was also partially liberalised by way of the introduction of a Power Producer and Supplier (PPS) licence. A PPS can sell its generated electricity to large-volume purchasers (50 kW or more).
As an exception to the regional monopoly of the transmission and distribution sector as well as the vertical integration, a Specified Electricity Business operator licence was established, where a holder of such licence sells its generated electricity to consumers in a very limited geographical area through the transmission and distribution network that it operates and maintains on its own in such area.
In 2003, an electricity wholesale market, Japan Electric Power Exchange (JEPX), was established to provide a liquid market of electricity.
In 2004, J-Power was privatised through being listed on the Tokyo Stock Exchange.
Since 2013, the power industry has been in the middle of a structural reform that consists of (i) establishing a system to efficiently manage electricity generated by power producers in the country across the transmission networks, (ii) full liberalisation of the retail sector and (iii) 'legal unbundling' of the transmission and distribution sector from the generation and retail sector (for more details, please see 1.6 Recent Material Changes in Law or Regulation).
Under the current Electricity Business Act, there are five types of regulated business:
The Electricity Generation Business is the business to generate and sell electricity to retail sellers and the Retail Electricity Business is the business to sell electricity to consumers.
With respect to the transmission and distribution sector, the General Electricity Transmission and Distribution Business corresponds to the transmission and distribution segment of the business that each of the Major Utilities or their wholly-owned subsidiaries has conducted since its inception and, even after the structural reform, will be conducted by the wholly-owned subsidiaries of the Major Utilities with a privilege of regional monopoly. The General Electricity Transmission and Distribution Business is not limited to the operation and maintenance of the transmission and distribution network but also carries the responsibility to provide ancillary services such as supply-demand adjustment and frequency control in the region where the transmission and distribution network is maintained.
The Electricity Transmission Business is an exception to non-separation of transmission and distribution and it is the business to transmit electricity to the General Electricity Transmission and Distribution Business operator through the transmission lines that it operates and maintains on its own. Unlike the General Electricity Transmission and Distribution Business, an operator of Electricity Transmission Business is not responsible for providing the ancillary services as described in the previous paragraph. The Specified Transmission and Distribution Business is the business introduced in 1995 as part of liberalisation of the power industry as described above.