Contributed By Nagashima Ohno & Tsunematsu
As the vertically integrated Major Utilities were granted regional monopoly for nearly 50 years, an electricity retailer that is a Major Utility or its affiliate occupies a dominant share in the geographical area where such Major Utility or its parent Major Utility enjoyed the regional monopoly.
As such, since the retail sector’s liberalisation began to be discussed, the question of how to secure an environment where new entrant electricity retailers can compete with Major Utility retailers has been an important item on the agenda. Among the unique aspects of Japan’s power industry is that while the government establishes regulations that it thinks appropriate to address that issue, it also requires the Major Utilities to develop and implement voluntary solutions to support new entrant retailers through private-sector autonomy. An example of such autonomous solution is that Major Utilities voluntarily commit themselves in supplying their surplus electricity to JEPX at marginal costs.
Other characteristics of Japan’s power industry include the following: (i) the transmission sector and the distribution sector are not distinguished for a regulatory purpose under the Electricity Business Act and those are covered by a single licence (except for Electricity Transmission Business), and (ii) there is no interconnection with other countries, which means that the demand of electricity has to be satisfied by the electricity generated by power generation facilities in Japan.