Last Updated July 22, 2019

Law and Practice

Authors



Nagashima Ohno & Tsunematsu is one of the foremost providers of international and commercial legal services based in Tokyo. The firm has over 450 lawyers, including over 30 experienced foreign attorneys from various jurisdictions, and its overseas network includes offices in New York, Singapore, Bangkok, Ho Chi Minh City, Hanoi and Shanghai, and collaborative relationships with prominent local law firms throughout Asia and other regions. The firm regularly advises leading power utilities, trading companies and investors on their energy projects as well as regulatory matters, and financial institutions on financing on those projects. The firm has dealt with a number of renewable power projects since the introduction of the feed-in tariff in Japan. The firm represented Tokyo Electric Power Company Group on establishing an alliance platform with Chubu Electric Power Co, Ltd in the fuel and power business (including the establishment of a joint venture company, JERA).

The Electricity Business Act governs the licences in relation to the construction and operation of transmission and distribution networks, and the process in relation to the construction of such networks and associated facilities.

In principle, METI controls the development of transmission and distribution networks through requiring operators of General Electricity Transmission and Distribution Business and Transmission Business to submit a development plan of major network assets (major transmission lines and transformer stations) for the forthcoming ten years. With respect to an individual construction work, the operator is required to file a construction plan with METI no less than 30 days prior to its commencement if it involves the construction of a transmission line or transformer substation of 170 kV (in some cases, 100 kV) or more. Such transmission line or transformer substation must pass a pre-use investigation conducted by METI.

As mentioned in 1.1 Principal Laws Governing the Structure and Ownership of the Power Industry, the transmission and distribution network sector is not liberalised and ten Major Utilities are given regional monopoly in their respective service areas. As METI’s position is to keep the current regional monopoly regime, it is unlikely that METI would issue a new licence of General Transmission and Distribution Network to any person.

An exception is a transmission line maintained by an operator of Electricity Transmission Business. J-Power was the only operator of Electricity Transmission Business when the current licence regime was introduced. At the time of writing, two more operators have a licence of Electricity Transmission Business. They are expected to supplement the transmission services by the operator of General Transmission and Distribution Business within its service area through constructing a transmission line in an area that the existing transmission network does not cover and will not cover in the near future, and it is considered important to ensure that an unnecessary transmission network will not be constructed as the cost of construction will be ultimately paid by consumers. As such, Electricity Transmission Business requires the approval of METI and a person (other than an operator of General Transmission and Distribution Business and an operator of Specified Transmission and Distribution Business) may not construct or operate a transmission line without obtaining the approval of METI.

The other exception is Specified Transmission and Distribution Business. A transmission and distribution network of such business is constructed to serve consumers within a certain limited geographical area. Because of that, such network is more akin to a distribution network than a transmission network in respect of length and capacity. Because the impact that such network may have on the transmission and distribution network of General Transmission and Distribution Business is not materially large, Specified Transmission and Distribution Business can be conducted with notification to METI of certain areas of services such as geographical area of service, layouts of transmission and distribution lines, and specifications thereof.

An operator of General Electricity Transmission and Distribution Business owes, in particular, the following obligations pursuant to the Electricity Business Act and its secondary regulations:

  • to accept access to transmission and distribution networks in its service area, and apply the terms and conditions (approved by METI) to all electricity business operators equally;
  • to provide last-resort services and electricity retail services in isolated islands within its service area;
  • not to use proprietary information of electricity business operators or consumers for purposes other than its transmission and distribution business;
  • not to engage in discriminatory treatment;
  • to endeavour to maintain the voltage and frequency of the electricity in its service area at a prescribed level;
  • to measure, record and keep the voltage and frequency of the electricity in its service area;
  • to submit its financial statements to METI;
  • to submit its segmental financial statements of its transmission and distribution services to METI;
  • to submit a report concerning the occurrence of imbalance;
  • to join OCCTO;
  • to prepare and submit a supply plan to OCCTO; and
  • to comply with the Network Codes of OCCTO.

After the amendment to the Electricity Business Act comes into effect on 1 April 2020, operators of General Electricity Transmission and Distribution Business will be subject to certain additional restrictions and obligations, which include (i) their directors cannot assume an office of its parent holding company or any of its affiliates that operate electricity retail business or generation business (such parent holding company and affiliates being 'interested parties'), (ii) restrictions on trades with interested parties and (iii) an appropriate information barrier arrangement has to be installed.

Please see 4.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

Each operator of General Transmission and Distribution Business is assigned its service area and is granted a de facto exclusivity within such service area by METI since METI does not grant two licences of General Transmission and Distribution Business in any service area. Electricity Transmission Business and Specified Transmission and Distribution Business are the exceptions, as described in 5.1.2 Regulatory Process for Obtaining Approvals to Construct and Operate Transmission Facilities.

Pursuant to the Electricity Business Act, the terms and conditions of transmission and distribution services need to be approved by METI. The matters to be set out in the terms and conditions and the methodology to compute service charges are set out in the regulations listed below. To date, English translation is not available for those rules promulgated by METI.

  • Executive rules of Electricity Business Act (denkijigyoho shikokisoku).
  • Rules on methodology to compute tariffs of transmission and distribution services (ippan sohaiden jigyo takusokyokyu to yakkan ryokin santei kisoku).
  • Rules on methodology to balance income and loss from transmission and distribution services (denkijigyo takusokyokyu to shushikeisan kisoku).

The rate of tariffs and the terms and conditions of transmission and distribution services are proposed by an operator of General Transmission and Distribution Business, and are fixed upon the approval of METI based on the advice of EGC. METI’s standard review period is four months.

The terms and conditions of services are reviewed to see if the following requirements are satisfied:

  • the rate of tariff is the sum of efficient cost of services plus fair rate of fair margin, with an assumption that the business is operated in an efficient manner;
  • the terms and conditions do not significantly undermine accessibility to the transmission and distribution services;
  • the method of computing the tariff is clearly and fairly set out;
  • the allocation of responsibility as well as cost sharing between an operator of General Transmission and Distribution Business and users of the transmission and distribution network is clearly and fairly set out;
  • the terms and conditions do not discriminate against any specific person; and
  • the terms and conditions do not hinder public interest.

At the time of writing, the rate of tariff is computed based on the fully distributed cost method, the principle of which is that the tariff will be determined such that projected revenues of the tariff of the forthcoming three years will balance with the sum of (i) efficient and necessary costs (including depreciation cost and capacity charges for balancing powers) of providing services of the forthcoming three years and (ii) the capital cost of the forthcoming three years.

Pursuant to the Electricity Business Act, an operator of General Transmission and Distribution Business is obliged to provide access to its transmission and distribution network on a non-discriminatory basis.

Nagashima Ohno & Tsunematsu

JP Tower
2-7-2 Marunouchi
Chiyoda-ku
Tokyo
Japan
100-7036

+81 3 6889 7000

+81 3 6889 8000

info@noandt.com www.noandt.com
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Authors



Nagashima Ohno & Tsunematsu is one of the foremost providers of international and commercial legal services based in Tokyo. The firm has over 450 lawyers, including over 30 experienced foreign attorneys from various jurisdictions, and its overseas network includes offices in New York, Singapore, Bangkok, Ho Chi Minh City, Hanoi and Shanghai, and collaborative relationships with prominent local law firms throughout Asia and other regions. The firm regularly advises leading power utilities, trading companies and investors on their energy projects as well as regulatory matters, and financial institutions on financing on those projects. The firm has dealt with a number of renewable power projects since the introduction of the feed-in tariff in Japan. The firm represented Tokyo Electric Power Company Group on establishing an alliance platform with Chubu Electric Power Co, Ltd in the fuel and power business (including the establishment of a joint venture company, JERA).

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