Contributed By Nagashima Ohno & Tsunematsu
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:
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.
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:
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.