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JFTC: Cartels ‘Disregarded Principles of Market Liberalization’

The Yomiuri Shimbun
Chugoku Electric Power Co. President Natsuhiko Takimoto bows at a press conference in Hiroshima City on Thursday.

Three power companies hit with fines by the Japan Fair Trade Commission for forming cartels sought to diminish the impact of electric market liberalization and maintain their vested interests, according to the antitrust watchdog.

At a press conference on Thursday, Osamu Tanabe, director general of the investigation bureau of the JFTC, said, “[The cartels] sought to disregard the principles of market liberalization, which was aimed at reducing electricity charges and expanding the options for customers.”

The companies are Chubu Electric Power Co., Chugoku Electric Power Co. and Kyushu Electric Power Co.

The JFTC has also acknowledged the involvement of Kansai Electric Power Co., which was exempted from punishment for voluntarily reporting the violation.

Since the end of World War II, the nation’s 10 major power firms, including Tokyo Electric Power Company Holdings Inc. and KEPCO, held regional monopolies. To combat the situation, retail sales of electricity for business purposes were liberalized in 2000, which led to the full liberalization of the retail power market in April 2016. As a result, 722 firms entered the market.

KEPCO lost more than 1 million household customers in 18 months after the full liberalization of the retail power market.

Eying an opportunity to strengthen profitability in services such as high-voltage power supply for large-lot customers, KEPCO expanded into the areas of Chubu Electric, Chugoku Electric and Kyushu Electric when the restart of the Takahama nuclear power plant in 2017 made it possible to lower electricity charges. ###

However, the earnings of the electric power firms deteriorated amid the intensified competition and from around June 2018, they sought to “strike a deal” to limit the damage.

KEPCO concluded a pact with Kyushu Electric in October 2018 and with Chubu Electric and Chugoku Electric in November of the same year, agreeing not to solicit customers outside the coverage areas that had existed before the full liberalization.

According to sources, negotiations for the agreements were led by executives at each of the companies, including former KEPCO President Takashi Morimoto, who was KEPCO’s vice president at the time.

Many people were involved in the arrangements/operations/undertakings of the cartels, including executives and department and section chiefs, and company representatives are known to have met on the sidelines of Federation of Electric Power Companies conferences.

The JFTC has taken the unprecedented step of asking/urging the federation to ensure competition and prevent a recurrence.

“Executives who were supposed to be responsible for getting their employees to observe compliance issues took the lead in illegal activities,” a senior JFTC official said. “They abandoned corporate efforts to deliver high-quality products and did a disservice to customers who should have been offered lower prices.”

In 2019, the JFTC fined road builders a total of about ¥39.8 billion for forming cartels to fix the price of asphalt. The power firms’ penalties dwarf that figure, totaling ¥101 billion.

The fines were calculated mainly based on earnings during the period when illegality took place, amounting to 10% of sales for firms designated as “manufacturers” and 2% for “wholesalers,” in accordance with the Antimonopoly Law at that time. The amount of fines varied widely among the power companies because Chubu Electric, which purchases electricity from a joint company with TEPCO, was considered to be a wholesaler, while Chugoku Electric was determined to be a manufacturer.

According to the JFTC, there was no difference in the wrongdoing among the firms, including KEPCO, because they all restricted competition to maintain their own interests.

The companies plan to challenge the watchdog’s ruling that their activities were unlawful. “We [the power companies] and the JFTC have a difference of opinion regarding the interpretation of the facts and the law,” Hitoshi Mizutani, vice president of Chubu Electric, said at a press conference on Thursday. “We didn’t agree to restrict business activities. We’d like to seek a fair judicial judgment.” Mizutani has expressed his intention to file a lawsuit for the revocation of the order.

Chugoku Electric announced Thursday that President Natsuhiko Takimoto will resign in June, a year after assuming the post. He will be replaced by Managing Executive Officer Kengo Nakagawa.

Chairman Mareshige Shimizu will also step down from the post and will be replaced by Vice President Shigeru Ashitani.

The company has been hit with a more than ¥70 billion fine, which Takimoto said was “really huge.” He expressed his intention to carefully consider the issue, including filing a lawsuit to seek the revocation of the order.