Electricity Retailing: Govt Must Reestablish Fair Competitive Environment

New electric power companies that entered the retail electricity market following its liberalization are struggling due to soaring fuel prices, and competition in the electricity market is on the verge of stagnation as a result. The government must reestablish an environment in which they can compete fairly with major electric power companies.

After electricity retailing for households was fully liberalized in April 2016, major gas, mobile phone and other companies entered the market one after another. At one point, the market share of these new entrants exceeded 20% of all electricity sales in Japan.

However, most of these newcomers do not own power generation facilities and have no choice but to procure the electricity they sell from major power companies that have their own power plants.

The cost of procuring electricity has risen due to higher fuel prices following Russia’s aggression against Ukraine. As a result, a number of new entrants have seen negative margins as their cost to procure electricity from major power companies has exceeded retail prices.

According to a March 2023 tally by a private research firm, 195 of the 706 new entrants were forced to withdraw from the electricity business, go bankrupt or have their contracts suspended. Their share dropped to 16.5%. If this trend continues, vigorous competition is unlikely.

In response to this situation, the Japan Fair Trade Commission (JFTC) has released a report on its investigation into transactions between major power companies with power generation facilities and new entities.

The report found cases in which the amount of electricity new entities could purchase from major power companies was capped, or the areas where they could supply power to retail customers were restricted. In some cases, they were also prohibited from reselling electricity to other businesses.

New entities, which rely on major power companies for their procurement of electricity, have difficulty rejecting even unfavorable conditions. Under such circumstances, expanding sales areas and the number of customers is difficult because they are restricted from operating freely.

For this reason, the JFTC pointed out that such actions by major power companies could violate the antimonopoly law. If they are hindering the growth of new entities that are their competitors, the situation cannot be overlooked.

In addition, many of the major power companies are engaged in both power generation and retail sales within the same company, giving them an advantage in securing electricity.

Although Tokyo Electric Power Company Holdings, Inc. and Chubu Electric Power Co. have separated their power generation and retail operations, the reality is that they effectively sell electricity preferentially to their affiliated retailers based on conventional long-term contracts, according to the JFTC report.

The JFTC recommended that all major power companies separate their power generation and retail sectors if a fair competitive environment cannot be achieved. The government needs to continue considering various measures to ensure that major power companies and new entrants will be able to compete on equal terms.

It is hoped that new entities, for their part, will take a long-term perspective in investing in power generation facilities to ensure the stable procurement of electricity.

(From The Yomiuri Shimbun, Jan. 24, 2024)