Japan to its utilities: Screw the U.S. model, we're moving to competition

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Quick Take:  Japan is abandoning the vertically integrated, regional monopoly utility model that was imposed on it in 1951 during the American occupation that followed World War II. Japan, of course, is highly motivated to try something -- anything -- to avert its looming power crisis. The Fukushima nuclear disaster and the reforms that followed left the island nation with an urgent need to increase energy supplies and lower prices.

 

The traditional utility model was once like a giant wall that seemed impervious. But brick by brick, region by region, it is coming down. It is already crumbling in Hawaii, California, New York, Texas and Illinois. What region will be next? And will North American monopolies face the same kind of "huge disruptions" described below? – Jesse Berst

 

Japan's regional monopolies -- such as Tokyo Electric Power Co (Tepco) -- supply nearly all of Japan’s electricity. But Japanese lawmakers voted overwhelmingly last week to open up the residential electricity market to full competition. The change opens up a $73 billion market to all comers.

 

Likely losers include Japan's 10 regional power monopolies. Likely winners included new entrants with new technologies. According to Reuters "The changes have already led to new suppliers emerging and have sparked a surge in companies aiming to become registered power producers and suppliers."

 

These new companies offer lower prices, more flexible rate plans and new energy services. The monopolies are already losing customers. "If there is a steady stream out it will cause a lot of problems," said Gerhard Fasol, the founder of Eurotechnology Japan, a Tokyo-based consultancy on energy and technology issues. "Even if they lose 5 percent it will be a huge disruption."

 

The reforms are part of Prime Minister Shinzo Abe's efforts to overhaul the economy. Japan's high energy costs are seen as a major drag. They also tap into public anger over the power sector's shortcomings as revealed by the Fukushima disaster. Since that time, Japan's 48 commercial reactors have been shut down for safety checks.

 

Jesse Berst is the founder and Chief Analyst of SGN and Chairman of the Smart Cities Council, an industry coalition.

 

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