Thursday, May 17, 2012

That Unanswered TEPCO Question

Now that the government of this blessed land has taken a majority stake in the technically bankrupt Tokyo Electric Power Company (TEPCO), phased in the replacement of the chairman and the president (E) and seen to a housecleaning of the board of directors. (E)

Many questions arise from the government's takeover as the main shareholder and appointer of executives and board members. What intrigues me is what will happen when the government and the new board members, particularly the outside board members, go through the books at TEPCO? Specifically, what are they going to find -- and once they find what they find, what are they going to do about what they find -- when they go through the accounts on how electricity costs are compiled?

From my understanding of the research done by Dr. Paul Scalise (and if Dr. Daniel Aldrich, if your research has identical findings, I apologize in advance for the sin of omission), a stunningly large fraction of the cost of TEPCO electricity cannot be explained by labor, capital or fuel costs. Indeed, if memory serves, the largest fraction of the costs of electricity is listed as simply "Other" -- and the amount listed in this category has remained unchanged, even as the costs of the various other inputs has either declined over time or has fluctuated in line with world energy prices.

What is this "Other"? To this point none of the electric power companies has been very upfront about the contents of this grab bag accounting entity. A certain fraction of this amount has always been assumed to have been payoffs to local communities, farming and fishing cooperatives and other business organizations with their facilities in the vicinity of power plants. Just how much of this other can be accounted for in this way is something the government can now, in theory find out, along with the rest of what has been lumped in to the category of "Other."

Of course, does the government want to know? Does it cut the subsidies to the local parasitic claimants, many of whom no longer can live and work in the vicinity of Fukushima Dai'ichi anyway, in order to lessen or forestall the rate hikes TEPCO has announced (E)? Do they keep them in place, as a sort of disaster recovery fund-by-default? Do they open up the accounts for public debate, or try to bury the truth in order to hide the complicity of regulators and politicians in the payouts? Or what if the government and the new board members find even more damaging reasons for the classing of certain costs as "Other"?

If the government owns TEPCO it not only owns company's problems but its secrets too.

What lies in between the covers of its account books?


Anonymous said...

I vote for "bury." Noda is too much under the power industry's thumb, and there is no way that the bureaucracy is going to let the dirty laundry air.

MTC said...

Anonymous -

The Noda government, bent as it is to putting the nuclear power plants on line as soon as possible, does have an incentive to bury any funny end uses of TEPCO revenues.

However, the Finance Ministry just loves to burrow through accounts when the likely end result is the embarrassment of the Ministry of Economics, Trade and Industry.

Anonymous said...

May be with the other regional utilities, but with TEPCO I somehow doubt there is a huge amount of mysterious corrupt spending. Most of the local bribes are "above board" and very visible in forms of local gov buildings and municipal halls. As to funds flowing back to national politics, why would that be necessary, especially in the case of nuclear as it was pretty much the agreed national policy. The regional utilities did not lead the way on this venture.

My guess of "other" is mostly costs that can not reasonably be attributed to labor for those who are not wearing overalls and boots.

What is interesting is because they are inefficient regional monopolies with little past need to be lean, the built in excess of generating capacity is now very useful. The entire utility business structure is proving to be so incredibly wasteful that loss of nuclear can still be made up to a great extent (except in the west).


MTC said...

YY -

When I say "funny" I do not mean corrupt, at least not in the traditional sense. The incentive at the time of construction was to offer the largest subsidy/offset/payoff possible in order to stay on schedule. Once the original amount is paid, it has its own inertia, with the utility unwilling to stir up the hornet's nest by saying, "That's it, no more."
I might agree with the capacity overbuilding statement, except that it has strongly regional component. The Kansai and Hokkaido seem to be highly dependent on nuclear power for their primary electricity inputs. As for the country not suffering overmuch, there is the reality that the Kanto at least had a mild summer last year, when some of the nuclear power plants were still on line. Industry idled a lot of productive capacity. Work/life balances were thrown out of whack by shifting of production to weekends.

What happens to the grid if the summer is a scorcher and corporations seek to take advantage of the recent spurt in growth is anyone's guess.

Anonymous said...

My guess is that there will be restarts but probably in a very clumsy way. It must have occurred to all concerned that coping with one summer does not mean being able to cope with the next and the one after that. Just to avoid the absurdity of restart a year or two hence should be good enough reason to think this one through to a reasonable (if clumsy) solution. The management solution to TEPCO being ex-NHK just says it all with regard to the nature of the business that is the electric company.

It will be political suicide (if he's not knifed by a crazed tatoo bearing dismissed employee)to not allow restart in Kansai.


Daniel Aldrich said...

S. Hayden Lesbirel's 1998 book NIMBY Politics in Japan pointed out that many utilities evidently used some kind of "side payments" beyond the massive subsidies provided by the central government. The Dengen Sanpou, or Three Electricity Generation Laws, provide up to 20 million dollars a year to local host communities, but many suspect that the EPCOs have added their own funds to the pot.