What are transitional rates?
The nature of transitional rates is a theme of the electricity system reform.
Transitional rates refer to regulated rates for household electricity demand that continued even after the full liberalization of the electricity market in 2016. In reality, the market was liberalized, so price regulation should have been abolished.
However, METI decided that the monopoly of the former general electric utilities (major electric power companies) would continue even after liberalization, and so continued the transitional rates under the pretense of protecting ordinary households from the harmful effects of the “unregulated monopoly” of the major electric power companies. As a result, even after liberalization, the major electric power companies were no longer able to freely set prices for household electricity. In addition, because there is an upper limit on the fuel cost adjustment of the transitional rate, when fuel prices rise, there is a limit to the cost transfer.
Was it really an appropriate regulation?
In the first place, it can be said that it is a contradictory policy to continue price regulation while liberalizing the market. If we want to protect ordinary consumers from the harmful effects of monopolies after liberalization, the main thing is to leave it to the Antimonopoly Act (if that is not possible, then there is no need to “liberalize”). Nevertheless, the biggest reason why the transitional rate regulation was left in place is that the Ministry of Economy, Trade and Industry did not want to hand over its administrative authority to the Fair Trade Commission. In addition, as the term “transitional measure” suggests, this regulation was introduced as a temporary measure after liberalization, but even now, nine years later, there is no sign of it being abolished. Given the purpose of electricity liberalization, it should be abolished as soon as possible.
What is the problem with the transitional rate?
As mentioned above, the transitional rate has a fuel cost adjustment upper limit (1.5 times the rate calculation rate). For this reason, when fossil fuel prices rose in 2022, the transitional rates of major electric power companies reached this upper limit across the board. As a result, unable to bear the increased costs, the seven major electric power companies applied for a rate increase, which was approved about six months later. During this time, the financial health of the major electric power companies was significantly damaged, and new electric power companies were also adversely affected. The transitional tariffs of the major electric power companies reached their upper limit, and because they could not exceed this limit, new electric power companies were unable to acquire customers.
The transitional tariff regulations had a major negative impact on the original purpose of liberalization, which was to promote competition. Reflecting on this, the nature of the transitional tariffs became the theme of this system reform.
An excellent analysis by the Central Research Institute of the Electric Power Industry
The above history is very well summarized in the analysis by the Central Research Institute of the Electric Power Industry. The text is extremely restrained, based on objective figures, and written in a way that is easy to understand even for those who are not familiar with the system. It is rare to see such a profound analysis these days. I would definitely recommend that you read it.