Enforcement of the revised Electricity Business Law will be in its third phase in April 2020, and Grid separation will be implemented. Power utilities are setting up pre-establishment companies, and they are solidifying board members of Grid subsidiaries, and the ear of the industry is gathered at this point. However, although the degree of attention is low, there is another important change in the system.
It is abolition of general collateral system.
Generally-secured bonds are bonds with the right of a bondholder to receive priority over other creditors over the entire property of the issuing company without specific collateral. With the preferential treatment that gives lenders a lien, the financing of the power utility and the enhancement of the power infrastructure have long been strongly supported by this general collateral system.
However, with the liberalization of electric power, this system will end at the end of March 2020, in particular, as it ensures equal competition conditions with new electric power with its own power source, and the mainstream of bond procurement is shifting to unsecured bonds. (For the power generation and grid business, a 5-year transitional measure will be added, during which generally-secured bond can be issued).
Consider the power company’s medium- and long-term funding needs. Nuclear power requires a huge amount of money, as the implementation of decommissioning of reactors is in full swing, in addition to the response to increasingly strict regulatory standards, and the upper limit has not been clarified yet. In addition to strengthening resiliency and the need to invest for renewable energy, it is imperative that renewal investments for aging infrastructure be apparent.
On the other hand, income is on the decline. In addition to the structural downturn in electricity demand (Demand of Electricity), it will be certain that the electricity bill revenue will taper off in the future as a result of self-induced price competition (Voyage for Red Ocean) among power utilities as well as new electric powers.
There has been a strong opinion that the general collateral system should be continued in order to make it possible for utilities to get cash under these severe circumstances. However, financial institutions are beginning to have strong questions about the ability of utilities to repay debt, and to continue general collateral is not adequate to believe that default risk can be improved.
For this reason, in preparation for the default of the power utilities, they have started to demand a national debt guarantee utilizing FILP etc.
If such a loan system is realized, indirect control by the state in terms of finance will be possible. In other words, the country that controlled TEPCO through shares is next trying to control other power utilities through debt. As is well known, countries that have achieved integration of thermal power generation through the establishment of JERA are aiming to restructure nuclear power and transmission and distribution through TEPCO’s comprehensive special business plan. Although the prospects have not been successful at this time, the real power of the reorganization will be greatly enhanced by substantially controlling the financing of each power utility.
With the abolition of general collateral, the interests of financial institutions that wanted to guarantee the recovery of funds and the countries that are planning to restructure electricity through fund control coincided. The board of power utilities may not yet be aware of this trap, but the abolition of the general collateral has the potential and danger of becoming a milestone for new power utilities restructuring.