DEREGULATION OF THE ELECTRIC POWER INDUSTRY Teruaki Masumoto Executive Vice President Tokyo Electric Power Company

1.The Position of Electricity Market Liberalization in the Larger Scheme of Things 2.Lessons from California 3.Which Way Forward?

1.The Position of Electricity Market Liberalization in the Larger Scheme of Things

Trend in the Electric Power Industry Privatization of state-run utilities Break-up of regional utility monopolies Introduction of market-based competition

Electric Power Companies in Japan

Deregulation in Japan Independent Power Producer (IPP) system, 1996 Opening up of transmission networks, 1996 Competition - March, minimum 2,000 kW/ 2000 volts and above

Subsequent Areas for Consideration Expanding deregulation to other segments Separating power generation, transmission, and distribution Introducing a pool system

2. Lessons from California

Electricity = Lifeblood Sudden rate rises can have devastating effects on the consumers and the functioning of society. As a market product, rates are naturally going to fluctuate. Users cannot hedge against shortfall risk by stockpiling.

Transmission Capacity Congestion ↓ Rising utilization prices ↓ Investment = Solution ↑ Not enough investors showed up in CA

Who Takes Responsibility? Power generators The Independent System Operator (ISO) Distributors Investors

Japanese Power Sector in the Past （１） ・ Before WWII : Many small electric power companies were involved in reckless and exhausting competition. ↓ ・ Competition went too far and led to market oligopoly.

Japanese Power Sector in the Past （ 2 ） ・ : “Horizontal” integration model since the beginning of World War II - Nihon Hassoden (generation + transmission) → State-owned corporation - 9 utilities (distribution) → Privately-owned corporations

3. Which Way Forward?

Challenge Competition Assuring supply of electrical power Goal: to provide reliable, low-cost, stable supply of electric power