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Bill for the Act for Partial Revision ofthe Electricity Business Act and Other Related acts
(Outline)
March, 2015
Overview
1
機密性○機密性○The contents of the bill
2
The bill which was decided by the cabinet and submitted to the Diet on March 3, 2015 includes 1) the 3rd step of Electricity Market Reform, 2) Gas Market Reform, 3) Heat Supply Market Reform and 4) establishment of new regulatory authority.
The purposes of the bill are 1) expanding energy choices for consumers, 2) suppressing the prices to the maximum extent possible, 3) removing existing barriers from energy market and 4) creating dynamic innovation.
Electricity (3rd step of the Electricity Market Reform)The bill includes the partial revision of the Electricity Business Act for the 3rd step of the electricity market reform, which implements legal unbundling of transmission/distribution sectors in 2020, and abolishment of retail tariff regulation after reviewing the competition situations.
GasThe bill includes the partial revision of the Gas Business Act for the gas market reform, which implements full retail competition in 2017, and legal unbundling of pipeline service sector in 2022.
Heat SupplyThe bill includes the partial revision of the Heat Supply Business Act for the heat supply market reform, which implements abolishment of tariff regulation on heat suppliers in 2016.
Regulatory AuthorityNew regulatory authority for monitoring new liberalized markets will be established in 2015.
(Note) The partial revisions of the Electricity Business Act for the 1st and 2nd steps have already been enacted in 2013 and 2014, respectively.
機密性○機密性○
Requiring businesses to receive authorization for cross‐area wheeling service provisions before entering full retail choice
Requiring businesses to receive authorization for cross‐area wheeling service provisions before entering full retail competition
Energy Market Reform in Japan: Roadmap
[Electricity]
[Gas]
[Heat supply]
2015 2016 2017 2020 2022
3rd step (legal unbundling of the
transmission and distribution sectors)
Liberalization of the heat supply service
sector
Legal unbundling of the gas pipeline service sector (three major companies)
Full retail competition
Establishment of a new regulatory authority(launching electricity‐
related services)
Adding gas‐ and heat‐related services
to its tasks
Acts for these steps have already been enacted
3
[Regulatory Authority]
1st Step(Establishment of the Organization for Cross‐regional Coordination of Transmission Operators (OCCTO))
2nd step (Full retail choice)
Electricity
4
(3rd step of the Electricity Market Reform)
機密性○機密性○Ensuring neutrality of the transmission/distribution sector (1) Electricity(Date of Enforcement: April 1, 2020)
Unbundle the transmission/distribution sectors of big EPCOs by legal unbundling style in 2020
Holding company style Affiliated company style
<Note> Big EPCOs will be required to unbundle transmission and distribution
companies from generation ones or retail ones, in “legal unbundling.” Both the holding company style and the affiliated company style, in
which a generation and retail company has a transmission and distribution company as a subsidiary company ,are allowed.
The regulation of subsidiary business will not be imposed on OkinawaElectric Power Company.
General transmission/distribution businesses will be allowed to generateelectricity intended exclusively for general transmission/distributionbusiness for the purpose of supplying electricity to consumers onisolated islands, providing last resort services to consumers, etc. 5
機密性○機密性○Ensuring neutrality of the transmission/distribution sector (2)
Impose a ‘code of conduct’ to transmission/distribution businesses, so that they do not prevent competition in the liberalized sectors by giving preferential treatments to their group companies
(Date of Enforcement: April 1, 2020) Electricity
Contents of ‘code of conduct’
1. Measures for ensuring neutrality on personnel issues
2. Measures for ensuring neutrality on outsourcing
3. Measures related to business trading, including financial transactions
4. Measures related to branding, including corporate name and publicity
5. Measures related to development of organizational frameworks for compliance with a code of conduct
6
機密性○機密性○Abolishing the retail tariff regulation/ Verification process
Abolished the retail tariff regulation for each EPCO on or after April 1, 2020, after confirming the progress of competitive situations of the electricity market.
Electricity
Abolishing retail tariff regulation
Verify the status of law enforcement, implementation of the “Strategic Energy Plan” (April 11, 2014) and the supply‐demand balance of electricity at each steps (i.e. before enforcement of the 2nd bill, before and within 5 years after enforcement of the 3rd bill)
Implement necessary measures depending on the results of the verification from the view points of competition and stable supply of electricity.
Verification process
Maintain the retail tariff regulation for preventing ‘monopolization without regulation’ as a transitional arrangement. Big EPCOs should provide the regulated retail tariffs, but they are also allowed to supply electricity at free market price during transitional period.
The incumbents
New entrants
Regulated tariffs
Free market price
End of transitional arrangement
obligation
optional
Verification
7
Gas
8
機密性○機密性○Full liberalization of the gas retail market
1. Expand retail competition to the residential sector in 2017, opening a new market2. Revise business license categories under the Gas Business Act in line with the full retail
competition : Gas manufacturing such as LNG terminals (notification), general gas pipeline services (permission), specified gas pipeline services (notification), and retailers (registration)
3. Ensure third‐party access to LNG terminals
Gas(Date of Enforcement: within two years and six months after the enactment of the bill)
9
機密性○機密性○Developing gas pipeline networks
1. Maintain regional monopolies and regulated tariffs for general gas pipeline service businesses, so as to ensure the construction and maintenance of gas pipelines
2. Formulate a mechanism which the government may execute orders and rulings against negotiations on connection of pipelines among gas companies
3. Establish a mechanism to recover the cost of regional gas pipelines through regulated tariffs of neighboring pipeline companies
Gas
10
(Date of Enforcement: within two years and six months after the enactment of the bill)
機密性○機密性○Ensuring consumer protection and Securing safety
Clarify responsibilities for gas safety among gas‐license holders
1.Require pipeline service businesses to secure the safety of pipeline networks
2.Require gas retail service businesses to investigate gas appliances
Gas
Ensuring consumer protection
Securing safety
1. Maintain the regulated retail tariffs in the areas where competition among businesses is insufficient, as a transitional arrangement
2. Providing last resort services to consumers by general gas pipeline service businesses
3. Requiring for gas retail service businesses to secure the capability of supplying gas, and to explain contract conditions to consumers
11
(Date of Enforcement: within two years and six months after the enactment of the bill)
機密性○機密性○Ensuring neutrality of the gas pipeline service sector/ Verification process
1. Unbundle the gas pipeline service sector of three major companies by legal unbundling style in 20222. Impose a code of conduct to gas pipeline service business which is unbundled, which includes measures
for ensuring neutrality on personnel issues, outsourcing and business trading.
Gas(Date of Enforcement : April 1, 2022)
Verify the status of law enforcement, implementation of the “Strategic Energy Plan”(April 11, 2014), and the supply‐demand balance of gas, and Implement necessary measures depending on the results of the verification
Place responsibility for ensuring LNG procurement and gas safety on the government
Verification process
Legal unbundling
12
Heat supply
13
機密性○機密性○Liberalization of Heat Supply Business
1. Liberalization Change the market entrance regulation to a registration from a permission Abolish tariff regulation and supply obligation on heat suppliers
2.Measures for consumer protection Obligate heat suppliers to take measures for consumer protection, such as explaining
contract conditions to consumers and securing the capability of heat supply. Maintain the regulated tariff in the areas where consumers have difficulty in choosing
other heat sources, as a transitional arrangement
Heat supply
76suppliers (137 sites) are operating as to April. 2015
<Examples>• Roppongi hills area• Tokyo sky tree area
• Shinagawa Yashio danchi• Minato‐mirai 21 central area
Electricity City gas Heat supply
Share of the area 100% 5.8% 0.01%Consumers(Note1) 84.66Million 29.35Million 0.036Million
Business scale (Yen)(Note2)
1,815.6Billion(=$ 15.1bn, € 13.4bn)
19.3Billion(=$ 0.2bn,€ 0.1bn)
1Billion(=$ 8.3M,€ 7.4M)
Employee(Note2) 12,929 154 17
(Note1) Share of areas in Japan (Note2) per one supply area
(Date of enforcement: within one year and six months after the enactment of the bill)
The targets of the Heat Supply Business ActThe targets of the Heat Supply Business Act Supplying more than two buildings Facilities with large scale
Cold waterwater after using heat
Hot Steam/water water after using heat
Heat pipeline
Cooling by using cold water Heating by using hot steam
/water
Facilities for making cold water by electricity, gas, etc. 【cooling】
Facilities for making hot steam /water by electricity, gas, etc. 【heating】 etc.
Heat source(Supplying heat)
Utilizing heat
14
Establishment of New Regulatory authority
15
機密性○機密性○Establishment of New regulatory authority Regulatory authority
Establishing the surveillance commission for electricity and gas, as a new regulatory authority with independence and high‐level expertise
Appropriate monitoring in the liberalized electricity, gas and heat markets as well as compliance with a code of conducts for network sectors
Minister of Economy, Trade and Industry
Surveillance commission for electricity and gas*
Agency for Natural Resourcesand Energy (ANRE)
Commission(Consists of five members who have knowledge of laws, economy, finance, energy engineering, etc.)
Secretary
Market monitoring in the liberalized sectors Monitoring compliance status with a code of
conduct for network sectors etc.
Energy policy (Energy mix, renewables, nuclear, natural resources, etc.)
Securing the stable supply of energy including electricity, gas and heat etc.
<Functions>
<Functions>
OCCTO
surveillance
* The English name of the commission is subject to change. 16
(Date of enforcement: within six months after the enactment of the bill)
Reference
17
機密性○機密性○
Nov. 13, 2013
1 streform
Electricity Market Reform in Japan: Roadmap
Cabinet Decision on the Policy
on Electricity System Reform
Apr. 2, 2013Cabinet Decision
Legal unbundling of transmission
/distribution sector
(※At around 2015:Transition to new regulatory organizations)
【1st Step】2015. 4.1
【2nd Step】2016
【3rd Step】2020
2 ndreform3 rdreform
The 1stBill
(1st Bill)2013
Establishment of the Organization for Cross-regional Coordination of Transmission Operators
(OCCTO)
Full retail competition
Period of transitional arrangement for retail tariff
(2nd Bill)2014
(3rd Bill)2015
April 2, 2013, Cabinet decided the “Policy on Electricity System Reform” to realize three objectives in Japan’s market with a three‐step approach.
(1) Securing a stable supply of electricity(2) Suppressing electricity rates to the maximum extent possible(3) Expanding choices for consumers and business opportunities
The 2ndBill
Jun. 11, 2014
3 Objectives
The 3rdBill: subm
itted to the Diet
(Review the competition situation by the government)
Abolishment ofretail tariff
(At the same time as or after the unbundling)
18
機密性○機密性○1st step: Establish the OCCTO
• Establish the Organization for Cross‐regional Coordination of Transmission Operators (OCCTO) in 2015
5.57GW16.66GW
5.57GW 2.4GW
5.57GW0.3GW
0.6GW
12.62GW
1.2GW
DC Tie line
BTB
DC Tie line1.4GW
Frequency in West: 60Hz
FC
* DC – direct current, FC – frequency conversion, TDSO – Transmission and Distribution System Operator
Frequency in East: 50Hz
JEPX OCCTO
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
Kyushu
Chugoku
Shikoku
Hokuriku
Chubu
Tokyo (TEPCO)
Tohoku
Hokkaido
Kansai
(Power Exchange) (Coordination of TDSOs )
The 1st Bill
Main functions of OCCTO 1. Aggregate and analyze the EPCO’s supply‐demand plans and grid plans, and
order to change EPCO’s plans such as tie lines construction2. Order EPCOs to reinforce generations and power interchanges under a tight
supply‐demand situation
19
機密性○機密性○2nd step: Full Retail Competition
• Expand retail competition to the residential sector in 2016, opening a new market• Maintain regulated tariffs to 10 big EPCOs until the same time as or after the unbundling
The 2nd Bill
Liberalized Sector(50kW~)
Regulated Sector(~50kW)
Large factoryLarge building
BuildingMedium factory Small Factory
Residential CustomerSmall shop
Market Volume ; ¥8.1 trillion (=$ 67.5bn, € 60.0bn) Number of contracts
Residential Customers : 77.3mSmall shops and offices: 7.3m
Share of total power supply: 62%
Share of total power supply: 38%
Market Volume ; ¥10.1 trillion (=$ 84.2bn, € 74.8bn)
20
機密性○機密性○
Current categories New categories (after 2016)
GEU(10EPCOs)
Supply for customers, including those in regulated sector with obligation to supply, regional monopoly and rate regulation
Secure stable frequency and voltage
Supply for customers in liberalized sector (more than 50kW)
Supply for GEU
Operate and maintain transmission /distribution lines
Regional monopoly and rate regulation
PPS(Power Producer and Supplier)
Wholesale Electricity Utilities , etc
Generation
Generation Retail
Obtain 3 licenses(not necessary to change corporate organization)
Transmission & Distribution
【Notification】 【Permission】 【Registration】
Regulation based on the level playing field of competition
Supply for customers Obligation to secure
the capacity of power supply
Regulation based on the level playing field of competition
Generation
Retail
Revision of Business License Categories
• Business License categories under the Electricity Business Act, such as “General Electricity Utilities (GEU)” and “Wholesale Electricity Utilities”, will be revised in line with the full retail choice.
The 2nd Bill
21
機密性○機密性○Ensuring electricity security in Japan’s EMR project
1. Regulation for T/D companies to secure frequencies and to maintain investment on the grid
2. Obligation for all retailers to secure adequate capacity <2016>‐ Ensure procurement of enough quantity in the electricity market
3. Auction for the long‐run generation capacity by OCCTO <2016>‐ Prepare for the possible shortage of long‐run capacity as a safety net for the electricity market
4. Further discussion on capacity mechanism (capacity market etc.)‐ Enhance the incentive to establish and maintain generation plant
22