annual report of electricity and gas market surveillance ...august 2017) electricity and gas market...

1

(Tentative translation)

Annual Report of

Electricity and Gas Market Surveillance Commission

(September 2016 – August 2017)

November 2017 Electricity and Gas Market Surveillance Commission

NOTE: This is an English translation of the “Annual Report of Electricity and Gas Market Surveillance Commission

(September 2016 – August 2017)”. It should be noted that the original Japanese text will prevail over the English

in case of conflict.

2

Pursuant to provision of Article 66-16 of the Electricity Business Act (Act No. 170 of 1964), we announce the

processing status of administrative work of Electricity and Gas Market Surveillance Commission for the period

from September 1, 2016 to August 31, 2017.

November 30, 2017


Chairman, Tatsuo Hatta, Ph.D.

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Annual Report of Electricity and Gas Market Surveillance Commission

Table of Contents

Introduction

Section 1 Electricity and Gas Market Surveillance Commission

Section 2 Role

Section 3 Organization

Body

Chapter 1 Strict and fair surveillance, etc. to ensure fair trade in the electricity market

Section 1 Assessment of competitive situation in the electricity market

Section 2 Market trend after full liberalization of the electricity retail market

Section 3 Qualification screening for registration of electricity retailer and retail service by Specified

Electricity Transmission and Distribution Utility

Section 4 Administrative Guidance, etc. for electricity retailers

Section 5 Regarding surveillance on wholesale sectors

Section 6 Administrative Guidance, etc. for general transmission and distribution utility

Section 7 Post facto assessment of retail electricity rate after the end of the cost finding period

Section 8 Audit

Chapter 2 Efforts for higher efficiency of the electricity market and promotion of competition

Section 1 Environmental improvement for negative watt trade

Section 2 Regarding open procurement system for procurement of balancing power

Section 3 Regarding imbalance analysis

Section 4 Regarding activity regulation in association with legal unbundling

Section 5 Regarding allocation of maintenance and operation cost of power transmission and distribution

grid aimed for efficiency improvement

Section 6 Regarding activation of wholesale electricity trade

Section 7 Regarding report on voluntary efforts and monitoring

Section 8 Revision of Guidelines on Electricity Retail Business

Chapter 3 Efforts, etc. toward full liberalization of the gas retail market

Section 1 Qualification screening for registration of gas retailer

Section 2 Designation of utilities on which transitional regulated tariff is imposed

Section 3 Assessment of the Wheeling Service provisions

Chapter 4 Strict and fair surveillance, etc. to ensure proper trade in the gas market

Section 1 Assessment of competitive situation in the gas market

Section 2 Administrative Guidance, etc. for gas retailers

Section 3 Administrative Guidance, etc. for general gas pipeline service providers

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Section 4 Audit

Section 5 Trend of heat supply business

Chapter 5 Efforts for higher efficiency of the gas market and promotion of competition

Section 1 Regarding post facto assessment of gas transportation service rates

Section 2 Development of Guidelines on Gas Retail Business

Section 3 Revision of Guidelines for Proper Gas Trade

Chapter 6 International collaboration, dispute resolution and public relations

Section 1 Efforts for enhancement of collaboration with international organization

Section 2 Dispute resolution

Section 3 Efforts for public relations

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Introduction

Section 1 Electricity and Gas Market Surveillance Commission

In conjunction with the implementation of electricity system reform based on the Act on the Partial Revision of

the Electricity Business Act, etc. (Act No. 47 of 2015, hereinafter referred to as the “3rd Step Revision of Act”)

which came into effect in 2015, the Electricity Market Surveillance Commission was established on September 1,

2015 as a regulatory organization with independence and high level of expertise under direct control of the

Minister of Economy, Trade and Industry in order to strengthen functions such as surveillance of proper electricity

trade and to take necessary measures to ensure proper electricity trade. Since April 1, 2016, roles relating to gas

business and heat supply business have been added and the name has been changed to the Electricity and Gas

Market Surveillance Commission (hereinafter referred to as “Commission”).

The Commission is composed of a chairman and four commissioners. They are appointed by the Minister of

Economy, Trade and Industry from experts with professional knowledge and experience in laws, economics,

finance or engineering with the ability to make fair and neutral decisions in relation to their duties, and are

required to exercise their authorities independently.

[Names of Commissioners]

(Chairman)

Tatsuo Hatta, Ph.D. President, Asian Growth Research Institute

Professor Emeritus, Osaka University

(Commissioners)

Ryuichi Inagaki Attorney-at-law, Ryuichi Inagaki Law Office

Yasuhiro Hayashi, Ph.D. Professor, Graduate School of Advanced Science and Engineering,

Waseda University

Masanori Maruo Managing Director of SMBC Nikko Securities Inc.

Emiko Minowa Certified Public Accountant,

Partner at Deloitte Touche Tohmatsu LLC

* Occupations and titles in the above are as of August 2017.

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Section 2 Role

1. Strict and fair surveillance

The Commission conducts strict and fair surveillance by means of audits, collection of reports, on-site inspections

and so on to secure the protection of interests of electricity and gas consumers and to ensure sound competition

between existing utilities and new entrants.

In the event of inappropriate activity by any utility, the Commission will make a recommendation of its own to

such a utility and, in addition, may recommend the Minister of Economy, Trade and Industry to issue an order to

such a utility for business improvement.

<Examples of activity to be put under surveillance>

(Activities in relation to sound competition between the general electric utility or the general gas utility, etc. and

new entrants)

• Activity by a major utility to offer a significantly low retail rate against new entrants

• Activity by a major utility regarding selling bid to Japan Electric Power Exchange (hereinafter referred to

as “JEPX”) to limit the bid volume or to set the bid price high without justifiable grounds

• Activity to prioritize one’s own power plant or production facility over the facilities of new entrants

regarding the connection to the network

• Activity to tell information about new entrants obtained through the network-related business to its own

business operation sector

(Activity in relation to protection of interests of consumers)

• Activity to charge an extraordinary amount of cancellation money in response to a proposal for contract

termination by a consumer

• Activity to solicit a contract by providing consumers with insufficient or false information on rates, contract

term and cancellation money

2. Comments, Recommendations and proposals

The Commission submits comments, recommendations and proposals to the Minister of Economy, Trade and

Industry regarding development of new rules, etc. that are necessary to ensure fair trade and to promote sound

competition in the market.

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[Roles of the Commission]

Ministry of Economy, Trade and Industry

Minister of Economy, Trade and Industry


Electricity, gas and heat market (electricity generation utility, electricity transmission and distribution utility, electricity retailer, gas production utility,

gas pipeline service provider, gas retailer, heat supply utility and so on)

To ensure fair trade of electricity, gas and heat

To ensure neutrality of network sectors (implementation of

activity regulation)

Regional Bureaus of Economy, Trade and

Industry, etc.Market Surveillance

Office

Comments, Propositions

[1] Development of rules[2] Disposition of utilities[3] Approval, etc. for the General

Provisions for Supply

Application of rules on trade surveillance and activity regulation, etc.

Measures based on comments provided by the Commission Report

Guidance and supervision

(collection of reports, on-the-spot inspections, recommendation to utility, mediation/arbitration and so on)

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Section 3 Organization

The Commission has its exclusive Executive Bureau consisting of the Policy Planning Division, the Market

Surveillance Division, the Wholesale Market Surveillance Office (reorganized to the Market Policy Planning

Office on September 1, 2017), the Network Surveillance Division and the Network Policy Planning Office. The

Regional Bureaus of Economy, Trade and Industry, etc. of each region also have a Market Surveillance Office.

The Network Policy Planning Office was established under the Network Surveillance Division in September

2016.

In addition, as of the end of August 2017, three specialized meetings (i.e., the Specialized Meeting for Policy

Design, the Specialized Meeting for Fee Examination and the Specialized Meeting for Tender for Thermal Power

Source) have been established under the Commission, and the Working Group for the Cost sharing system for

Power Transmission and Distribution has been established under the Specialized Meeting for Policy Design.

[Organization Chart of the Commission]

Chairman (1) Commissioners (4)


Minister of Economy, Trade and Industry

Bureaus of Economy, Trade and Industry

Hokkaido Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance OfficeTohoku Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance OfficeKanto Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance OfficeChubu Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance Office

Kinki Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance OfficeChugoku Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance OfficeShikoku Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance OfficeKyushu Bureau of Economy, Trade and Industry, Electricity and Gas Market Surveillance OfficeOkinawa General Ex ecutive Bureau, Economy and Industry Department, Electricity and Gas Market Surveillance Office

Hokuriku Branch, Electricity and Gas Business, Electricity and Gas Market Surveillance Office

Secretariat General

Policy Planning Division

Market Surveillance Division

Network Policy Planning Office

Executive bureau

Wholesale Market Surveillance Office*

Network Surveillance Division

* Wholesale Market Surveillance Office was reorganized to Market Policy Planning Office in September 2017.

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[Past Record of the Commission Meeting and the Specialized Meeting] Name of Meetings Timing of Meeting Number of Times of

Meeting (As of the end of August 2017)


Started from September 1, 2015

101 times

Specialized Meeting for Policy Design

Started from October 9, 2015 21 times

Working Group for the Cost sharing system for Power Transmission and Distribution


6 times

Specialized Meeting for Fee Examination


25 times

Specialized Meeting for Tender for Thermal Power Source

Started from December 22, 2015

4 times

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Chapter 1 Strict and fair surveillance, etc. to ensure proper trade in the electricity market

Section 1 Assessment of competitive situation in the electricity market

(1) Past record of switching to new electric entrants, etc.

According to the Electricity Trading Report of June 2017, the number of consumers who switched their supplier to

a new electric utility (i.e., electricity retailers other than the general electric utilities, the same shall apply

hereinafter) reached 6.0% of the consumers all over the country in the markets that were newly liberalized by the

full liberalization of the electricity retail market. The number of consumers who decided to take the Free Choice

Rate Plan, which had been set up by the general electric utilities, also reached 4.6%. Namely, 10.6% of the

consumers in total switched to the Free Choice Rate Plan.

[Past Record of Switching of Electricity Supplier to New Electric Entrants (as of August 2017)]

(Source) Electricity and Gas Market Surveillance Commission, Electricity Trading Report (Record as of August 2017)

* Preliminary calculation based on number of contracts of general household, etc. as of March 2016 (approx. 62.53

million). The total number of contracts for low voltage electricity as of March 2016 is approx. 86 million. However, pay attention to the fact that contracts for the former General Provisions for Selection and public streets, etc., which are actually not supposed to be switched, are excluded from the parameter. When one consumer changes the supplying utility and/or changes the contract type between the regulated rate of the general electric utilities and a free choice rate plan multiple times, such changes are counted every time for each change.

The share of new electric entrants is increasing also in the extra-high and high voltage category after the full

liberalization. As a result, the share of new electric entrants has reached approximately 11.4% of the entire

electricity market.

Number of cases of switching (to other company) of each region

Region Number of Cases of Switching

to other Company [unit: 10 thousand cases]

Rate* [unit: %]

Number of Cases of Switching within the same Company [unit: 10 thousand cases]

Rate* [unit: %]

Hokkaido

Tohoku

Tokyo PG

Chubu

Hokuriku

Kansai

Chugoku

Shikoku

Kyushu

Okinawa

Throughout Japan

Hokkaido

Tohoku

Tokyo PG

Chubu

Hokuriku

Kansai

Chugoku

Shikoku

Kyushu

Okinawa

Throughout Japan

Number of cases of switching within the same company of each region




Rate* [unit: %]


Rate* [unit: %]

Hokkaido

Tohoku

Tokyo PG

Chubu

Hokuriku

Kansai

Chugoku

Shikoku

Kyushu

Okinawa

Throughout Japan

Hokkaido

Tohoku

Tokyo PG

Chubu

Hokuriku

Kansai

Chugoku

Shikoku

Kyushu

Okinawa

Throughout Japan





Rate* [unit: %]


Rate* [unit: %]

Hokkaido

Tohoku

Tokyo PG

Chubu

Hokuriku

Kansai

Chugoku

Shikoku

Kyushu

Okinawa

Throughout Japan

Hokkaido

Tohoku

Tokyo PG

Chubu

Hokuriku

Kansai

Chugoku

Shikoku

Kyushu

Okinawa

Throughout Japan


11

[Market Share of New Electric Entrants (August 2012 – August 2017)]

Source: Survey of the Electric Power Statistics and Electricity Trading Report

(2) Diversification of Rate Plans

When we look into the rate plans provided by new electric entrants, as an overall trend, many of them are similar

to or based on conventional rate plans, which are two-part tariffs composed of a basic rate and a metered rate, and

include adjustment for fuel cost fluctuations. On the other hand, some of them have also been offering new rate

plans such as a full metered rate plan, flat rate plan, and discount plan for a specified time slot.

Likewise, some electricity retailers are entering into the market by emphasizing appealing points to acquire

customers, such as power source composition using renewable energy or the locally produced electricity for local

consumption. Among those new entrants, there are also some distinctive electricity retailers that offer a financial

incentive to a power plant based on the number of votes by consumers.

In addition, services such as visualization of power consumption (visualization of electricity using status) and a

watching service for family members are being offered by utilizing the data on consumption status of electricity.

Different services utilizing the appeal of consumers’ tastes and sense of value, such as a relationship with a sports

team whom the retailer supports, conservation of landscapes of village forests, and others, have also begun to be

offered.

As for the number of new entrants by region, many electricity retailers have newly entered into the market in

urban areas such as Tokyo, Chubu region (Central Japan), Kansai region and Kyushu region for low voltage

power supply. In the regions of Hokuriku (Toyama Pref. and Ishikawa Pref.) and Shikoku (Kochi Pref.,

Market Share of New Electric Entrants (August 2012 – August 2017)

Extra-high/high voltage (electricity sold by new electric entrants) Share of new electric entrants in total demand

Extra-high/high voltage (electricity sold by utilities other than new electric entrants)

Share of new electric entrants in extra-high voltage and high voltage sector

Low voltage (electricity sold by new electric entrants) Share of new electric entrants in low voltage sector

Low voltage (electricity sold by utilities other than new electric entrants)

Volu

me

of e

lect

ricity

(mill

ion

kWh)

Share of new electric entrants in extra-high/high voltage: 15.0% (as of August 2017)

Share of new electric entrants in total demand: 12.1% (as of August 2017)

Share of new electric entrants in low voltage sector: 6.8% (as of August 2017)

Shar

e (%

)

August 1, 2012

February 1, 2013

August 1, 2013

February 1, 2014

August 1, 2014

February 1, 2015

August 1, 2015

February 1, 2016

August 1, 2016

February 1, 2017

August 1, 2017






Volu

me

of e

lect

ricity

(mill

ion

kWh)




Shar

e (%

)

August 1, 2012

February 1, 2013

August 1, 2013

February 1, 2014

August 1, 2014

February 1, 2015

August 1, 2015

February 1, 2016

August 1, 2016

February 1, 2017

August 1, 2017






Volu

me

of e

lect

ricity

(mill

ion

kWh)




Shar

e (%

)

August 1, 2012

February 1, 2013

August 1, 2013

February 1, 2014

August 1, 2014

February 1, 2015

August 1, 2015

February 1, 2016

August 1, 2016

February 1, 2017

August 1, 2017






Volu

me

of e

lect

ricity

(mill

ion

kWh)




Shar

e (%

)

August 1, 2012

February 1, 2013

August 1, 2013

February 1, 2014

August 1, 2014

February 1, 2015

August 1, 2015

February 1, 2016

August 1, 2016

February 1, 2017

August 1, 2017

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Tokushima Pref., Kagawa Pref. and Ehime Pref.), the number of electricity retailers who are supplying electricity

tends to be relatively low.

[Electricity Retailers Having Supply Record of Electricity to General Households (by prefecture)]

Source: July 2017 Survey of Electric Power Statistics, Agency for Natural Resources and Energy

(3) Assessment of competitive situation in the electricity market

Regarding the assessment of the competitive situation like the foregoing, the basic policy and details of

implementation were summarized by the Specialized Meeting for Policy Design on November 1, 2016. Thereafter,

analysis was conducted on the results from the Electricity Trading Report, interview with business firms and consumers

questionnaire, and discussions were made in the Specialized Meeting for Policy Design on January 26, 2017. Then the

summary was formulated in the Specialized Meeting for Policy Design on March 31, 2017.

Generally, it was appreciated that the market share of new electric entrants in the field of low voltage power

supply had been steadily increasing since FY2016 and that such an increase represented a certain level of

achievement from the electricity system reform, such as an increase of newly entered electric entrants and the

diversification of electricity rate plans. On the other hand, however, the extent of the development of reform is not

satisfactory yet. For example, competition between regions by general electric utilities and the level of activation

of the wholesale electricity market, etc. are not yet sufficient. Therefore, it was acknowledged that there still are

many points that need further progress.

Electricity Retailers Having Supply Record of Electricity to General Household (by Prefecture)

Hokk

aido

Aomo

ri pre

fectur

e

Iwate

prefe

cture

Miya

gi pr

efectu

re

Akita

prefe

cture

Yama

gata

prefe

cture

Fuku

shim

a pre

fectur

e

Ibara

ki pr

efectu

re

Toch

igi pr

efectu

re

Gunm

a pre

fectur

e

Saita

ma pr

efectu

re

Chiba

prefe

cture

Toky

o Metr

opoli

s

Kana

gawa

prefe

cture

Niiga

ta pr

efectu

re

Toya

ma pr

efectu

re

Ishika

wa pr

efectu

re

Fuku

i pre

fectur

e

Yama

nash

i pre

fectur

e

Naga

no pr

efectu

re

Gifu

prefe

cture

Shizu

oka p

refec

ture

Aich

i pre

fectur

e

Mie p

refec

ture

Shiga

prefe

cture

Kyoto

prefe

cture

Osak

a pre

fectur

e

Hyog

o pre

fectur

e

Nara

prefe

cture

Wak

ayam

a pre

fectur

e

Totto

ri pre

fectur

e

Shim

ane p

refec

ture

Okay

ama p

refec

ture

Hiro

shim

a pre

fectur

e

Yama

guch

i pre

fectur

e

Toku

shim

a pre

fectur

e

Kaga

wa pr

efectu

re

Ehim

e pre

fectur

e

Koch

i pre

fectur

e

Fuku

oka p

refec

ture

Saga

prefe

cture

Naga

saki

prefe

cture

Kuma

moto

prefe

cture

Oita

prefe

cture

Miya

zaki

prefe

cture

Kago

shim

a pre

fectur

e

Okina

wa pr

efectu

re

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Section 2 Market trend after full liberalization of the electricity retail market

To activate competition, it is important that enough volume of trade is secured in the wholesale electricity market.

The trade volume at JEPX has substantially increased compared with the previous year by increased volume of

buying bids by new electric entrants associated with full liberalization of the electricity retail market as well as by

the improvement resulting from voluntary efforts of the general electric utilities. The trade volume of JEPX in

FY2016 (from April 2016 to March 2017) exceeded 20 billion kWh for the first time since its opening in 2005,

and accounted for 5% of total electricity being sold as of the end of June 2017.

Since September 2016, intensive discussions have been held in the Subcommittee on the Policy for

Accomplishment of Electricity System Reform, which was established under the Strategic Policy Committee, the

Advisory Committee for Natural Resources and Energy, and an interim report was formulated. Based on the

report, a policy to create a base load power source market was developed as a measure for activation of the

wholesale electricity market to further promote the entry of new electric entrants. This policy aims to open up

access to sources of low-cost base-load electricity such as coal fired, hydro and nuclear power sources, most of

which are practically owned by the general electric utilities currently, and, therefore, is a policy to facilitate new

electric entrants’ access to power sources for the promotion of competition. The general electric utilities also

announced in the Specialized Meeting for Policy Design in November 2016 that, based on reference cases in

overseas, they would launch gross bidding, by which a part of in-house trade is performed through JEPX, from

FY2017. Such efforts are made in addition to the general electric utilities’ voluntary improvement efforts, such as

provision of surplus electricity to JEPX which has been implemented since 2013. Such movements are meaningful

in terms of the transparency and efficiency of trade, improvement of liquidity and price index nature of trade at

JEPX and so on, and have already been implemented in the U.K. and in North Europe, etc. Every general electric

utility has announced that it would start the gross bidding in the early part of FY2017 so that approximately 10%

of its electricity sales would be traded through JEPX within a year or so, and that it would thereafter continue its

efforts to increase the trade volume.

14

[Trends of Share of JEPX Trade Volume (Contracted Volume) (April 2012 – June 2017)]

Voluntary efforts

Share of JEPX Trade: 5.0％ (as of June 2017)

2016 2017April May June July August September October November December January February March April May June

1.4 times 1.1 times 1.3 times 1.3 times 1.5 times 1.4 times 1.4 times 1.4 times 1.8 times 1.7 times 1.8 times 1.7 times 1.6 times 1.9 times 1.9 times

Year-to-year comparison of Share of electricity traded at JEPX (contracted volume)

April 2012 October 2012 April 2013 October 2013 April 2014 October 2014 April 2015 October 2015 April 2016 October 2016 April 2017

Tota

l ele

ctric

ity d

eman

d (m

illion

kW

h)

Total electricity demandShare of electricity Traded at JEPX (contracted volume of electricity)

Shar

e of

ele

ctric

ity tr

aded

at J

EPX

(con

tract

ed v

olum

e of

ele

ctric

ity)

(%)

15

Section 3 Qualification screening for registration of electricity retailer and retail service by Specified

Electricity Transmission and Distribution Utility

For registration of an electricity retailer, the qualification screening has been conducted respectively by the

Agency for Natural Resources and Energy from the viewpoints of potentiality, etc. to secure supply capacity

necessary to meet the maximum demand of electricity, and by the Commission from the viewpoints whether it

falls under “a person who is deemed to be inappropriate for the protection of electricity consumer’s interests”.

[Flow chart of Procedure for Registration and Provisions regarding Qualification Screening for Registration (Abstract)]

Up until the end of August 2017, 521 applications for registration (506 from electricity retailers and 15 from

Specified Electricity Transmission and Distribution Utility) have been received and 435 applicants (416 from

electricity retailers and 19 from Specified Electricity Transmission and Distribution Utility) have been registered

as a result of screening by the Commission and the Agency for Natural Resources and Energy.

Flow chart of Procedure for Registration

[2] Assessment by the Electricity and Gas Market Surveillance Commission

If not joined beforehand in a promotion organization for broad-based operation

Procedure to join a promotion organization for broad-based operation

[1] Submission of registration application to the Minister of Economy, Trade and Industry

[2] Assessment by the Minister of Economy, Trade and Industry

[3] Registration and notification by the Minister of Economy, Trade and Industry

* Standard processing time is 1 month.

<Provisions regarding Qualification Screening for Registration (Abstract)> Electricity Business Act, Article 2-4, Paragraph 1 When an application for registration under Article 2-2 has been filed, the Minister of Economy, Trade and Industry must register the following matters in the registry of Electricity Retailers, except when refusing to register pursuant to paragraph (1) of the following Article: (i) and (ii) (omitted) Electricity Business Act, Article 2-5, Paragraph 1 If a person who has submitted a written application set forth in Article 2-3, paragraph (1) falls under any of the following items, or if the written application or any of the documents accompanying it contains a false statement of an important matter or lacks a statement of an important fact, the Minister of Economy, Trade and Industry must refuse to register the applicant: (i) through (iii) (omitted) (iv) a person who is expected to be unlikely to be able to ensure the supply capability required for meeting the electricity demand of the recipients of the Retail Service, or any other person who is found to be unsuitable for the protection of the interest of electricity consumers.

Flow chart of Procedure for Registration

16

[Trends of Number of Applications for Registration of Electricity Retailer and Number of Registered

Retailers]

(cases)

Number of applications

Augu

st

Septe

mber

Octob

er

Nove

mber

Dece

mber

Janu

ary

Febr

uary

March

April

May

June

July

Augu

st

Septe

mber

Octob

er

Nove

mber

Dece

mber

Janu

ary

Febr

uary

March

April

May

June

July

Augu

st

2015 2016 2017

Number of registrations Number of deregistration

[Remarks] Number of registration means the total number of registration deducted by the number of deregistration (13 cases as of March 31, 2017) and number of deregistration means the number of utilities which submitted notification of abolition of electricity retail business, etc. due to discontinuation or the like of business. Such cases of business discontinuation include but are not limited to the case where the business has been succeeded by someone else.

17

Section 4 Administrative Guidance, etc. for electricity retailers

Entry to electricity retail business was fully liberalized in April 2016. Since then, all consumers including

households have the liberty to choose any electric entrants or rate plans they like. Under such circumstances,

surveillance, etc. on business activities of electric entrants were conducted in accordance with “Guidelines on

Electricity Retail Business” to enhance appropriateness of trade of retail supply of electricity. Such surveillance

includes but is not limited to administrative guidance to utilities that have conducted practices that may be

problematic in the light of the Electricity Business Act with regard to information given to consumers and

forms/contents, etc. of contracts. Along with implementation of factual investigation and administrative guidance

on inappropriate business activities, etc. notified to the Commission’s consultation desk, etc., press releases were

organized three times during September 2016 to August 2017 in collaboration with the National Consumer Affairs

Center of Japan to release information and to present examples of such consultation and advice.

(For reference) Implementation status of press release

The 7th, on September 1, 2016 Re: Details of consultation up to August 2016

The 8th, on November 16, 2016 Re: Details of consultation up to October 2016

The 9th, on March 30, 2017 Re: Details of consultation up to February 2017

[Status of Consultation from Consumers]

Examples of consultation I arranged the switching of electricity utility on the Internet, but

received an electric bill from the original utility and found that the switching was not completed.

I made a contract with a new electricity utility, but have not received an electric bill for months.

I applied for switching of the electricity supply contract because I have heard that such switching will lower the electricity charge. However, I am unsure because the original electricity utility stated that I will not be able to return to the original rate plan once the contract is cancelled.

Trend of number of consultations regarding Electricity Liberalization with the National Consumer Affairs Center of

Japan and Consumer Center

Trend of number of cases of consultation regarding Electricity Liberalization received by the Consultation Desk of the


* Data registered by February 28, 2017


⇒ When a contract is made, the electricity retailer will deliver a written confirmation. If no written confirmation is delivered, there is a possibility that the contract has not yet been made.

⇒ Due to system trouble, etc. of TEPCO Power Grid, Incorporated, cases such as non-delivery of electric bill, etc. have been occurring. Please contact the electricity retailer with whom you made a contract if you need consultation on the payment method or information on the status, etc.

⇒With regard to conventional selection provisions of electricity utilities, there is a possibility that the original rate plan cannot be taken again once the contract is cancelled.

FY20

14

April

to J

une

2015

July

to

Sept

embe

r

Oct

ober

to

Dec

embe

r

Janu

ary

to

Mar

ch 2

016

April

to J

une

July

to

Sept

embe

r

Oct

ober

to

Dec

embe

r

Janu

ary

to

Febr

uary

201

7

Sept

embe

r to

Dec

embe

r 201

5

Janu

ary

to

Mar

ch 2

016

April

to J

une

July

to

Sept

embe

r

Oct

ober

Nov

embe

r

Dec

embe

r

Janu

ary

2017

Febr

uary

18

Administrative guidance, etc. is provided for the following cases:

1. Inappropriate business activities by electricity retailers [1]

Electricity retailer “A” gave a notice to the Commission in April 2017 of a possibility that an employee of

company “B” who was an agent of “A” had processed an application for a contract for retail supply of electricity

without the consumer’s consent. As a result of an investigation, it was found that one employee of “B” had

processed multiple contract applications for retail supply without the consent of the consumers. Based on the

result of investigation, and in view of the fact that “B” could not discover the case regardless of chances to

perceive the inappropriate business activities of the said employee from an outstanding business performance of

him alone among the employees, the Commission considered that there were problems in the management and

supervision of “B” and gave them administrative guidance to develop and implement preventive measures for

recurrence. “A” was also given an administrative guidance for the prevention of recurrence, etc., though “A”

provided “B” with an in-depth training course several times which could be considered as reasonable guidance

and supervision.

2. Inappropriate business activities by electricity retailers [2]

In May 2017, the Commission obtained information that company “D” who was an agent of electricity retailer

“C” had been providing consumers with false information such as “C” has a business alliance with the general

electric utility. As a result of investigation, it was revealed that multiple employees of “D” had been presenting the

same explanation to consumers in accordance with their Business Talk Manual in which such false information is

mentioned. According to “D”, they had a wheeling service contract with a general electric utility and the purpose

of the said statement in the manual was to describe such a fact in a simplified manner. However, such a status is

substantially different from what “have a business alliance with a general electric utility” actually means in

general terms. Therefore, the Commission gave administrative guidance to both “C” and “D” to revise the

description in the manual and instructed them on the prevention of recurrence.

19

Section 5 Regarding surveillance on wholesale sectors

The Commission has been conducting surveillance in accordance with guidelines such as “Guidelines for Proper

Electric Power Trade” so that an appropriate competitive environment is ensured. TEPCO Energy Partner,

Incorporated (hereinafter referred to as “TEPCO EP”) offered prices substantially higher than the marginal cost

(fuel cost, etc.) at JEPX for daylight hours of weekdays during April to August 2016, and it resulted in inflating

contract prices at JEPX in some cases. The Commission considered such an offer to be an action to arbitrarily

manipulate the market price, and issued a recommendation for business improvement as of November 17, 2016 to

the said company for the prevention of recurrence. Specific details of the recommendation were as follows:

(1) Set-up of any selling bid price using the threshold price shall not be conducted in the future.

(2) Every person in your company shall be well informed about the above (1), and a necessary and

appropriate company structure shall be established to ensure compliance with the same.

(3) A report shall be submitted by December 16, 2016 to the Commission regarding specific measures taken

within the company for the purpose of above (2).

Based on this recommendation, the company developed preventive measures for recurrence as of December 16,

2016 of which the specific details are as follows:

(1) The company’s in-house manual will have a clear stipulation that selling bid based on the threshold

price (a certain level of lower limit of price not based on marginal cost (which cannot be rationalized by

supply and demand relationship)) shall not be offered, and the president of the company shall give a

direct instruction to the related divisions, departments and sections to observe the in-house manual.

(2) A new job position of “Coordinator for Bidding Price Control” (a management level position) shall be

set up in the Internal Audit Dept. of the company, and a person in such a position shall monitor and

regularly report to a director in charge to confirm if the trades are performed in accordance with the in-

house manual.

(3) To prevent any deviation from the Guidelines on Appropriate Trade, the risk management committee of

the company shall conduct monitoring and shall constantly arrange in-house training courses.

Since the time when these preventive measures were presented, the Commission has been monitoring the status of

implementation of the company’s preventive measures continuously.

20

Section 6 Administrative guidance, etc. for general transmission and distribution utility

With the full liberalization of the electricity retail market in April 2016, meter reading of electricity consumption

of each consumer has been conducted under a system where monthly meter reading is done by a general

transmission and distribution utility, such as TEPCO Power Grid, Incorporated (hereinafter referred to as “TEPCO

PG”), which passes such reading information onto electricity retailers. Under such circumstances, delay in the

notification to electricity retailers occurred in the same month due to a failure of the information system, etc. of

TEPCO PG.

This caused a ripple effect such as a delay in the sending of electric bills from electricity retailers to each

consumer (approximately 20,000 cases of omission of notification occurred during the period of May to August of

that year).

Such a trouble was reported to the Commission by TEPCO PG on May 19, 2016, and, in response to the report,

the Commission conducted collection of reports on the next day (i.e., May 20) and June 3 requesting for detailed

information on the system failure and steps for countermeasures, etc. As a result of investigation by the

Commission based on the answers, etc. obtained through the collection of reports, the Commission determined

that the trouble falls under the category of the case where “issuance of recommendation is considered to be

necessary in order to ensure appropriate transactions of electricity” as provided in Paragraph 1, Article 66-11 of

the Electricity Business Act, and issued business improvement recommendation dated June 17, 2016. The basis of

such determination is as follows:

(1) The trouble caused as many as approximately 20,000 cases of influence to end consumers.

(2) Consumers, who switched electricity supplier to electricity retailer, attributed the delay of electric bills

to their switching of electricity supplier. Because of this consequence, it was confirmed that the trouble

resulted in giving negative influence to electricity retailers to which the consumers switched electricity

supplier, such as depletion of consumers’ confidence.

The specific details of the recommendation are as follows:

(Outline of the recommendation for business improvement)

• Development of a concrete and effective improvement plan (including support for electricity retailers and

their consumers)

• Establishment of a well-prepared organizational structure for implementation of the plan

• Precise implementation of an improvement plan and periodical inspection and report

In response to this recommendation, the said company developed an improvement plan dated July 1, 2016, of

which specific details are as follows:

(Outline of Improvement Plan)

• Measures for delay in notification:

- recheck of reading data of each meter, etc.

• Support for electricity retailers and their consumers:

- set-up of contact desk exclusively for consumers of electricity retailer, etc.

21

• Enhancement of business management structure:

- enhancement of check function to monitor implementation status of delay elimination measures, etc.

Thereafter, the Commission has been receiving status reports on the implementation of the improvement plan

twice every month, and has been following up on the issue. In addition, a staff member of the Executive Bureau of

the Commission visited the said company twice or so every month to fully grasp the situation and to give

administrative guidance concerning problem resolution such as requests for additional measures. On August 26,

2016, the Commission also requested the president of the company to make a presentation on the improvement

status as a part of a supportive approach to them.

The notice within seven working days, which was an immediate goal of TEPCO PG, has been achieved almost

constantly since September 2016. Thereafter, they continued efforts for further improvement in aspects of both

operation and system. Thus, they have almost materialized a situation of notice within 4 working days since

February 2017, except cases with unavoidable reasons.

As a result of continued administrative guidance for normalization of the situation, the issues of the said company

concerning the delay of notice of electricity consumption as well as the impact on the related utilities and their

consumers have almost ceased according to their report dated June 7, 2017. It can now be considered that the

prospects of future implementation of preventive measures for recurrence have reached a certain level. In view of

the foregoing, we decided to end the requirement for report, which had been submitted twice every month until

then.

Electricity transmission and distribution utility

(TEPCO PG) Delay in notification

of electricity consumption

Elec

tric

ity

reta

iler

Electric bill

Payment Con

sum

er

22

Section 7 Post facto assessment of retail electricity rate after the end of the cost finding period

As for the retail electricity rate based on transitional measures in the Supplementary Provisions of the Act on the

Partial Revision of the Electricity Business Act, etc. (Act No. 72 of 2014, hereinafter referred to as “2nd Step

Revision of Act”), METI (hereinafter referred to as “METI”) is authorized to conduct post facto assessment for

every fiscal year after the end of the cost finding period to check needlessly affluent profit margins and to release

the results to the public. The Commission conducted the check in FY2016 on the general electric utilities

concerning the points of the following A and B:

<Points of post facto assessment>

A Points to be checked by the Commission regarding post facto assessment on Hokkaido Electric Power Co.,

Inc., Tohoku Electric Power Co., Inc., TEPCO EP, Hokuriku Electric Power Company, Kansai Electric Power Co.,

Inc., Chugoku Electric Power Co., Inc., Shikoku Electric Power Co., Inc., Kyushu Electric Power Co., Inc. and

Okinawa Electric Power Co., Inc.:

The Commission checked if it is necessary for such utilities to apply for an approval for price-cut in accordance

with Article 2, Paragraph (7), Item [4] of “Assessment Standards, etc. for Administrative action by the Minister of

Economy, Trade and Industry based on Supplementary Provisions of the Act on the Partial Revision of the

Electricity Business Act” (20160325 ANRE No. 12)

B Points to be checked by the Specialized Meeting for Fee Examination regarding post facto assessment of

Hokkaido Electric Power Co., Inc., Tohoku Electric Power Co., Inc., Kansai Electric Power Co., Inc., Shikoku

Electric Power Co., Inc., Kyushu Electric Power Co., Inc., and TEPCO EP (Notes: Profit ratio of electricity

business of TEPCO EP’s regulated sectors has increased for the last three fiscal years, and the other utilities are

described in the work program of the Basic Plan for Consumers as companies subject to post facto assessment

within this fiscal year) :

Checking was conducted on each of the following items [1] through [3]:

[1] Comparison between budget cost and actual cost regarding electricity rate:

Are there any individual cost items of which the actual result unreasonably exceeded the budget cost?

[2] Comparison of profit margin between regulated sectors and liberated sectors:

Is there any significant difference in profit margin between regulated sectors and liberated sectors? If yes,

are the causes reasonable?

[3] Efforts for enhancement of management efficiency:

Is enhancement of management efficiency implemented steadily?

* Chubu Electric Power Co., Inc. was exempted from post facto assessment because their cost finding period was

not completed.

23

<Record of dates of Specialized Meeting for Fee Examination>

February 1, 2017 The 22nd Specialized Meeting for Fee Examination

February 15, 2017 The 23rd Specialized Meeting for Fee Examination

March 1, 2017 The 24th Specialized Meeting for Fee Examination

<Results of Post Facto Assessment>

A Points checked by the Commission regarding post facto assessment on Hokkaido Electric Power Co., Inc.,

Tohoku Electric Power Co., Inc., TEPCO EP, Hokuriku Electric Power Company, Kansai Electric Power Co., Inc.,

Chugoku Electric Power Co., Inc., Shikoku Electric Power Co., Inc., Kyushu Electric Power Co., Inc. and

Okinawa Electric Power Co., Inc.

During the post facto assessment after the end of the cost finding period, no necessity was confirmed in respect to

application for an approval for price-cut in relation to Article 2, Paragraph (7), Item [4] of “Assessment Criteria,

etc. for Disposition by the Minister of Economy, Trade and Industry based on Supplementary Provisions of the

Act on the Partial Revision of the Electricity Business Act” (20160325 Material No. 12) regarding the order to

apply for approval for revision of the general provisions for general supply, etc. pursuant to the provision of

Article 23, Paragraph 1 of Electricity Business Act (Act No. 170, 1964) prior to the revision based on the

provision of Article 1 of 2nd Step Revision of Act, which is interpreted and applied as if it is still valid pursuant to

the provision of Article 16, Paragraph 3 of Supplemental Provisions of 2nd Step Revision of Act. The details of

the assessment are as follows:

[1] Criteria based on profit ratio of electricity business

As shown in the table below, the profit ratio of each of the seven companies excluding Tohoku Electric Power Co.,

Inc. and TEPCO EP for the last three fiscal years is smaller than the average profit ratio of the last ten fiscal years

of all ten electric entrants, and did not fall under the said criteria.

[Profit ratio of electricity business of regulated sectors for the last three fiscal years and average profit ratio of the

last ten fiscal years of all ten electric entrants]

[2] Criteria based on accumulated excess profit of regulated sectors or criteria based on profit and loss of

liberalized sectors

As shown in the table below, it has been confirmed that the accumulated excess profits of regulated sectors of

Tohoku Electric Power Co., Inc. and TEPCO EP are not more than the specified level and they have not fallen into

the red for the last two consecutive fiscal years.

Hokkaido Tohoku TEPCOEP *1

Hokuriku Kansai Chugoku Shikoku Kyushu Okinawa Average of 10

companies for 10 years

2013 △12.2% 5.9% 4.2% 0.9% △1.1% △0.8% 1.1% △2.4% 2.8%

2014 2.2% 5.9% 4.0% 1.7% △2.7% 4.1% 3.8% △2.8% 3.5%

2015 3.7% 6.9% 6.9% 0.4% 7.1% 0.3% 1.3% 6.2% 2.5%

Average for 3 fiscal years*2

△2.1% 6.2% 5.0% 1.0% 1.1% 1.2% 2.1% 0.3% 2.91% 2.93%

*1 The value of each fiscal year is the profit ratio of Tokyo Electric Power Co., Inc. (Demerged on April 1, 2016)*2 Simple arithmetic average of percentage value of each fiscal year.

24

[Accumulated excess profits of regulated sectors and the specified level]

As shown in the above, neither Tohoku Electric Power Co., Inc. nor TEPCO EP conflicted with the criteria for

both accumulated excess profits of regulated sectors and profit and loss of liberalized sectors.

B Points checked by the Specialized Meeting for Fee Examination regarding post facto assessment on Hokkaido

Electric Power Co., Inc., Tohoku Electric Power Co., Inc., Kansai Electric Power Co., Inc., Shikoku Electric

Power Co., Inc., Kyushu Electric Power Co., Inc. and TEPCO EP:

As a result of checking by the Specialized Meeting for Fee Examination, it was confirmed that the profit and loss

of electricity rates, etc. of each utility were not inappropriate.

As a result of the above, in view of various factors such as fluctuations of fuel prices and exchange rates, delay of

resumption of nuclear power plants and so on, there was, in general, no record of expenses that unreasonably

exceeded the budgeted cost. Therefore, it has been confirmed that the electric entrants, which were subject to the

post facto assessment of this time, were not required to apply for approval for a price-cut of the current approved

rates.

On the other hand, however, the actual amount spent for payroll, which is a part of personnel expenses, exceeded

the budget in all of the companies, although it can be considered to be unavoidable in view of the necessity for

Accumulated excess profits of regulated sectors and the specified level

(Source: Prepared based on an interview with Tohoku Electric Power Co., Inc. and TEPCO EP at the Executive Bureau of the Commission)

Tohoku TEPCO EP

Accumulated excess profits as of the end of FY2015 [1]

+28,095 △131,099

Specified level [2] +41,879 +147,033

Is [1] larger then [2]? (Is [1]>[2]?)

No No

(unit: million yen)

Profit and loss of liberalized sectors for the last 2 years

(Source: Prepared based on an interview with Tohoku Electric Power Co., Inc. and TEPCO EP at the Executive Bureau of the Commission)

Tohoku TEPCO EP

FY2014 [1] +47,951 +141,736

FY2015 [2] +80,815 +210,041

Are they suffering deficits for 2 consecutive years? (Are [1] < 0 and [2] < 0?)

No No

25

recruitment of proper human-resources under a severe business environment. While each company has its own

circumstances of management, utilities are requested to strive for the management of their operation with careful

consideration for the results of rate assessment not only for such cost items but for other items as well.

Reduction of the repair cost of generating plants was one of the major efforts for enhancement of management

efficiency. It was implemented on expenses included in the cost based on the evaluation on risk-map (i.e.,

prioritization in accordance with the degree of importance and emergency) so that impairment of reliability for

power supply can be avoided. Investment for safety measures and essential items necessary for maintenance of

supply reliability, of which necessary cost is included in electricity rates as a rational cost, should be continued

appropriately. Therefore, needless to say, the determination of emergency carry-over of maintenance cost should

still be done with careful risk assessment based on technical findings and cost-benefit performance of alternative

measures, etc.

Enhancement of efficiency should not be done as an effort simply for a temporary improvement of profit and loss,

but, in addition, should be aimed for structural and permanent improvement of costs which will result in cost

reduction and eventual restraint on an electricity rate increase in the future. Various efforts of electric entrants

were presented during the course of assessment this time. As for the efforts by utilities’ network sectors which do

not have a competitive relationship among the utilities directly, it is important that they share information with

each other to actively incorporate useful information with necessary modifications for their own dimensions.

Furthermore, because the competition among liberalized sectors will help enhancement of efficiency of overall

electricity supply cost, utilities are requested to make efforts with originality and ingenuity for competition in the

fully liberalized market for retail electricity.

Some utilities consider the future resumption of nuclear power plants to be unforeseeable. Although the current

cost estimate is made based on a certain level of operation rate of nuclear power, the latest state of profit and loss

is on an upward trend thanks to efforts for improvement of management efficiency during the cost finding period.

In view of the fact that the fuel cost of thermal power plants will be reduced when resumption of nuclear power

plants is realized, utilities should consider allocating such reduced costs appropriately to reduce the temporary

deferment of expenditures as well as to return the benefit to consumers, etc.

In view of the foregoing, the assessment has concluded that utilities are required to continue striving sincerely for

improvement of management efficiency and providing consumers with understandable explanations and

information on appropriateness of transitional regulated tariff.

26

Section 8 Audit

Pursuant to the provision of Article 105 of Electricity Business Act and Article 21 of Supplemental Provisions of

2nd Step Revision of Act, an audit was conducted on 12 companies of general transmission and distribution

utilities, deemed electricity retailers, etc.

In the course of the audit of FY2016, prohibited activities associated with wheeling service in electricity business,

which was an audit item continued from the previous year, was focused on as a prioritized audit item to check if

any “practices that may be problematic” is conducted from a viewpoint of fair and effective competition defined in

“Guidelines for Proper Electric Power Trade” (revised on February 6, 2017, Japan Fair Trade Commission, METI).

As a result of the audit conducted in FY2016, 15 items of audit findings were reported by officials that conducted

the audit. The Commission examined the report and concluded that there was neither an issue which was subject to

recommendation to general electric entrants, etc. based on Article 66-11 of Electricity Business Act nor an issue

which was subject to a recommendation to the Minister of Economy, Trade and Industry based on Article 66-12 of

the same act. However, the Commission gave oral administrative guidance on required matters to six utilities (on

ten items) and written administrative guidance on required matters to four utilities (on five items) so that utilities’

voluntary improvement could be facilitated for future business operations.

[Breakdown of Administrative Guidance]

(unit: case)

Number of cases

[1] Audit on operational procedure, etc. of general provisions 4

[2] Audit on financial statement 1

[3] Audit on sectoral profit and loss 4

[4] Audit on profit and loss of wheeling services, etc. 1

[5] Audit on prohibited activities associated with wheeling services 5

[6] Audit on other necessary items 0

Total 15

27

[Items to be handled by the Headquarters of the Ministry]

i. Findings that can be considered minor, such as errors in writing

(Non-compliance with laws and regulations but still minor) [1] Audit on operational procedure, etc. of general provisions Details of finding Details of administrative guidance

1

Some cases where the discount amount was too high due to an erroneous calculation method were found in relation to the power failure discount for wheeling service rate.

Oral guidance was given for proper calculation in accordance with the Wheeling Service provisions and the company’s in-house rules.

2

Some cases where the discount was not applied properly to multiple occurrences of power failure were found in relation to the power failure discount for the wheeling service rate.

Oral guidance was given for proper calculation in accordance with the Wheeling Service provisions and the company’s in-house rules.

[2] Audit on financial statement (no applicable case found) [3] Audit on sectoral profit and loss

Details of finding Details of administrative guidance 1

For cost estimation of the power source cable, there was a case where the cost was overestimated because the type of cable to connect a newly built hydro power plant to a network was incorrectly specified.

Written guidance was given for proper calculations in accordance with ordinance for sectoral profit and loss statement, the company’s in-house rules and others.

2

There was a case where the cost ratio on the book value basis (construction cost ratio), which is used for allocation of substation cost to power receiving service cost and to power distribution service cost, was erroneously calculated.

Written guidance was given for proper calculations in accordance with ordinance for sectoral profit and loss statement, the company’s in-house rules and others.

3

Regarding extraction of miscellaneous cost in the course of extraction of distribution consumer cost from distribution cost, there was a case where a directly chargeable cost that could be identified as a consumer cost was not directly charged to consumer cost but was erroneously charged to a cost other than consumer cost.

Oral guidance was given for proper calculations in accordance with ordinance for sectoral profit and loss statement, the company’s in-house rules and others.

[4] Audit on profit and loss of wheeling services, etc. Details of finding Details of administrative guidance 1

For cost estimation of the power source cable, there was a case where the cost was overestimated because the range of NW to connect a newly built hydro power plant to a network was incorrectly specified.

Written guidance was given for proper calculations in accordance with ordinance for profit and loss statement for wheeling service, etc. and the company’s in-house rules, etc.

[5] Audit on prohibited activities associated with wheeling services (no applicable case found) [6] Audit on other necessary items (no applicable case found)

28

ii. Other items to be reported

(Not violation of laws and regulations but matters that require improvement) [5] Audit on prohibited activities associated with wheeling services Details of finding Details of administrative guidance

1

There was a case where reimbursement for settlement of construction contribution was delayed due to a delay in paperwork, etc. (Example) Delayed period: Approximately 8 months Delayed amount: Approximately ¥40 million

Written guidance was given for proper processing in accordance with the company’s in-house rules, etc.

2

There was a case where reimbursement for settlement of construction contribution was delayed due to poor progress management, etc. such as no construction completion notice. (Example) Delayed period: Approximately 22 months Delayed amount: Approximately ¥400,000

Written guidance was given for proper processing in accordance with the company’s in-house rules, etc.

[1] Audit on operational procedure, etc. of general provisions ·················· 2 cases (oral guidance)

[2] Audit on financial statement ····················································· 1 case (oral guidance)

[3] Audit on sectoral profit and loss ················································· 1 case (oral guidance)

[4] Audit on profit and loss of wheeling services, etc. (no applicable case found)

[5] Audit on prohibited activities associated with wheeling services ·········· 3 cases (oral guidance)

[6] Audit on other necessary items (no applicable case found)

* For items to be handled by the Bureaus of Economy, Trade and Industry, there was no applicable case.

29

Chapter 2 Efforts for higher efficiency of the electricity market and promotion of competition

Section 1 Environmental improvement for negative watt trade

In the past, considering the demand of electricity as given conditions, efforts for improvement of the electricity

system were focused on how to ensure electricity supply. However, the Great East Japan Earthquake in March

2011 and the associated accident of the nuclear power plant served as a trigger to emphasize the importance of so-

called “Demand Response” that focuses on efforts for flexible electricity consumption to supply capability, in

addition to the importance of energy conservation.

As a next step to “Demand Response”, the Basic Energy Plan (Cabinet Approval of April 11, 2014) addressed the

development of negative watt trade. Negative watt trade is a system to bundle and trade electricity conserved by

multiple electricity consumers in response to a request by electricity retailers, etc. The electricity consumers will

receive consideration from the retailers when the request by retailers to consumers for conservation is mediated by

an aggregator (so-called “negative watt trader”) which bundles the conserved electricity and trades such bundled

electricity. It has been decided to stabilize the supply of electricity by development and management of an

environment that facilitates introduction of a new business structure based on “Demand Response”, such as

negative watt trade.

As a part of such development of the environment, the 3rd Step Revision of Act was partially enforced on April 1,

2017 to stipulate provisions for “specified wholesale supply”, which allows wholesale supply of electricity created

by curbing of consumers’ demand to retailers for the purpose of retail supply, in the Electricity Business Act. At

the same time, the electricity of the specified wholesale supply has been classified as electricity that can be used

for Electricity Quantity Adjustment Service (imbalance supply) performed by general transmission and

distribution utilities, just like electricity generated in power plants. Such arrangements as above contributed to

establish a system that helps promote negative watt trade, such as resale of electricity created by curbing of

demand.

Under such circumstances, the Specialized Meeting for Policy Design, which was established under the

Commission, studied rules to be imposed on negative watt traders that resale electricity created by curbing of

demand so that proper performance of negative watt trade could be ensured.

“Guidelines for Proper Electric Power Trade” prepared jointly by METI and Japan Fair Trade Commission was

also revised to include necessary revisions to ensure the proper performance of negative watt trade.

With regard to the portion of the said guidelines, of which METI is in charge, the Commission submitted a

proposal to the Minister of Economy, Trade and Industry based on the discussion in the Specialized Meeting for

Policy Design, and the guidelines have been revised jointly by METI and Japan Fair Trade Commission on

February 6, 2017.

30

Section 2 Regarding open procurement system for procurement of balancing power

The 2nd Step Revision of Act that stipulates provisions on full liberalization of the electricity retail market and

adoption of a new licensing system was enforced on April 1, 2016, and ancillary services, such as maintenance of

frequency throughout the network, to ensure high quality electricity supply, which have been taken care of by the

general electric utilities using their own power generation facilities, have been delegated to general transmission

and distribution utilities. As a result, a system has been set up so that general transmission and distribution utilities

can procure the power source, etc. required for the performance of ancillary services from electricity generation

utilities as balancing power, and that the cost required to secure such balancing power can be recovered by

wheeling service charges. This system is expected to contribute to promotion of competition among electricity

generation utilities, etc. and volume increase/quality improvement of available balancing power by participation

of various types of electricity generation utilities, as well as more efficient utilization of balancing power by

general transmission and distribution utilities.

This system works on the premise that the fairness and transparency in the procurement of balancing power by

general transmission and distribution utilities is duly secured. Therefore, it was necessary that the procurement of

balancing power by general transmission and distribution utilities, which would start from FY2016, should, in

principle, be implemented in a fair and transparent manner such as an open procurement system. The concrete

details of such system were, however, left to the discretion of each general electricity transmission and distribution

utility.

Because of the above, the Specialized Meeting for Policy Design, which was established under the Commission,

compiled “Concept of Open Procurement of balancing power for General Transmission and Distribution Utility”

to describe the concept to secure fairness and transparency of the open procurement system and implementation

methods of a desirous open procurement system so that the basic idea for appropriate procurement of balancing

power by general transmission and distribution utilities can be presented beforehand and that the procurement of

balancing power can be conducted smoothly in a fair and transparent manner through an open procurement

system. The Commission submitted the “Concept” to the Minister of Economy, Trade and Industry as a proposal

on September 26, 2016.

Thereafter, based on the proposal, the Minister of Economy, Trade and Industry established “Concept of Open

Procurement of balancing power for General Transmission and Distribution Utility” (hereinafter referred to as

“Guidelines on Open Procurement System”), and general transmission and distribution utilities conducted the

procurement of balancing power for FY2017 through open procurement in accordance with the said concept.

<Major contents of “Guidelines on Open Procurement System”>

Description on items to be explained by general transmission and distribution utility, main points of

terms and conditions of contract such as contract term and settlement of expenses, and concept for bid

evaluation, etc. in relation to open procurement

Concept for collection of opinions on open procurement and disclosure of contract price after

procurement

Method of surveillance to be conducted after open procurement

31

1. Outline of open procurement and results

Based on the Guidelines on Open Procurement, each general transmission and distribution utility began receiving

applications from late October 2016 as needed. Outlines of major requirements set by each general transmission

and distribution utility for balancing power for each segment are as follows:

[Major requirements for balancing power for each segment] Power source I – a Power source I – b Power source I’ Power source II Response to online instruction

Required Required Required, in principle*1 Required

Frequency adjustment function

Required Not required Not required Required

Response time Within 5 minutes Within 15 minutes to within 30 minutes

Within 3 hours –*5

Duration*2 7 hours to 11 hours 7 hours to 16 hours 2 hours to 4 hours – Minimum capacity*3

5 MW to 15 MW 5 MW to 29 MW 1 MW or more –*5

Period of provision*4

Throughout the year (April 1, 2017 – March 31, 2018)

Same as on the left Throughout the year In summer (July to

September)

Throughout the year (only excess power after gate is closed)

*1: As for the off-line power source, etc., each utility will receive application as much as practically possible (5 to 10 cases). *2: A bid that does not fulfill the required duration may be received. It will be reflected in the price evaluation. *3: In case of DR, evaluation will be made based on the capacity not by each consumer but by each aggregator. *4: The yearly number of days during which operation can be stopped for each utility will be set. The number of times of exercise will be set for

Power source I’. *5: There is no concept of Contracted Capacity for Power source II. However, output flexibility such as an ability to meet variation of 10 MW

within 5 minutes will be one of the requirements.

Source: Prepared by the Electricity and Gas Market Surveillance Commission based on information published by general transmission and distribution utilities

As a result of open procurement by general transmission and distribution utilities, the number of bids submitted by

bidders other than the general electric utilities for the above power source segment of I – a, I – b and II was small.

But for Power source I’, approximately 30% of the tendered electricity was bidden by those other than the general

electric utilities. The bidden electricity utilizing Demand Response was 1112 MW, out of which 958 MW (¥3,593

million in total) was awarded, while the total for Power source I’ was 1327 MW. This was the first example of the

trade of Demand Response in Japan in a competitive open bid.

32

[Results of open procurement]

Results of procurement of adjustment force through open procurement (Power source I)

Results of procurement of adjustment force through open procurement (Power source I)

Power source I – a

Power source I – b

Power source

I’

Tendered capacity

Bidden capacity

Awarded capacity Highest price Average price

Tendered capacity

Bidden capacity


Tendered capacity

Bidden capacity


Hokkaido Tohoku Tokyo Chubu Hokuriku Capacity: 10MW Price: Yen/kW

37,862 yen 25,647 yen

40,911 yen 11,531 yen

15,171 yen 14,575 yen

11,696 yen 9,260 yen

21,461 yen 15,359 yen

No bid submitted No bid submitted


15,171 yen 5,165 yen 18,317 yen

782 yen 782 yen

4,750 yen 4,501 yen

1,245 yen 1,196 yen

15,171 yen 5,165 yen 18,317 yen

Power source I – a

Power source I – b

Power source

I’

Tendered capacity

Bidden capacity

Awarded capacity Highest price

Average price

Tendered capacity

Bidden capacity


Tendered capacity

Bidden capacity


Kansai Chugoku Shikoku Kyushu Okinawa Capacity: 10MW Price: Yen/kW

112,339 yen 9,740 yen

10,119 yen 9,785 yen

17,579 yen 12,328 yen

42,261 yen 16,291 yen

37,336 yen 27,878 yen

No bid submitted

12,331 yen 12,319 yen

17,579 yen 17,579 yen

9,352 yen 7,676 yen

5,900 yen 3,034 yen

32,622 yen 8,176 yen



Total

*Figures in parentheses are offered and awarded volume of bids by utilities other than the general electric utilities and are the number included in the total number.

Source: Prepared by the Electricity and Gas Market Surveillance Commission based on information published by each general transmission and distribution utility

33

Results of procurement of adjustment force through open procurement (details of Power source I’)

Results of application for Power source II

Number of cases: case Capacity: 10MW Price: Yen/kW

Tohoku Tokyo Chubu Kansai Kyushu Number of cases Capacity Number

of cases Capacity Number of cases Capacity Number

of cases Capacity Number of cases Capacity

Total Number of

cases Capacity

Breakdown of bid and award (re-publication)

Number of cases Capacity

Power source Power

source Tendered volume Bidden

volume total Awarded

volume total Highest price

Average price

Period of provision

Average price (DR)

782 yen 782 yen

July 16 to September 20

782 yen 782 yen

April 1 to March 31

782 yen

782 yen 782 yen

July 1 to September 30

782 yen

782 yen 782 yen

April 1 to March 31

782 yen

782 yen 782 yen

April 1 to March 31

782 yen

Source: Prepared by the Electricity and Gas Market Surveillance Commission based on interviews with general transmission and distribution utilities

* Figures in parentheses are bidden and awarded volume and number of bids of utilities other than the general electric utilities and are the number included in the total number.

Number of cases: case Capacity: 10MW Hokkaido Tohoku Tokyo Chubu Hokuriku

Number of cases Capacity

The general electric utility Utility other than the general electric

utility Total

Number of cases Capacity Number


of cases Capacity

Kansai Chugoku Shikoku Kyushu Okinawa Number of cases Capacity

The general electric utility Utility other than the general electric

utility Total

Number of cases Capacity Number


of cases Capacity

Total Number of cases Capacity

Source: Prepared by the Electricity and Gas Market Surveillance Commission based on interviews with general transmission and distribution utilities

34

2. Surveillance (Monitoring) of Operation Status and Release of Information to the Public

The Guidelines on Open Procurement stipulates that “appropriateness of required volume of balancing power”,

“appropriateness of volume (kWh) price of electricity” and “status of merit order” are to be checked. Therefore, for

the open procurement conducted in FY2016, the Commission checked the concept of utilities, which participated

in tenders, regarding the method to figure out the price per kWh in the actual operation stage, as well as the following,

and released the results to the public:

How and on what basis the utilities selected power sources to participate in the tender,

How the utilities estimated the price per kW for the tender.

The Guideline on Open Procurement also has stipulations on publication of information. The Commission, therefore,

has been publishing information on the operation of balancing power after April 2017 on its website.

35

[Published information on operation of balancing power] Price per volume (kWh) of electricity for balancing power ordered by general transmission and distribution utilities

(unit: yen/kWh)

Price to order capacity increase Price to order capacity decrease Weighted average of absolute value of

increase/decrease of 10

utilities

Highest price for each week Weighted average price for each week The lowest price for each week Weighted average price for each

week The

highest among 10

utilities

The lowest

among 10 utilities

Simple arithmetic average of 10 utilities

The highest

among 10 utilities

The lowest

among 10 utilities

Weighted average of 10 utilities

The lowest

among 10 utilities

The highest

among 10 utilities

Simple arithmetic average of 10 utilities

The lowest

among 10 utilities

The highest

among 10 utilities

Weighted average of 10 utilities

April 1 to April 7 61.1 8.9 18.9 11.5 5.3 8.7 1.1 4.5 3.2 4.6 9.8 6.5 7.5

April 8 to April 14 43.6 6.0 16.6 11.4 5.2 8.7 1.1 4.9 3.2 3.9 9.9 6.1 7.3

April 15 to April 21 22.4 6.9 13.1 10.9 5.0 8.1 1.4 4.7 3.2 3.8 9.4 6.1 7.0

April 22 to April 28 61.1 6.5 17.1 11.3 5.0 8.0 1.1 4.7 3.0 4.3 9.4 5.8 6.7

April 29 to May 5 61.1 6.3 17.8 11.5 5.5 7.4 1.1 4.8 3.1 4.1 9.1 5.6 6.4

May 6 to May 12 22.4 6.0 13.4 10.9 4.6 7.7 2.4 4.7 3.3 4.3 9.5 5.6 6.6

May 13 to May 19 22.4 6.1 13.2 11.2 4.6 7.9 2.0 4.8 3.4 4.1 10.0 5.3 6.5

May 20 to May 26 22.4 6.3 12.4 10.9 4.5 8.1 1.7 4.8 3.3 4.4 9.5 5.7 6.8

May 27 to June 2 60.3 6.8 17.8 10.9 5.0 8.1 1.0 4.7 3.1 4.3 9.7 5.5 6.6

June 3 to June 9 20.5 8.5 13.3 10.2 4.6 8.0 0.9 5.0 3.2 4.3 9.2 5.6 6.7

June 10 to June 16 18.7 6.1 11.9 10.5 4.5 7.7 0.9 5.0 3.3 4.2 9.6 5.3 6.4

June 17 to June 23 19.1 6.3 12.6 10.4 4.6 7.4 0.8 5.0 3.1 4.3 9.6 5.7 6.6

June 24 to June 30 18.7 6.7 12.0 10.7 4.6 7.7 1.0 5.0 3.2 4.6 9.0 6.0 6.7

* Pumped storage power plant of which both increase and decrease are ordered by general transmission and distribution utility as balancing power is not included in this statistic.

Volume of electricity for balancing power ordered by general transmission and distribution utilities

(unit: GWh) Hokkaido

Electric Power Co., Inc.

Tohoku Electric Power Co., Inc. TEPCO PG Chubu Electric

Power Co., Inc.

Hokuriku Electric Power

Company

Kansai Electric Power Co., Inc.

Chugoku Electric Power

Co., Inc.

Shikoku Electric Power Co., Inc.

Kyushu Electric Power Co., Inc.

Okinawa Electric Power

Co., Inc. Ordered

volume of increase

Ordered volume of decrease

Ordered volume of increase


















April 1 to April 7 13 34 54 82 173 199 139 155 18 23 93 109 17 56 13 26 36 65 7 9

April 8 to April 14 20 19 55 56 220 184 97 130 16 18 88 112 12 36 14 15 28 51 8 8

April 15 to April 21 21 25 54 45 186 226 107 126 15 16 65 121 13 33 17 27 27 65 8 7

April 22 to April 28 18 25 39 53 234 267 57 89 14 19 63 107 11 33 10 22 37 60 6 6

April 29 to May 5 16 24 39 52 259 237 148 166 12 13 89 109 10 25 8 23 26 61 8 6

May 6 to May 12 22 22 60 43 208 229 142 134 13 14 104 113 14 41 14 18 26 55 5 7

May 13 to May 19 24 19 45 45 173 182 128 124 10 16 101 114 17 34 13 19 21 66 8 9

May 20 to May 26 19 24 55 63 172 209 94 84 19 20 88 96 19 33 11 20 24 42 10 9

May 27 to June 2 22 27 46 53 207 220 60 95 14 18 79 137 17 45 12 25 32 33 8 7

June 3 to June 9 18 20 38 63 250 231 65 81 11 14 66 110 19 35 15 18 30 44 8 8

June 10 to June 16 13 19 39 46 225 202 61 83 12 12 59 103 11 26 13 21 26 62 9 9

June 17 to June 23 19 16 39 52 217 213 99 77 14 13 72 98 19 35 16 21 59 38 8 7

June 24 to June 30 17 15 26 52 205 275 89 86 13 15 62 93 19 49 15 24 32 52 6 7

* Pumped storage power plant of which both increase and decrease are ordered by general transmission and distribution utility as balancing power is not included in this statistic.

36

3. Study on improvement towards open procurement in FY2018

The Commission conducted questionnaires on the necessity of further improvement towards the open procurement

in FY2018 for power generation utilities and negative watt traders, and has been requesting general transmission

and distribution utilities for improvement of open procurement based on the results of such questionnaires.

As a result, the Commission received a proposal from general electric entrants in the Specialized Meeting for Policy

Design in June 2017 for improvement including the addition of the new segments of power supply. Most of the said

proposal was accepted, but some of the improvement requests were returned to the utilities for further study.

[Improvement plan for open procurement proposed by general transmission and distribution utility] ○ The 19th Specialized Meeting for Policy Design (June 27, 2017), Material No. 3-1, Extract of material submitted to

the Federation of Electric Power Companies of Japan Details of request Direction of response Response

period

As an immediate effort, an increase of utilization of Power source II and DR which are stand-by capacity for retail electricity is practical.

There may be room for improvement such as subdivision of segment of Power source II, which may allow the registration of power sources without functions of on-line control or frequency adjustment function, etc.

○ 2 segments will be added to Power source II (II – a) Power source II – b: Seek for a bid for power source on-line on

exclusive channel (operation of merit order) only with supply demand balance function

Power source II: Seek for a bid for power source and DR (by utilization of simplified load dispatching system) even though it will not be like the merit order operation by load control system of a central load dispatching center.

Open procurement

to be conducted

this fiscal year

There may be room for improvement concerning the fact that the communication standards which have secured necessary and sufficient security are deemed as on-line.

○ Structuring of simplified load dispatching system Power source I: In principle, it shall be unified to an on-line exclusive

channel or simplified load dispatching system. However, an off-line power source will also be sought for limited cases as transitional measures.

Power source I – b, II – b: To be verified during the VPP Verification Project this fiscal year

Open procurement

to be conducted

this fiscal year Open

procurement to be

conducted in or after the next fiscal

year

Regarding the study towards standardization of outline of procurement of balancing power

○ Standardization of facility requirements Standardization is being coordinated on speed and width of variation,

minimum capacity and so on. ○ Regarding the procedure to decide consumers at the time of bidding From the viewpoint of stable supply by steady procurement of

balancing power, consumers shall be decided continuously at the time of bidding.

Open procurement

to be conducted

this fiscal year

It may be effective if arrangements such as a longer application period, announcement well before open procurement, and setting up of a contact desk to receive questions on requirements, etc. are made so that participants will have enough time for preparation.

○ Creative alteration of period to raise awareness Necessary preparation will be made by the general transmission and

distribution utilities so that it can be scheduled in the period from August to the end of February.

At least one month shall be secured as a period of open procurement in accordance with the guidelines.

Publication of information on a constantly available contact desk for participants, which was opened last year, and preliminary notification before announcement of open procurement will be conducted in July before RFC(Request for Comments).

Open procurement

to be conducted

this fiscal year

Broad-based operation of balancing power indicated a possibility for higher efficiency in total. Regarding broad-based operation of balancing power, we will request general transmission and distribution utilities to evaluate the benefit and to study the method (what they can do in the short term and med-and-long term).

○ To study a method to lower the cost of supply-demand adjustment in an accelerated manner during the period before the supply-demand adjustment market is established.

For example, economical switching operation (30 minutes box type), which is conducted between general transmission and distribution utilities, was studied.

As soon as the study and preparation

are completed

37

Section 3 Regarding imbalance analysis

In March 2017 at the Working Group for Policy Study of Subcommittee for Basic Policy for Electricity and Gas

of the Agency for Natural Resources and Energy, the discussion on the review of the imbalance charge system was

started and issues such as the verification of predictability which is the premise of the current system and

incentives for achievement of same time and same volume by utilities were raised.

[Issues raised in the Working Group for Policy Study]

Issues (Review of imbalance charge system) Issues Outline

Verification of predictability which is the premise of the current system

In relation to facilitation of achievement of same time and same volume, the current imbalance charge system is designed aiming for a system without forecasting capability of utilities. However, it may have resulted in a system in which utilities still are able to have a certain level of forecasting capability because of the existence of static difference in values between districts (β value).

Incentives for achievement of same time and same volume by utilities

Because of the limited range of unit price variation (α value) based on supply-demand conditions, it may have resulted in the incentives for achievement of same time and same volume by utilities not working effectively under the current imbalance charge system. It may be necessary to review, as required, if utilities properly forecast the supply and demand to verify that their efforts to match the supply and demand are made in a manner with economic rationality.

Measures for arbitrage trade by intentional actions to create imbalance

Under the current imbalance charge system, a utility which has intentionally caused imbalance can be subject to a business improvement order by the government. On the other hand, however, it may be appropriate to reconsider the rule if there are substantial numbers of such causes that provoke those kinds of inappropriate activities.

Study of the charging system taking into consideration establishment of a real-time market

After the establishment of a real-time market, it will be able to be considered that the settlement of imbalance charges is done based on market prices of the real-time market. For the review of the current imbalance charge system under such circumstances, it may be important to study a system that will be required in the future so that the concept of a charging system as a whole can maintain consistency. * If there is any problem with the current system, however, tentative measures will need to be taken promptly.

38

Unit prices of imbalance after full liberalization of the electricity retail market in April 2016 are specified to be

calculated based on market prices with correction by two adjustment factors (α and β). In this way, analysis on

unit prices of imbalance in FY2016 was conducted in the Specialized Meeting for Policy Design in May 2017

based on the issues raised in the Working Group for Policy Study.

[1] Results of analysis of α

As a tendency in total, it was confirmed that the value of α varied as expected. Namely, α was larger than 1

if the country-wide imbalance was insufficient, and was less than 1 if the same was excessive. However,

there were multiple unexpected cases, namely, α smaller than 1 with insufficient country-wide imbalance

and α more than 1 with excessive country-wide imbalance. The main cause of such phenomena was

considered to be the max. /min. limit value of α.

[2] Results of analysis of β

As a result of checking the relationship between a unit price of imbalance in an area and the area price, the

relationship between the unit price of imbalance and the area price was substantially different and was

confirmed to be in a situation that could be forecasted to a certain extent. The main causes of such

phenomena were correction by β and price differences in market splitting.

The Specialized Meeting for Policy Design made a recommendation for a revised plan based on the result of such

analyses to change the setting of the max./min. limit value of α (increase of max. limit value and decrease of min.

limit value) and to unify the value of β to “0” for all areas (it shall be noted that, for some areas, this will not always

decrease forecasting capability to a satisfactory level). In this relation, taking such a recommendation also into

consideration, the Agency of Natural Resources and Energy changed the max./min. limit value of α from 20% to

3% and revised the imbalance charge to make the balance between an area price and a system price be the new β.

39

Section 4 Regarding activity regulation in association with legal separation

The 3rd Step Revision of Act, which prohibits general transmission and distribution utilities, etc. from performing

retail electricity business or electricity generation business as an additional operation (Legal Separation), and which

imposes activity regulations on general electric entrants regarding their operation of human relations and accounting,

etc., will be enforced on April 1, 2020 for electricity and in April 2022 for gas so that neutrality of transmission and

distribution business is further enhanced.

In relation to this, the Specialized Meeting for Policy Design has been studying the following issues regarding

activity regulations since March 2017, so that the regulations will enhance the neutrality of general transmission

and distribution utilities.

(Main issues of activity regulations)

(1) Rules on concurrent posts (director, etc.)

Allowable range of duties of directors, etc. as an exception, and others

(2) Rules on concurrent posts (persons engaged, etc.)

Range of persons engaged in important roles who are prohibited from concurrent posts

Range of persons who will be allowed to have concurrent posts as an exception, and others

(3) Rules on undertaking and outsourcing of work

Details of work that is allowed to be undertaken and outsourced by general transmission and

distribution utilities, etc. as an exception, and others

(4) Rules on transfer of profit between groups (ordinary trade conditions)

Concrete judgement criteria regarding “trade conditions which are different from ordinary conditions

and have risks for interference to appropriate competitive relationship”

Range of persons who have a special relationship with general transmission and distribution utilities

which are subject to the regulations, and others

(5) Rules on separation of name of company, trade mark, advertisement, building, system and others

Judgement criteria regarding names of company of which a visible outline allows identification that the

company is in charge of general electricity transmission and distribution

Obligation to establish own trade mark and necessity for certain transitional measures

Judgement criteria regarding prohibition on business performance and advertisement jointly conducted

by general transmission and distribution utilities and group companies

Establishment of framework for appropriate management of information, and others

(6) Others

Rules on design of organizations

Others

40

Section 5 Regarding sharing style of maintenance and operation cost of power transmission and distribution aimed

for efficiency improvement

Regarding the sharing style of maintenance and operation cost of power transmission and distribution aimed for

efficiency improvement, the Specialized Meeting for Policy Design has been working on the study along with

conducting interviews with related utilities, etc. since autumn of 2015 taking into consideration the changes of the

environment around the electricity market such as the progress of reform of electricity systems, from the

following viewpoints:

[1] Curb and reduction of maintenance and operation cost of transmission and distribution network

[2] To secure fairness

[3] Promotion of innovation

In the 9th Specialized Meeting for Policy Design in July 2016, the points of the issues were summarized based on

the discussions and studies that had taken place up to then. The points were generally divided into the following

three categories:

How sharing by electricity generation utilities should be carried out,

How sharing by electricity retailers should be carried out,

Enhancement of efficiency of network utilization

Because these points are deeply related each other, it has been decided that these should be studied further in an

integrated manner taking into consideration the opinions of parties concerned.

To deepen the study of the above issues, the Working Group for the Cost sharing system for Power Transmission

and Distribution (Group leader: Dr. Akihiko Yokoyama, Professor, the University of Tokyo, Graduate School of

Frontier Sciences) was established in September 2016 under the Specialized Meeting for Policy Design. This

working group further studied such issues along with interviews with utilities.

In the 6th Working Group for the Cost sharing system for Power Transmission and Distribution in June 2017,

“Points of issues to be studied” were publicly presented. It was a summary of points of discussions in the working

group up to then and indicated future tasks to be studied.

41

Section 6 Regarding activation of wholesale electricity trade

In order to materialize a stable and low-cost supply of electricity through competition among electricity retailers,

which is the goal of the electricity system reform, the activation of the wholesale electricity market is indispensable

so electricity retailers can procure enough volume of electricity from the market as required for their supply of retail

electricity. For such a purpose, the Specialized Meeting for Policy Design has been discussing the efforts towards

the activation of the wholesale electricity market.

To put it concretely, the Specialized Meeting for Policy Design has been doing [1] improvement of voluntary efforts

by the general electric utilities; [2] study on measures to activate wholesale electricity market such as gross bidding;

[3] verification of intra-company and inter-company trade price for constant back-up and trade on negotiation basis;

and [4] analysis on impacts of nuclear power plant resumption and solar power generation on the wholesale

electricity market.

As for [1] “improvement of voluntary efforts by the general electric utilities”, they already made an arrangement

for the entirety of the excess electricity (other than the required stand-by electricity) to be supplied at prices on the

marginal cost basis as described in “Report of Special Committee for Electricity System Reform” (February 2013).

Under such circumstances, through interviews with the general electric utilities, the Specialized Meeting suggested

improvement, such as review of the estimation method of volume of electricity so that they can bid and review the

setting process of bidding prices. Thus the improvement of their voluntary efforts was further enhanced and the

improvement of liquidity of the wholesale electricity market was achieved. In addition, in view of the fact that the

general electric utilities currently have a contract on a negotiation basis for the electricity from power sources owned

by Electric Power Development Co., Ltd (hereinafter referred to as “J-Power”), the Specialized Meeting succeeded

in reviewing the contract by the general electric utilities and J-Power through analysis of the contract details and

through interviews, etc.

As for the next item [2] “measures to activate wholesale electricity market such as gross bidding”, taking into

consideration activation measures for the wholesale market in other countries, measures were taken to introduce

gross bidding, which is trade via JEPX on the premise of repurchase of necessary volume, for all or a part of in-

house trade of the general electric utility. The measures were aimed for improvement of liquidity of the wholesale

electricity market, nature of price indexes, transparency of in-house trade, and so on. As a result of the fact that the

Commission resolved issues such as a business tax imposed on the self-contracted portion of gross bidding, nine of

the general electric utilities expressed their intention to conduct gross bidding as their voluntary efforts in the 13th

Specialized Meeting for Policy Design (on November 13, 2016). It was confirmed that all nine utilities, which

expressed such intention, had conducted gross bidding as of the end of July 2017. From now on, issues such as the

evaluation method of gross bidding, impacts of such measures on the wholesale electricity market and so on are

scheduled to be studied in the Specialized Meeting for Policy Design.

As for [3] “verification of intra-company and inter-company trade price for constant back-up and trade on

negotiation basis”, verification was done for the cost of in-house trade of the general electric utilities, constant back-

up prices, power source procurement cost of new electric entrants and so on. The purpose of such verification was

to investigate based on data if the general electric utilities, which own a majority of the sources for electricity

generation, were conducting the trade with new electric entrants on conditions equivalent to those for their in-house

trade. In addition, data-based analysis and verification on the competitive environment, such as analyses on the

42

result of tenders of the general electric utilities and new electric entrants with regard to public tenders, have been

conducted so that competitive disparity between the general electric utilities and new electric entrants could be

analyzed.

Finally, as for [4] “analysis on impacts of nuclear power plant resumption and solar power generation on the

wholesale electricity market”, quantitative analyses have been conducted since April 2017 to examine how the

electricity from such sources would influence the liquidity improvement and prices of the wholesale electricity

market, taking into consideration the changes of the market environment such as the supply of FIT (Feed In Tariff)

electricity to JEPX, resumption of nuclear power plants, and so on.

In addition to the above, studies and review were conducted on the proposal for improvement of the publication

system of information on power generation established in JEPX, measures for activation of a wholesale electricity

market in the Okinawa region, etc. through interviews with the general electric utilities and new electric entrants.

43

Section 7 Regarding report on voluntary efforts and monitoring

In the Commission, quarterly monitoring of the electricity market is conducted for fixed point analyses and

verifications of voluntary efforts by the general electric utilities and competitive conditions in the electricity market.

By the time of the 19th Specialized Meeting for Policy Design, the monitoring report has been prepared and

published ten times in total including the report presented in the Working Group for Policy Design. The monitoring

of electricity market will be conducted continuously in the future as well.

[Major indexes in the report for January to March 2017]

[Implementation status of monitoring report]

The 1st Working Group for Policy Design (August 2, 2013)

The 6th Working Group for Policy Design (June 23, 2014)

The 13th Working Group for Policy Design (June 25, 2015)

The 4th Specialized Meeting for Policy Design (January 22, 2016)

The 8th Specialized Meeting for Policy Design (June 17, 2016)

The 11th Specialized Meeting for Policy Design (September 27, 2016)

The 14th Specialized Meeting for Policy Design (December 19, 2016)

The 16th Specialized Meeting for Policy Design (March 31, 2017)

The 19th Specialized Meeting for Policy Design (June 27, 2017)

The 22nd Specialized Meeting for Policy Design (September 29, 2017)

Details of report of this time For reference

From January to March 2017The same period of the previous

year (January to March 2016)

FY2016(April 2016 to March 2017)

FY2015(April 2015 to March 2016)

Who

lesa

le e

lect

ricity

exc

hang

e

Spot

mar

ket

Tend

er

Comparison of selling bid volume with the same period of the previous year

1.2 times 1.1 times 1.1 times 1.1 times

Comparison of buying bid volume with the same period of the previous year


Con

trac

t

Contracted volume 7 billion kWh 4.2 billion kWh 23 billion kWh 15.4 billion kWh

Comparison of contracted volume with the same period of the previous year


Average contract price (system price) ¥10.21/kWh ¥7.98/kWh ¥8.46/kWh ¥9.78/kWh

Occurrence rate of market splitting between the east and west market

40.1% 87.5% 56.8% 67.9%

Hour

-ahe

ad

mar

ket *

1

Con

trac

t Contracted volume 0.68 billion kWh ― 1.66 billion kWh ―

Average contract price ¥10.09/kWh ― ¥8.76/kWh ―

Share in electricity sold 3.4％ 2.0％ 2.9％ 2.0%

Reta

il el

ectr

icity

m

arke

t (fo

r re

fere

nce)

*2

Elec

trici

ty

sold

229.8 billion kWh 228.3 billion kWh 847.3 billion kWh 841.5 billion kWh

New electricity utility 20.1 billion kWh 12.4 billion kWh 66.2 billion kWh 43.6 billion kWh

*1 Since April 2016, the market for the hour-ahead market has been changed to a market dealing 1-hour-ahead market (continuous trading session system) from a 4-hours-ahead market (single price auction system). Because of such a difference, the value of the same period of the previous year is not mentioned in the table. The contracted volume and contracted price in the 4-hours-ahead market were, respectively, 0.27 billion kWh and ¥7.39/kWh for January to March 2016 and 1.31 billion kWh and ¥9.55/kWh for FY2015.

*2 Source: Survey of the Electric Power Statistics and Electricity Trading Report

44

Section 8 Revision of Guidelines on Electricity Retail Business

Based on an assumption that various utilities would enter into the market taking advantage of full liberalization of

the electricity retail market in April 2016, guidelines for the related utilities’ compliance with the Electricity

Business Act, etc. were established. New guideline (“Guideline of Electricity Retail Business”) were established in

January 2016 for the protection of electricity consumers. In July of the same year, the Commission submitted a

proposal for revision of the guidelines and the Minister of Economy, Trade and Industry revised the guidelines in

response to the proposal. One of such revision was an addition of “Desirable Practice” that electricity retailers’

comprehensible announcement on their website, etc. about their business collaboration partners such as mediators,

agents and brokers was additionally classified as “Desirable Practices”.

In anticipation of the start of the trading in the “Non-fossil Value Trading Market”, where value of electricity itself

and environmental value (non-fossil value) will be separated and environmental value alone will be traded, a

revision was made ,in June 2017, to clearly mention that such appeals as mentioned below will not be considered

as problematic as far as such appeals are accompanied by a clear description of actual power source composition, etc.

so that such appeals will not mislead consumers to overlook the difference between the actual composition and the

composition based on which the electricity is retailed. The examples of such appeals are as follows:

[1] An appeal by an electricity retailer that purchased a Non-fossil Certificate for renewable energy stating that

“they virtually achieved ●●% of procured electricity generated from renewable energy by means of the purchase

of a Non-fossil Certificate for renewable energy”, and/or

[2] An appeal by an electricity retailer that purchased a Non-fossil Certificate for renewable energy stating that

“they virtually achieved ●●% of procured electricity generated from power source that emits no carbon dioxide

(so-called “zero-CO2-emission power source”) by means of the purchase of a Non-fossil Certificate for renewable

energy”.

[Method for disclosure of power source composition (example of a statement)

Power source composition of our company (actual record of generated and procured volume of electricity (kWh) from

April 1, 2015 to March 31, 2016) Hydro (30MW or larger) Coal-fired thermal LNG-fired thermal Oil-fired thermal Nuclear FIT electricity (wind power) [*1] FIT electricity (Solar energy) [*1] Solar energy Wholesale electricity exchange [*2] Others

Characteristics of FIT electricity shall be mentioned

(*1) A part of the purchase cost, with which we purchased this electricity, is covered by the surcharge paid by all electricity consumers including those other than our customers, and, as for the volume of CO2 emission, this electricity is regarded as electricity with CO2 emission equivalent to an average of all electricity throughout the country including thermal power plants, etc.

(*2) This electricity includes electricity generated by hydro, thermal and nuclear power plants, FIT electricity, electricity from renewable energy, and so on.

Characteristics of electricity procured at JEPX shall be mentioned.

(*3) Types of electricity procured from other utilities are sorted out in the following manner: [1] Electricity supplied from unspecified power plants of ○○Electric Power Company, Inc. as wholesale electricity (constant back-up) is

sorted out based on the power source composition of the said utility of FY2014 (the figures will be updated as soon as the power source composition of FY2015 is announced).

[2] Any part of the electricity that is procured from other utilities by an unknown power generation plant is classified into “others”. Concept for sorting of power source composition for electricity procured from other utilities shall be mentioned.

(*4) CO2 emission factor of us (emission factor after adjustment) for FY○ is ○○ (Unit: ○kg-CO2/kWh). We virtually achieved ●●% of procured electricity generated from renewable energy by means of the purchase of the Non-fossil Certificate of designated renewable energy.

CO2 emission factor (emission factor after adjustment) shall be mentioned together with power source composition. In addition, a certain appeal based on the Non-fossil Certificate may be mentioned.

45

Chapter 3 Efforts, etc. toward full liberalization of the gas retail market

Section 1 Qualification screening for registration of gas retailer

As a procedure for the registration of gas retailers, the Agency for Natural Resources and Energy evaluates the

performance from the viewpoint of potentiality to secure supply capacity necessary to meet the maximum demand

and the Commission examines if the retailer falls under the category of “person who is found to be unsuitable for

the protection of the interests of gas users”.

[Flow chart of procedure for registration and viewpoints for registration examination]

Prior to full liberalization of the gas retail market, acceptance of an application for gas retailer registration started

in August 2016, and the examination of applications has been conducted in sequence. 49 applications for gas

retailer registration were received and 49 applicants have been registered as a result of examination by August 31,

2017.

Section 2 Designation of utilities on which transitional regulated tariff is imposed

In association with full liberalization of the gas retail market in April 2017, regulated tariff of retail gas will be, in

principal, abolished. However, if the competitive conditions with LP gas, all electrification and the like are still

considered insufficient, regulated tariff is scheduled to be applied as transitional measures to protect consumers’

interests. Among gas utilities, 12 general gas utilities have been designated as utilities on which the transitional

regulated tariff is imposed, based on the designation criteria decided by the Gas Systems Reform Subcommittee

established under the Strategic Policy Committee of Advisory Committee for Natural Resources and Energy. As

for community gas utilities, 1,730 housing complexes have been designated out of 7,432 complexes throughout

the country.

[1] To submit an application for registration to the Minister of Economy, Trade and Industry

[2] Examination by the Minister of Economy, Trade and Industry

[3] Registration and notification by the Minister of Economy, Trade and Industry

* Standard processing period is one month

Viewpoints of examination [1] Does the applicant have potentiality to secure supply

capacity necessary to meet the maximum demand and to perform gas retail business appropriately and securely?

[2] Is a framework likely to be established to handle complaints and questions from the recipient of the gas retail service?

<Flow chart of procedure for registration>

[2] Examination by the Electricity and Gas Market Surveillance Commission

46

Section 3 Examination of the Wheeling Service provisions

Towards full liberalization of the gas retail market, at the end of July 2016, 127 general gas utilities including

three leading gas utilities, namely Tokyo Gas Co., Ltd., Toho Gas Co., Ltd and Osaka Gas Co., Ltd., applied for

approval for the Wheeling Service provisions which contain new transportation service rates including those for

small volume. (Among 203 general gas utilities, 127 utilities shall establish the Wheeling Service provisions.

Such 127 utilities have a certain level of company size and have a pipeline connection to pipelines of the others.)

Based on this, the Minister of Economy, Trade and Industry (and Director-General of each Bureau of Economy,

Trade and Industry who handles applications from the region that the Bureau is in charge of) requested the

Commission for comments on August 1 of the year.

In response to such a request for opinion by the Minister of Economy, Trade and Industry, the Commission

decided to proceed with the examination of the Wheeling Service provisions based on the following policies:

For the approval for the Wheeling Service provisions of three leading utilities (Tokyo Gas Co., Ltd., Toho Gas co.,

Ltd. and Osaka Gas Co., Ltd.), the Specialized Meeting for Fee Examination (Chairman (at that time): Mr. Junji

Annen, Professor, Law School of Chuo University) established under the Commission was assigned to evaluate

applications from neutral, objective and professional points of view.

As for seven 2nd tier companies, namely, Hokkaido Gas Co., Ltd., Sendai City Gas Bureau, Keiyo Gas Co., Ltd.,

Hokuriku Gas Co., Ltd., Shizuoka Gas Co., Ltd., Hiroshima Gas Co., Ltd. and Saibugas Co., Ltd., either the

Executive Bureau of the Commission or each Bureau of Economy, Trade and Industry was assigned to evaluate

applications by taking into consideration comments on each individual case from the Specialized Meeting for Fee

Examination and by reflecting the examination status in the Specialized Meeting for Fee Examination.

[Approval process for transportation service rates]

ガスの託送料金については、電気事業法等の一部を改正する等の法律（平成２７年法律第４７号）附則第１８条第１項に基づき、ガス会社が認可申請を提出。経済産業大臣は、電力・ガス取引監視等委員会の意見を聴いた上で、認可を行った。

ガス会社

電力・ガス取引監視等委員会

経済産業大臣

申請

受理認可

約款の公表適用

（平成２９年４月～）

意見聴取

審査意見

（７月末）

（８月１日）

（８月～１２月）※料金審査専門会合にて審査

（１２月７日）

（１２月２６日）

As for transportation service rate of gas, gas utilities applied for an approval in accordance with Article 18, Paragraph 1 of Supplementary Provision of the Act on the Partial Revision of the Electricity Business Act, etc. which came into effect in 2015 (Act No. 47of 2015). The Minister of Economy, Trade and Industry made a decision on approval taking into consideration comments from the Electricity and Gas Market Surveillance Commission.

Gas company

The Minister of Economy, Trade and Industry

Electricity and Gas Market Surveillance

Commission

Application

Receipt Consultation

Examination

The end of July

August 1

Publication of provisions

Approval

Comments (December 7)

(December 26)

(from April 2017 onward) Become operative

(August to December) * Assessment by the Specialized Meeting for Rate Assessment

47

For 117 other general gas utilities, the Executive Bureau of the Commission or each Bureau of Economy, Trade

and Industry was assigned to evaluate applications by reflecting the examination status in the Specialized Meeting

for Fee Examination.

The Specialized Meeting for Fee Examination was held eight times in total during the 5-month period from

August of the same year and compiled the “Draft of Examination Policy” on December 1 of the same year after

strict examination of the details of the application from three leading utilities, Tokyo Gas Co., Ltd, Toho Gas Co.,

Ltd. and Osaka Gas Co., Ltd.

On December 7 of the same year, the Commission examined the Draft of the Examination Policy and formulated

the Examination Policy for utilities under the control of the Headquarters of the Ministry as per “Main Points of

Examination Policy on Application for Approval for the Wheeling Service provisions” of the next page, and

submitted the same to the Minister of Economy, Trade and Industry as the Commission’s comments on the same

day.

Based on the comments therein, the Minister of Economy, Trade and Industry instructed utilities to submit an

amendment of application and approved the Wheeling Service provisions on December 26 of the same year.

Also for utilities under the control of Bureaus of Economy, Trade and Industry, the Commission submitted its

comments (examination policy) to the Director-General of each Bureau of the Minister of Economy, Trade and

Industry by December 9 of the same year. Based on the comments, the Director-General of each Bureau of

Economy, Trade and Industry instructed utilities to submit an amendment of application and approved the

Wheeling Service provisions by December 28 of the same year.

Thereafter, utilities promptly published their new Wheeling Service provisions that were approved as above and

made necessary preparations towards the operation of the new system, then the Wheeling Service provisions were

put into force from April 1, 2017.

48

[Main points of examination results of application for approval for the Wheeling Service provisions]

Regarding the assessment of application for approval for transportation service provisions• “Specialized Meeting for Rates Assessment” of the Electricity and Gas Market Surveillance

Commission assesses an application for approval from a gas utility from neutral, objective and professional viewpoints if it is structured for the maximization of management efficiency in the context of applicable laws and regulations and assessment standards.

• The Electricity and Gas Market Surveillance Commission reviewed the Draft of Assessment Policy compiled by the Specialized Meeting for Rates Assessment and formulated the Assessment Policy on December 7 in the 61st Electricity and Gas Market Surveillance Commission.

(Chairman) (Titles omitted)Junji Annen, Professor, Law School of Chuo UniversityMasanori Maruo, Managing Director, SMBC Nikko Securities, Inc.Emiko Minowa, Certified Public Accountant, Partner, Deloitte, Touche Tohmatsu LLCReiko Akiike, Senior Partner and Managing Director, The Boston Consulting GroupToru Kajikawa, Representative Partner, Chairman, Grant Thornton Taiyo LLCKikuko Tatsumi, Executive Advisor, Nippon Association of Consumer SpecialistsToshihiro Matsumura, Professor, Institute of Social Science, The University of TokyoKenichi Minami, Partner, Attorney-at-law, Nishimura & AsahiHirotaka Yamauchi, Professor, Graduate School of Commerce and Management, Hitotsubashi University

Members of the Specialized Meeting for Rates Assessment

History of assessment

The end of July, 2016 Gas utilities’ application for approval for transportation service rates

August 1 Opinion hearing held by the Minister of Economy, Trade and Industry with the Electricity and Gas Market Surveillance Commission

<Assessment by the Specialized Meeting for Rates Assessment>The 14th (August 9) Presentation of outline (Tokyo, Toho and Osaka)The 15th (August 25) Premise plan, Management efficiency improvement,

Charge of tax and dues, Non-operating expense, Deductions

The 16th (September 13) Supply-demand adjustment cost, Demand survey and development cost, Bio-gas procurement cost

The 17th (September 29) Capital investment-related expense, Repair cost, Cost of settlement between utilities and Revenue

Cost of transportation service rate proposed by utilities (3 years average) (unit: 100 million yen)

The 18th (October 12) Supply-demand adjustment cost, Demand development cost, Cost of network subject to comparative assessment

The 19th (October 26) Cost allocation and rate make, Issues to be discussed further [1]

The 20th (November 10) Issues to be discussed further [2]The 21st (December 1) Review of assessment policyDecember 1 Summarization of assessment policy in the

Specialized Meeting for Rates AssessmentDecember 7 Formulation of assessment policy in the 61st Electricity

and Gas Market Surveillance Commission

937 1,057 121 5 9 4 1.0 1.3 0.3 272 278 6 983 912 ▲ 71 6 7 1 15 13 ▲ 2 149 118 ▲ 31

- 30 30 - - - - - - - 6 6 - 17 17 - 0.5 0.5 - - - - 9 9

291 321 30 4 3 ▲ 1 1 0.4 ▲ 1 89 77 ▲ 13 269 256 ▲ 13 0.5 0.4 ▲ 0.1 1.3 1.2 ▲ 0.1 18 17 ▲ 1

264 267 2 2.1 2.3 0.2 0.4 0.5 0.2 58 55 ▲ 3 161 156 ▲ 5 1.7 1.4 ▲ 0.3 4 3 ▲ 1 25 18 ▲ 6

170 186 16 1.8 2.5 0.6 0.4 0.3 ▲ 0.2 39 30 ▲ 9 72 82 9 0.6 0.6 ▲ 0.1 2 3 1 11 5 ▲ 6

915 919 4 20 21 1 4 3 ▲ 1 262 252 ▲ 10 434 399 ▲ 36 11 11 ▲ 0.2 28 21 ▲ 6 74 78 5

- 0.3 0.3 - - - - - - - 0.1 0.1 - 0.6 0.6 - - - - - - - - -

- 68 68 - 1 1 - 0.1 0.1 - 20 20 - 30 30 - - - - - - - - -

- - - - 34 34 - - - - - - - 15 15 - - - - 10 10 - - -

26 28 2 0.7 0.2 ▲ 0.4 - 0.01 0.01 0.5 0.4 ▲ 0.2 0.8 0.8 0.1 - - - - - - 0.6 0.1 ▲ 0.4

63 60 ▲ 3 1.2 1.3 0.1 0.02 0.1 0.1 12 13 1 52 59 7 0.09 0.12 0.03 0.1 0.3 0.2 8 8 ▲ 0.1

142 139 ▲ 3 2.7 3.1 0.4 0.5 0.3 ▲ 0.2 40 37 ▲ 3 70 68 ▲ 2 2 2 ▲ 1 5 3 ▲ 2 19 17 ▲ 3

▲ 46 ▲ 115 ▲ 70 ▲ 3.8 ▲ 4.1 ▲ 0.3 ▲ 2 ▲ 0.1 2 ▲ 15 ▲ 23 ▲ 8 ▲ 23 ▲ 33 ▲ 10 ▲ 0.1 ▲ 0.1 0.04 ▲ 0.1 ▲ 0.3 ▲ 0.1 ▲ 3 ▲ 6 ▲ 2

2,761 2,959 198 34 73 39 5 6 0.3 758 745 ▲ 13 2,018 1,961 ▲ 57 22 23 0.1 55 55 ▲ 0.5 300 265 ▲ 35

Tokyo Gas Co., Ltd. (Tokyo district, etc.)

Tokyo Gas Co., Ltd. (Gunma district and others)

Tokyo Gas Co., Ltd. (Yotsukaido 12A district) Toho Gas Co., Ltd. Osaka Gas Co., Ltd Tobu Gas Co., Ltd.

(Akita Branch district)

Tobu Gas Co., Ltd. (Fukushima/Ibaraki/Ibaraki-Minami Branch

district)Saibugas Co., Ltd.

Previous revision A

Revision of this time B

Balance (B – A)

Previous revision A


Balance (B – A)

Previous revision A


Balance (B – A)

Previous revision A


Balance (B – A)

Previous revision A


Balance (B – A)

Previous revision A


Balance (B – A)

Previous revision A


Balance (B – A)

Previous revision A


Balance (B – A)

Cost of network subject to comparative assessment

Supply-demand adjustment cost

Repair cost

Taxes and dues

Fixed asset retirement cost

Depreciation cost

Bio-gas procurement cost

Demand survey and development cost

Cost of settlement between utilities

Non-operating expense

Corporate tax, etc.

Business reward (Rate-based, business reward rate)

Deductions (Business miscellaneous income, miscellaneous income, income from settlement between utilities)

NW Total cost

Transportation service rate (unit rate) based on the assessment policy (per m3) (Note) Figures in parentheses are different from the figures in the application.

[Tokyo Gas Co., Ltd.] (Tokyo district, etc.) The rate was reduced to approximately ¥20.64 (▲¥1.25) due to cost reduction of approximately ¥8.2 billion. (Gunma district and others) The rate was reduced to approximately ¥34.37 (▲¥1.53) due to cost reduction of approximately ¥0.3 billion. (Yotsukaido 12A district) The rate was reduced to approximately ¥74.82 (▲¥1.80) due to cost reduction of approximately ¥0.01 billion.

[Toho Gas Co., Ltd.] The rate was reduced to approximately ¥19.15 (▲¥0.64) due to cost reduction of approximately ¥1.9 billion.[Osaka Gas Co., Ltd.] The rate was reduced to approximately ¥21.81 (▲¥0.35) due to cost reduction of approximately ¥3.1 billion.[Tobu Gas Co., Ltd.] (Akita district) The rate was changed to approximately ¥50.23 (¥3.10) due to cost reflection of approximately ¥0.1 billion. (Fukushima and Ibaraki districts) The rate was changed to approximately ¥25.81

(¥0.70) due to cost reflection of approximately ¥0.2 billion.[Saibugas Co., Ltd] The rate was reduced to approximately ¥30.33 (▲¥0.61) due to cost reduction of approximately ¥0.5 billion.

Premises plan (Assumed demand) [Added volume: 422 million m3 to 13.7 billion m3 for Tokyo, 25 million m3 to 3.8 billion m3 for Toho, 1 million m3 to 8.8 billion m3 for Osaka, 1 million m3 to 0.9 billion m3 for Saibu]For Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd., decrease of demand due to easing of regulations on a double pipeline which was considered to be excessive was not acceptable. For Osaka Gas Co., Ltd., decreases of demand due to change of residence or switching to other fuel which was considered to be excessive was not acceptable.

Improvement of management efficiency [Additional reduction: ▲¥1800 million to ▲¥11 billion for Tokyo, ▲¥300 million to ▲¥1.7 billion for Toho, ▲¥800 million to ▲¥2.3 billion for Osaka, ▲¥30 million for Tobu, ▲¥60 million for Saibu] (amount included in repair cost and capital investment-related expenses, etc.)A management efficiency improvement rate of 11%, which was considered to be achievable, was demanded from the leading utilities. As for Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd., a portion of efficiency improvement which was considered to be excessive was not acceptable, because some part of their improvement efforts and calculation methods in the past were not reflecting the actual situation.

Cost of network subject to comparative assessment [Cost-cut amount: ▲¥230 million from ¥106.7 billion for Tokyo, ▲¥150 million from ¥27.8 billion for Toho, ▲¥230 million from ¥91.2 billion for Osaka, ▲¥80 million from ¥11.8 billion for Saibu]Based on the realization ratio of pipeline extension (balance between newly built pipes and abolished ones) according to the supply plan of the past, the portion which was considered to be excessive was deducted.

Supply-demand adjustment cost [Cost-cut amount: ▲¥700 million from ¥3 billion for Tokyo, ▲¥40 million from ¥0.6 billion for Toho, ▲¥300 million from ¥1.7 billion for Osaka, ▲¥200 million from ¥0.9 billion for Saibu]Out of the capacity of manufacturing facilities secured for supply-demand adjustment, portions which were considered to be excessive were deducted.

Repair Cost [Cost-cut amount: ▲¥300 million from ¥32.4 billion for Tokyo, ▲¥60 million from ¥7.7 billion for Toho, ▲¥200 million from ¥25.6 billion for Osaka, ▲¥10 million from ¥0.2 billion for Tobu, ▲¥10 million from ¥1.7 billion for Saibu]Out of ordinary repair cost, a portion which was considered to be excessive was deducted. Regarding Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd., the number of gas meters to be replaced was considered excessive. Therefore, the corresponding portion of repair cost was deducted.

Capital investment-related expense [Cost-cut amount: ▲¥2700 million from ¥127.4 billion for Tokyo, ▲¥300 million from ¥31.9 billion for Toho, ▲¥800 million from ¥54.8 billion for Osaka, ▲¥70 million from ¥4 billion for Tobu, ▲¥100 millionfrom ¥10 billion for Saibu]Some of the existing facilities (such as sites for pressure regulators) which were redundant or not in operation and some of newly planned facilities of which the construction plan was not fully reasonable were removed from the rate base. The correspondingdepreciation and business reward were also deducted.(Investment for aging of facility)Regarding Tokyo Gas Co., Ltd., the applied quantity of gray cast iron pipe and valve driving device, etc. were considered to be excessive. Therefore the corresponding portion was deducted. Costs for main valves and corrosion protection equipment of which the unit price mentioned in the application was too high were deducted.

Charge of tax and dues, non-operating expense, exclusions [Cost-cut amount: ▲¥500 million from ¥30.7 billion for Tokyo, ▲¥60 million from ¥5.8 billion for Toho, ▲¥200 million from ¥19.5 billion for Osaka, ▲¥10 million from ¥0.5 billion for Tobu, ▲¥100 million from ¥2.5 billion for Saibu] (excluding settlement between utilities)Regarding Osaka Gas Co., Ltd., the real estate acquisition tax which was based on the record of the past 3 years was reduced to the amount based on the most recent record. For Tokyo Gas co., Ltd., items to be recorded as exclusion items were added.

Bio gas procurement cost [Cost-cut amount: ▲¥5 million from ¥30 million for Tokyo, ▲¥1 million from ¥10 million for Toho, ▲¥11 million from ¥60 million for Osaka]The portion exceeding 80% of excess bio gas generated in the supply area was deducted.

Demand survey and development cost [Cost-cut amount: ▲¥4.3 billion from ¥6.9 billion for Tokyo, ▲¥1.3 billion from ¥2 billion for Toho, ▲¥0.7 billion from ¥3 billion for Osaka]Regarding demand survey cost of Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd., the portions for their own supply area and the portions of which the amount was considered to be excessive were deducted. Out of the demand development cost, the portion for areas where pipeline facilities had been provided to a substantial extent was deducted. Regarding the cost for development of demand over 100,000 m3, the payment amount for some of them were considered to be excessive, so a portion was deducted.

Cost of settlement between utilities [¥100 million added to ¥3.4 billion for Tokyo, ▲¥700 million deducted from ¥1.5 billion for Osaka, ¥400 million added to ¥1 billion for Tobu]The above adjustment reflects the updated costs requirement based on unit prices on the table of rates for settlement between utilities submitted by upstream specified gas pipeline utilities by the end of October 2016.

Revenue from settlement between utilities [Tokyo: ▲¥100 million added to ▲¥6.8 billion]Revenue from trade which was not expected at the time of application was added for Tokyo Gas Co., Ltd.

Cost allocation and rate makeIt has been confirmed that appropriate charging/attribution/allocation was done by using appropriate criteria. For Tokyo Gas Co., Ltd., the unit rate of base rate, etc. were changed so that the proportion of transportation service charge to retail charge would be 50% or more in case of gas consumption volume of “0 m3”. For Tokyo Gas Co., Ltd., discounted rate on the premise condition of the use of co-generation system was not acceptable.

Regarding assessment policy of application for approval for transportation service provisions

Assessment policy (main points)* Amounts mentioned are the amounts applied for by each utility (3 years average) and cost-cut amount (or reflected amount) resulted from assessment by the Electricity and

Gas Market Surveillance Commission (rounded off to the nearest 100 million yen).* Amounts of Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd. are the total amounts of each district.

*1 Unit rates of Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd. were influenced proportionally by the review of the demand forecast.*2 Because of an additional cost, etc. for system change, some costs are increased compared with those mentioned in the application.

49

Chapter 4 Strict and fair surveillance, etc. to ensure proper trade in the gas market

Section 1 Assessment of competitive situation in the gas market

(1) Record of switching to new entrants

According to the Gas Trading Report of August 2017, in the city gas market which has been newly liberalized by

the full liberalization of the gas retail market, the percentage of consumers who have switched their contract to

newly registered gas retailers (hereinafter referred to as “New Gas Retailer”) has reached approximately 1.2%, on

a whole Japan basis.

[Record of switching to New Gas Retailers in the city gas (for household) market (as of August 2017)]

Numbers of switching (cases) Rate (%)

Hokkaido 0 0.0%

Tohoku 0 0.0%

Kanto 45,398 0.3%

Chubu & Hokuriku 42,698 1.8%

Kinki 180,591 2.9%

Chugoku & Shikoku 0 0.0%

Kyushu & Okinawa 27,300 1.9%

Throughout the country 295,987 1.2% (Source) Gas Trading Report of Electricity and Gas Market Surveillance Commission (record as of August 2017)

After the full liberalization, the share of New Gas Retailers has been increasing not only for household but also for

industry and commercial consumers, and the share in terms of gas volume sold has reached 11.5% of the total city

gas market in August 2017.

50

[Market share of New Gas Retailers in the city gas market (in terms of gas volume sold)

(record as of August 2017)]

(Source) Gas Trading Report of Electricity and Gas Market Surveillance Commission (record as of August 2017)

* Share of New Gas Retailers for household includes the share of cross-border deemed gas retailers (i.e. gas

general utilities and community gas utilities), and that for consumer types other than household does not

include the same.

Shar

e of

New

Gas

Ret

aile

rs in

tota

l gas

vol

ume

sold

April 2017 May 2017 June 2017 July 2017 August 2017

For household

For commercial use

For industry use Total

51

(2) Status of new entry (including cross-border entries)

There are 17 areas where new entry (including cross-border entry) has been active, and many of them are in the

Kanto region.

[Areas where new entry (including cross-border entry) has been active (for household)

(record as of August 2017)] Territory in

charge Entered area Major municipalities in the area Newly entered utilities

Kanto

1 Tokyo Gas Co., Ltd. (Tokyo district, etc.) 23 Wards in Tokyo

Nippon Gas Co., Ltd., Tosai Gas Inc., Kawahara Jitsugyo Co., Ltd., Shinnihon Gas Co., Ltd., Higashinihonn Gas Corporation, Lemon Gas Co., Ltd., TEPCO EP

2 Washinomiya Gas Co., Ltd. Kazo city, Kuki city Nippon Gas Co., Ltd., Tosai Gas Inc., Shinnihon Gas

Co., Ltd. 3 Tochigi Gas Co., Ltd. Tochigi city Nippon Gas Co., Ltd., Kitanihonn Gas Co., Ltd.

4 Tobu Gas Co., Ltd (Ibaraki and Ibaraki-Minami district)

Mito city, Tsuchiura city

Nippon Gas Co., Ltd., Higashinihonn Gas Corporation

5 Noda Gas Co., Ltd. Noda city, Nagareyama city

Nippon Gas Co., Ltd., Higashinihonn Gas Corporation

6 Bushu Gas Co., Ltd. Kawagoe city, Tokorozawa city, etc. Nippon Gas Co., Ltd.

7 Tatebayashi Gas Co., Ltd. Tatebayashi city Nippon Gas Co., Ltd.

8 Hatano Gas Inc Hatano city, Hiratsuka city, etc. Nippon Gas Co., Ltd.

9 Atsugi Gas Corporation Atsugi city, Hiratsuka city, etc. Nippon Gas Co., Ltd.

10 Buyo Gas Co., Ltd. Fussa city, Hamura city, etc. Nippon Gas Co., Ltd.

11 Daito Gas Inc. Kawaguchi city, Tokorozawa city, etc. Nippon Gas Co., Ltd.

12 Akishima Gas Co., Ltd. Akishima city, Tachikawa city, etc. Nippon Gas Co., Ltd.

13 Kakuei Gas co., Ltd. (Sakura district) Sakura city Nippon Gas Co., Ltd.

14 Tosai Gas Inc. Saitama city, Kazo city, etc. Tokyo Gas Co., Ltd.

Chubu 15 Toho Gas Co., Ltd. Nagoya city, etc. Chubu Electric Power Co., Inc. Kinki 16 Osaka Gas Co., Ltd. Osaka city, etc. Kansai Electric Power Co., Inc.

Kyushu 17 Saibugas Co., Ltd. Fukuoka city, Kitakyushu city, etc. Kyushu Electric Power Co., Inc.


* Utilities listed in the column of “Newly entered utilities” are those which have record of acquiring

consumers in the corresponding area as of August 2017.

52

The numbers of areas in which new entry (including cross-border entry) has been active account for

approximately 10% of the entire area numbers. On the other hand, however, it accounts for 76% in terms of the

gas volume sold.

[Status of new entry (for household) by supply area]


* Entered area means a supply area where a new utility exists as of the end of August 2017.

Proportion of numbers of supply area (existence or

non-existence of new entry) (August 2017)

Proportion of city gas volume sold sorted by supply area (existence or

non-existence of new entry) (August 2017)

Entered areas – 17

Entered areas –

76%, 260 million m3

Areas with no new entrant – 201

Areas with no new

entrant – 24%, 80

million m3

53

Section 2 Administrative guidance, etc. for gas retailers

A new entry to gas retail business was fully liberalized in April 2017. Since then, all consumers including

households have the liberty to choose any gas utilities or rate plans they like. Under such circumstances,

surveillance, etc. on business activities of gas utilities were conducted in accordance with “Guidelines on Gas

Retail Business” to facilitate the appropriate trade of gas retail supply. Such surveillance includes but is not

limited to giving administrative guidance to utilities that have conducted practices that may be problematic in the

light of the Gas Business Act with regard to provision of information to consumers and forms/contents, etc. of

contracts. Regarding inappropriate business activities, etc. notified to the Commission’s consultation desk, etc., in

addition to factual investigation and administrative guidance, press releases were organized three times during

December 2016 to August 2017 in collaboration with the National Consumer Affairs Center of Japan to present

examples of such consultation and advice.

(For reference) Implementation status of press release

The 1st on December 15, 2016 Re: Conclusion of Partnership Agreement with National Consumer

Affairs Center of Japan

The 2nd on March 30, 2017 Re: Details of consultation up to February 2017

The 3rd on April 28, 2017 Re: Details of consultation up to April 2017

[Status of Consultation from Consumers]

Examples of consultation I was given an explanation that the name of the gas utility with which I had a

contract would be changed, and accepted the explanation. However, the document I received at a later date mentioned a name of a company, etc. different from the company with which I had a contract, and the description on the documents stated that I had accepted a completely new contract.

I was given the explanation “this area has become a territory that our company is in charge of”, and I made a contract with that utility for gas supply, because I misunderstood that I had no choice but to change the contract. At a later date, I found that the explanation was not true.

One utility called me under the name of a gas utility with which I had a contract and used the words “our valued customer”. I thought the call was to offer a new rate plan associated with the liberalization of the gas market, and I gave my personal information such as “customer number” in response to their questions. At the end of the conversation, however, they told me that the contract would be made with another utility, so I was surprised and rejected them sending a contract document to me. I am feeling uneasy about the possibility for the abuse of my personal information.

Trend of number of cases of consultation with the National Consumer Affairs Center of Japan and Consumer Center

regarding Liberalization of Gas Market

Trend of number of cases of consultation received by the Consultation Desk of the Electricity and Gas Market Surveillance Commission

regarding Liberalization of Gas Market

* Data registered by April 14, 2017


⇒ It has been reported that there were cases where city gas utilities were doing business using false information. Neither case has been confirmed concerning the fact that any existing city gas utility changed its name nor any supply territory was transferred from one city gas utility to the other.

⇒ “User Number (Customer number)” and “Identification number for supply point”, which are mentioned on meter reading slips are important information that can identify individuals. Please do not share such information easily, and, whenever you are asked for such information by anyone, verify the identity of the person and make a note of it.

case

April to June 2016

July to September

October to December

After January

2017 onward

November 2016

December January 2017 February March Apri

54

Section 3 Administrative guidance, etc. for general gas pipeline service providers

1. Issues on influence on consumer’s choice of gas retailer due to inadequate framework of operation, etc.

There was a case in the area “a” which was a part of the supply territory of general gas pipeline service provider

“A” around the end of March 2017 due to inadequacy of A’s operation framework, etc. The case caused confusion

to consumers living in the area about the choice of gas retailer.

Upon receipt of a report from the related gas retailer, the Commission looked into the facts and gave “A”

administrative guidance on improvement of operation framework and on careful support given to related gas

retailers.

As a result of investigation to check the occurrence of similar cases with the other general gas pipeline service

providers, the Commission found inadequacy, etc. of operation framework also in some of the utilities and gave

administrative guidance on improvement. In the meantime, no such influence on consumers has occurred yet

because there was no new gas retailer or business operation started yet in the territory of the said utilities.

2. An issue of inadequate handling of application for transportation service ①

Gas retailer “A” submitted multiple applications for transportation service to a general gas pipeline service

provider “B”, but B responded to A after assessment saying that the applications were “not acceptable”. Because A

was not convinced by the said response as well as the explanation provided by B, A consulted with the

Commission and requested for investigation to verify if the response by B was reasonable and appropriate.

As a result of investigation in response to A’s request, the Commission determined that the explanation made by B

was not considered to be a “justifiable reason” to reject providing transportation service, and gave administrative

guidance suggesting that B respond again taking into consideration the points suggested by the Commission.

3. An issue of inadequate handling of application for transportation service ②

Gas retailer “C” submitted an application for transportation service to a general gas pipeline service provider “D”,

and D responded to C after assessment saying that the application was “acceptable” subject to a certain premise

condition. Because C was not convinced by the said response as well as the explanation provided by D, C

consulted with the Commission and requested for investigation to verify if the response by D was reasonable and

appropriate.

As a result of investigation in response to C’s request, the Commission found some part of the explanation made

by D to be debatable in terms of reasonability, and suggested that point to D. Based on such a suggestion, D gave

an answer again to C, and C accepted the answer as reasonable. Then they agreed based on the new answer and

the issue was resolved.

55

Section 4 Audit

(1) Outline of audit

Audit was conducted on general gas utilities and gas pipeline service providers in accordance with provisions of

Article 45-2 of Gas Business Act before the revision. The total number of utilities and service providers audited

was 228.

Under the circumstances of full liberalization of the gas retail market from April 2017, the audit of FY2016

focused on the check of prohibited activities in gas business associated with transportation services, as was the

case with electricity business, and examined if there is any “practices that may be problematic” in the light of fair

and effective competition defined in “Guidelines for Proper Gas Trade” (revised on February 6, 2017, Japan Fair

Trade Commission, METI).

As a result of the audit conducted for FY2016, 65 items of audit findings were reported by the officials that

conducted the audit. The Commission examined the report and determined that there was neither an issue which

was subject to recommendation to general gas utilities, etc. based on Article 47-7 of Gas Business Act before the

revision nor an issue which was subject to recommendation to the Minister based on Article 47-8 of the same act.

However, the Commission gave oral administrative guidance on required matters to 23 utilities (on 26 items) and

written administrative guidance on required matters to nine utilities (on 39 items) so that voluntary improvement

of utilities can be facilitated for the future business operations.

[Breakdown of Administrative Guidance]

(unit: case)

Number of cases

(1) Audit on operational procedure, etc. of general provisions 13

(2) Audit on financial statement 11

(3) Audit on sectoral profit and loss 15

(4) Audit on profit and loss of transportation services 25

(5) Audit on prohibited activities associated with transportation services 0

(6) Audit on other necessary items 1

Total 65

56

[Items to be handled by the headquarters of the Ministry]

i. Findings that can be considered minor, such as errors in writing:

(Non-compliance with laws and regulations but still minor)

(1) Audit on operational procedure, etc. of general provisions (no applicable case found)

(2) Audit on financial statement (no applicable case found)

(3) Audit on sectoral profit and loss Details of finding Details of administrative guidance 1

Regarding the accounting process for LNG terminal, inappropriate cases were found where items to be allocated to each suitable functional cost item (i.e., LNG Receiving, LNG Storage and Other Plants, etc.) were all allocated to “Other Plants”.

Written guidance was given for proper processing in accordance with accounting ordinance for sectoral profit and loss, company’s in-house rules and others.

2

Regarding allocation of General and Administrative Expenses to functional cost items, inappropriate cases were found where the wrong factor was applied to the calculation of allocation amount.


3

Regarding allocation of General and Administrative Expenses, which should be allocated to territories in proportion to the number of installed meters, inappropriate cases were found in which wages of temporary staff of the headquarters were omitted from the calculation of allocation.


4

Regarding the functional cost allocation factor (in proportion to the number of employees) for the calculation of sectoral profit and loss, which should deduct employees to be transferred to construction in progress account, inappropriate cases were found where the number of employees of construction in progress was wrong.


5

Regarding the functional cost allocation factor (in proportion to value of fixed assets) for the calculation of sectoral profit and loss, an amount of “meters”, which was included in the assets directly charged to exclusive facilities for transportation service, was not deducted from the fixed asset amount of functional “meters” and was counted double. Also, an inappropriate case was found in which an amount related to “exclusive facility for wholesale”, which should be deducted from pressurized transfer function, was deducted from vaporization function.


57

6

Regarding the functional cost allocation factor (other operations out of General and Administrative Expenses) for the calculation of sectoral profit and loss, an inappropriate case was found where 50% of secretary expenses of directors who have concurrent duties in multiple major sectors (such secretary expenses are a part of expenses of the Secretary Department) were directly charged to the corresponding major sectors despite the fact that that have no concurrent duties.


7

Regarding the functional cost allocation factor (in proportion to experiment and research-related expenses out of General and Administrative Expenses) for the calculation of sectoral profit and loss, an inappropriate case was found in which pressurized transfer function-related research expenses out of R&D expenses were classified as vaporization function-related research expenses.


8

Regarding functional cost allocation of retirement cost of fixed assets for the calculation of sectoral profit and loss, an inappropriate case was found where expenses, which should be allocated to each function, were directly charged to common expenses for consumers.


9

Regarding the functional cost allocation factor (in proportion to the number of employees) for the calculation of sectoral profit and loss, an inappropriate case was found where employees of organizations which were dismantled at the end of FY2014 were included in the calculation of the functional cost allocation factor of manufacturing cost of FY2015.


(4) Audit on profit and loss of transportation services


Regarding the accounting process for LNG terminal, inappropriate cases were found in which items to be allocated to each suitable functional cost item (i.e., LNG Receiving, LNG Storage and Other Plants, etc.) were all allocated to “Other Plants”.

Written guidance was given for proper processing in accordance with Calculation Ordinance for Profit and Loss of Transportation Services and the company’s in-house rules.

2

Regarding allocation of General and Administrative Expenses to functional cost items, inappropriate cases were found where the factor based on which the allocation amount should be calculated was wrong and different factor was applied.


58

3

Regarding allocation of General and Administrative Expenses, which should be allocated to territories in proportion to the number of installed meters, inappropriate cases were found in which wages of temporary staff of the headquarters were omitted from the calculation of allocation.


4

Regarding allocation of the retirement cost of fixed asset to functional cost items, which should be done in proportion to the value of fixed asset, an inappropriate case was found where it was allocated in proportion to the number of employees.


5

An inappropriate case was found where the factor in proportion to fixed asset value, which is used for the allocation of manufacturing cost to functional cost items, was wrong.


6

Regarding inventory shortage, which shall be allocated to each functional cost item in proportion to the number of employees, an inappropriate case was found where it was allocated to a specific function (generation facility).


7

Regarding the functional cost allocation factor (extraordinary loss) for the calculation of profit and loss of transportation service, an inappropriate case was found in which appraisal losses of investments in securities and the same of subsidiaries and affiliates (included in extraordinary loss), which shall be allocated to gas business and other businesses in proportion to their sales amounts, were all allocated to the loss of gas business.


8

Regarding the functional cost allocation factor (in proportion to the number of employees) for the calculation of profit and loss of transportation service, which shall be calculated with deduction of employees to be transferred to a construction in progress account, an inappropriate case was found in which the number of such employees to be transferred was wrong.


9

Regarding the functional cost allocation factor (in proportion to value of fixed assets) for the calculation of profit and loss of transportation service, the amount of “meters” included in the assets directly charged to exclusive facilities for transportation service was not deducted from the fixed asset amount of functional “meters” and was counted double. Also, an inappropriate case was found where an amount related to “exclusive facility for wholesale”, which should be deducted from the pressurized transfer function, was deducted from the vaporization function.


59

10

Regarding the functional cost allocation factor (other operations out of General and Administrative Expenses) for the calculation of profit and loss of transportation service, an inappropriate case was found in which 50% of secretary expenses of directors who have concurrent duties in multiple major sectors (such secretary expenses are a part of expenses of the Secretary Department) were directly charged to the corresponding major sectors despite the fact that that have no concurrent duties.


11

Regarding the functional cost allocation factor (in proportion to experiment and research-related expenses out of General and Administrative Expenses) for the calculation of profit and loss of transportation service, an inappropriate case was found where pressurized transfer function-related research expenses out of R&D expenses were classified as vaporization function-related research expenses.


12

An inappropriate case was found where the accumulated amount of excess profit of the fiscal year mentioned in the table for management of accumulated amount of excess profit was undervalued due to erroneous calculation.


13

Regarding functional cost allocation of retirement cost of fixed assets for the calculation of profit and loss of transportation service, an inappropriate case was found in which expenses, which shall be allocated to each function, were directly charged to common expenses for consumers.


14

Regarding the functional cost allocation factor (in proportion to the number of employees) for the calculation of profit and loss of transportation service, an inappropriate case was found in which employees of organizations which were dismantled at the end of FY2014 were included in the calculation of the functional cost allocation factor of manufacturing cost of FY2015.


15

Regarding operating revenue (revenue of compensation money) for the calculation of profit and loss of transportation service, an inappropriate case was found in which the calculation of revenue of compensation money of operating revenue was incorrect.


16

An inappropriate case was found in which an inventory shortage was not deducted from operation expenses in the calculation of “operating capital” of the asset schedule of transportation service.


17

Regarding the calculation of the difference between predicted cost and actual expense and the calculation of retained earnings equivalent in the statement of excess profit, an inappropriate case was found where the amount was undervalued because actual expenses before addition of the amount of business income was used instead of the comprehensive cost used for the calculation of the latest tariff rates.

Oral guidance was given for proper processing in accordance with Calculation Ordinance for Profit and Loss of Transportation Services and the company’s in-house rules.

60

18

Regarding the calculation of “facility account (tangible)” in the statement of transportation service assets, which shall be the value of either an average of the beginning and the end of term or the balance in the middle of term, an inappropriate case was found where the value of machinery and equipment, which were procured during the term, was added to the average of the beginning and the end of term.

Oral guidance was given for proper processing in accordance with Calculation Ordinance for Profit and Loss of Transportation Services and the company’s in-house rules.

(5) Audit on prohibited activities associated with transportation services (no applicable case found)

(6) Audit on other necessary items (no applicable case found)


(Not violation of laws and regulations but matters that require improvement)

(1) Audit on operational procedure, etc. of general provisions (no applicable case found)

(2) Audit on financial statement (no applicable case found)

(3) Audit on sectoral profit and loss ···································· 1 case (oral guidance)

(4) Audit on profit and loss of transportation services (no applicable case found)

(5) Audit on prohibited activities associated with transportation service (no applicable case found)


61

[Items to be handled by the Bureaus of Economy, Trade and Industry]

i. Findings that can be considered minor, such as errors in writing:

(Non-compliance with laws and regulations but still minor)

(1) Audit on operational procedure, etc. of general provisions


When gas rates are revised in the middle of a month, gas bills should be calculated on a pro-rata basis. However, some cases were found in which the rates after reduction were applied flatly to the entirety of such a month.

Written guidance was given for proper processing in accordance with the General Provisions for Supply, etc.

(2) Audit on financial statement


The following cases were found: • For a consumer, who had fallen behind on

his gas bill for a long time, a substantial amount of unpaid balance was accumulated because no adequate measures such as gas outage were taken but only quarterly reminders, etc. were carried out.

• Unrecoverable gas bills due to a customer’s death or bankruptcy, etc. were recorded as accounts receivable.

Written guidance was given for proper processing in accordance with the General Provisions for Supply, company’s in-house rules and accounting ordinance for gas business, etc.

2

A case was found where expenses spent for an acquisition by construction were not recorded to the corresponding tangible fixed asset account promptly after the completion of construction.

Written guidance was given for proper processing in accordance with accounting ordinance for gas business and company’s in-house rules, etc.

(3) Audit on sectoral profit and loss


A case was found where production-related repair costs, which should be allocated according to functional cost items, were all allocated to “other factories”.

Oral guidance was given for proper processing in accordance with accounting ordinance for sectoral profit and loss and company’s in-house rules, etc.

2

Regarding appliance sales-related profits and expenses, which can be allocated directly to each sector, a case was found in which the allocation was prorated according to the ratio of number of arbitration extension cases.


62

3

Regarding appliance sales-related profits of less than 1 million yen, which can be allocated directly to each sector, a case was found where the allocation was prorated according to the ratio of number of arbitration extension cases.


(4) Audit on profit and loss of transportation services 1

A case was found where the calculation of the investment amount for the term to be mentioned in the statement of pipeline investment was wrong.

Oral guidance was given for proper processing in accordance with accounting ordinance for transportation service profit and loss and company’s in-house rules, etc.

2

Regarding the calculation of taxes and dues, a case was found where all of “property tax” and “road occupation charge”, etc. were allocated based on the proportion of amount of fixed assets.


3

Regarding the statement of transportation service asset, a case was found in which amounts of construction in the progress account, equipment account (tangible), intangible assets and long-term prepaid expenses were wrong due to errors in the fiscal year of book value at the beginning of a term of tangible fixed assets and in the amount of items of “other sector specified”.


4

Regarding items of the equipment account (tangible), an asset which should be classified as a transportation service asset was erroneously classified as a non-transportation service asset.


5

Regarding the calculation of statement of transportation service asset, an omission of inclusion into construction in the progress account and double inclusion of an amount that could not be charged directly were found.


6

A case was found in which the Form No. 4 “List of Accounting Procedure established by Gas Utilities” based on Article 6 of Ordinance for Accounting Rules on Gas Transportation Service Profit and Loss was not released to the public.

Written guidance was given on proper publishing in accordance with accounting ordinance for transportation service profit and loss.

(5) Audit on prohibited activities associated with transportation services (no applicable case found)


63


(Not violation of laws and regulations but matters that require improvement)

(1) Audit on operational procedure, etc. of general provisions · 12 cases (oral guidance)

(2) Audit on financial statement ···································· 9 cases (oral guidance)

(3) Audit on sectoral profit and loss ································ 2 cases (oral guidance)

(4) Audit on profit and loss of transportation services ·········· 1 case (oral guidance)

(5) Audit on prohibited activities associated with transportation service (no applicable case found)

(6) Audit on other necessary items ································· 1 case (oral guidance)

(2) Efforts toward audit quality improvement, etc.

Man-hours required for audit and volume of information obtained through audit have been increasing year by year

due to reasons such as the following (number of audited utilities was 11 for the audit of FY2015 and 240 for

FY2016):

• Increase of number of utilities to be audited because auditing of gas business was added to the role of the

Commission,

• Changes and subdivision of audit items due to revisions of laws and regulations, etc. associated with the

reform of electricity and gas systems, and

• Diversification of purposes of audit in relation to the legal separation in 2020.

Under such circumstances, efforts to enhance the knowledge management over the entire area of auditing are

being made aiming for audit quality improvement, enhancement of functionality of audit and realization of

effective and efficient audit by making use of methodologies of audit by certified public accountants for

documentation of planned audit schedules, implemented audit procedures and conclusions from audit results, etc.

Section 5 Trend of heat supply business

As a result of the partial enforcement of the 3rd Step Revision of Act (for heat supply business-related part) on

April 1, 2016, a deemed heat supplier which was actually operating heat supply business was treated as a

registered supplier under the said law. Thus, one additional utility was newly registered for the period from April

to August of the year.

In addition, one application for registration was received during the period from September 2016 to August 2017

and one application was registered after assessment by the Commission and the Agency of Natural Resources and

Energy. The total cumulative number of received applications for registration from April 2016 when the receipt of

application was started was two and two applications were registered after assessment by the Commission and the

Agency of Natural Resources and Energy (Number of registered utilities as of the end of August 2017 is 78).

The assessment of applications has been conducted in accordance with laws and regulations respectively by the

Agency of Natural Resources and Energy from the viewpoints of potentiality, etc. to secure supply capacity

necessary to meet the maximum demand of heat, and by the Commission from the viewpoints whether it falls

under “a person who is deemed to be inappropriate to ensure convenience in daily life and business operation of

consumers who receive the heat supply”.

64

Chapter 5 Efforts for higher efficiency of the gas market and promotion of competition

Section 1 Regarding post facto assessment of gas transportation service rates (a new system of order for

application for approval for rate change regarding the Wheeling Service provisions)

To promote the full liberalization of the gas retail market in April 2017, it was stipulated that transportation

service rates require approval when the service launches or the rates are raised but they require only notification,

not approval, when the rates are reduced, in view of the promptness and incentives for utilities for higher

efficiency. Also, post facto regulations were strengthened so that low transportation service rates are materialized.

In the 27th Gas Systems Reform Subcommittee held in January 2016 at the Agency for Natural Resources and

Energy, the direction of strengthening of post facto regulations was set towards introduction of new change order

standards, which focus on a difference of transportation service cost (unit cost) per demand volume from the

estimated value, in addition to the existing stock management system.

Because of the foregoing, the discussions in the Specialized Meeting for Policy Design concluded as follows so that

the system, which focuses on a difference of transportation service cost (unit cost) per demand volume from the

estimated value, can be newly introduced as post facto regulations on transportation service rates after liberalization

of the gas retail market.

(Main points of the conclusion)

It is appropriate that the system of change order for transportation service rates to be additionally introduced

in FY2017, which focuses on the unit rate of transportation service cost, will be the same system as the post

facto regulations by management of difference rate, which was introduced to electricity wheeling service rates

in FY2016.

The reference value to check the difference rate between the estimated unit rate and the actual unit rate will be

set to -5% as was the case with electricity business.

Thereafter, based on discussions in the Specialized Meeting for Policy Design, the Agency for Natural Resources

and Energy revised (1) Accounting Ordinance for Profit and Loss of Transportation Service for Gas Business, (2)

Assessment Criteria, etc. for Disposition by the Minister of Economy, Trade and Industry based on the Gas Business

Act, and others. Then the post facto assessment, which focuses on a difference of transportation service cost (unit

cost) from the estimated value, was decided to be introduced in FY2017 in addition to the existing stock management

system.

65

[Post facto assessment to be introduced to gas transportation service rates from FY2017]

Post facto regulations by management of the difference rate introduced to gas transportation service rates from FY2017

Che

ck o

f diff

eren

ce

rate

Expl

anat

ion

by th

e ut

ility

Req

uest

for r

educ

tion

of tr

ansp

orta

tion

serv

ice

rate

s

To check the difference rate between estimated unit cost and actual unit cost. If the difference exceeds the specified rate (-5%), proceed to Step 2.

The utility is requested to explain the appropriateness of maintaining the level of current transportation service rates. If the government determines that the explanation is not reasonable, proceed to Step 3.

If no notification of voluntary rate reduction is submitted by the first day of the 2nd fiscal year after the fiscal year during which the difference rate exceeded the specified rate, an order for application for approval for rate change will be given. An

ord

er fo

r app

licat

ion

for

appr

oval

for r

ate

chan

ge is

en

forc

ed.

Difference rate (%) = (actual unit cost (actual expense/actual demand volume) ÷ estimated unit cost (estimated cost/estimated demand volume) – 1) x 100 (Note) If the cost calculation period is three years, the actual record of unit cost shall be an average of the last three years.

66

Section 2 Development of Guidelines for Gas Retail Business

Based on an assumption that various utilities would enter into the market taking advantage of full liberalization

of gas retail market, guidelines for the related utilities’ compliance with the Gas Business Act, etc. were

established. In this relation, new guidelines titled “Guidelines for Gas Retail Business” has been developed for the

protection of gas consumers.

The said guidelines were established on January 24, 2017 by the Minister of Economy, Trade and Industry

based on a proposal made by the Commission through discussions over four months from September 2016 in the

Specialized Meeting for Policy Design (Chairman: Mr. Ryuichi Inagaki, Commissioner of the Electricity and Gas

Market Surveillance Commission) established under the Commission.

The commission has made effort, such as the organization of the seminars, so that the content of the guidelines

would be fully understood by utilities that would be entering the gas retail market from April 2017.

[Points of Guidelines for Gas Retail Business]

(1) Provision of appropriate information for consumers

① Practices that may be problematic

Solicitation to consumers for services by providing information, such as “all emergency responses will be

stopped if you do not contract with us”, which may give consumers an erroneous impression.

Omission of oral and written explanation to consumers on supply conditions, such as the following, at the

time of contract:

Details of conditions for cancellation of contract such as penalty charges,

Obligations and calculation method for installation cost of inner pipes (gas piping within the

premises of a consumer), etc., or

Conditions for applicable discounts such as a package deal discount.

② Desirable practices

Release to the public of standard rate plans for general consumers and examples of monthly charges for

typical gas consumption patterns

In cases where a gas charge includes any installation cost, etc., a breakdown of such costs is clearly

mentioned on a bill.

A certain level of explanation made by gas retailers to consumers about the fact that cooling-off by

consumers or contract termination by gas retailers, etc. may result in a circumstance without any contract

and may possibly result in a gas outage.

67

(2) Appropriate business performance and form of contract

○ Practices that may be problematic

At the time of termination of contract by a gas retailer, which performs one-touch supply, the retailer

unreasonably omits a procedure for termination of the wholesale contract with wholesale gas utility. (One-

touch supply means a supply pattern under which a gas retailer receives gas from other gas utility at

consumers’ gas consumption point and passes it onto the consumers at that particular point)

(3) Appropriateness of contents of contract


To stipulate contract conditions, etc. which substantially restrict contract cancellations, such as

unreasonably expensive cancellation charges

Conduct which substantially restricts contract cancellations, such as omission of a clear description of

procedures for cancellation or rejection of renewal of contract

(4) Appropriate response to complaints and questions

① Desirable practices

In cases where the gas supply is interrupted obviously by pipeline-related causes such as breakage of a

pipeline, the gas retailer utilizes information provided by the gas pipeline utility on their website, etc. to

respond to inquiries and questions from consumers.

Provision of appropriate advice to consumers, such as the operation method of gas meters, in cases of a gas

supply interruption of unknown cause.

② Practices that may be problematic

Unreasonable omission of response to inquiries from consumers regarding a gas supply interruption of

unknown cause.

(5) Appropriate procedure for contract cancellation


Omission of verification in an appropriate manner whether the person who applied for contract

cancellation is really the contractor (consumer) itself

Omission of appropriate efforts for explanations on procedures such as preliminary notification of

cancellation and an application for the General Provisions for Last Resort Service/Transitional Measures,

in relation to contract cancellation

68

Section 3 Development of Guidelines for Proper Gas Trade

In association with the full liberalization of the retail gas market, the necessary revisions were made to

“Guidelines for Proper Gas Trade”, which had been established jointly by METI and Japan Fair Trade

Commission, so that the gas market could be activated from competitive points of view.

With regard to a part of the said guidelines in which METI is involved, a proposal was made to the Minister of

Economy, Trade and Industry by the Commission through discussions over five months from September 2016 in

the Specialized Meeting for Policy Design. Then, METI and Japan Fair Trade Commission jointly revised the

guidelines on February 6, 2017 based on the proposal.

Every effort, such as the organization of meetings, was made so that the content of the guidelines would be

fully understood by utilities that would be entering the gas retail market from April 2017.

[Main revised items of “Guidelines for Proper Gas Trade” (parts related to Gas Business Act)]

(1) Retail-related area

Retailers’ activity to clearly mention the payment amount corresponding to transportation service charges

on gas bills, etc. to consumers is classified as a desirable practice.

Retailers’ activity to collect unreasonably expensive cancellation compensation money, etc. is classified as

a practice that may be problematic.

(2) Appropriate gas trade in wholesale-related area

In the light of the purpose of resolution of the Pancake Problem (a problem of transportation service

charges imposed every time the transportation goes across the border of districts), comments were added

as a concept that reduction of an amount equivalent to transportation service charge from wholesale supply

charge was appropriate.

The activity of utilities that have LNG, etc. actively provide new entrants, etc. with necessary wholesale

supply is classified as a desirable practice.

(3) Production-related area

The activity of utilities, which own facilities required for gas production such as heat quantity adjustment

equipment, to actively undertake gas production-related work is classified as a desirable practice.

The activity of gas production utility to unreasonably reject contract production, etc. of gas is classified as

a practice that may be problematic.

(4) Transportation service-related area

The activity of gas pipeline utilities to provide information on consideration on connection to a pipeline

network is classified as a desirable practice.

Regarding possibility and timing of gas meter replacement, any gas pipeline utility’s unreasonable

treatment of a consumer in an unfair and discriminatory manner depending on whether such a consumer

is the consumer of the utility itself or of the retail sector of the utility’s group is classified as a practice

that may be problematic.

69

Chapter 6 International cooperation, dispute resolution and public relations

Section 1 Efforts for enhancement of cooperation with international organization

From a viewpoint of enhancement of the intelligence, the Commission is regularly promoting cooperation and

information exchange with regulatory organizations, etc. of other countries.

On September 28, 2016, the Commission entered into an agreement with the Federal Energy Regulatory

Commission (*1) of the U.S.A. for cooperation to share experience and practical operations regarding information

on energy markets and market surveillance in both countries. The outline of the agreement is as follows:

(Contents of agreement for cooperation)

• Sharing of information on procedures and methods of surveillance and investigation and market surveillance-

related information and data of both organizations

• Discussion of energy issues of mutual interest related to the United States and Japanese energy markets..

• Joint visits that could include FERC, EGC, and other regulatory entities.

• Workshops and training activities, etc.

(*1) Federal Energy Regulatory Commission (FERC) is an independent regulatory organization established in

1977 to regulate and supervise electricity transmission across state border(s) and wholesale electricity, etc.

On September 28 – 29, 2016, the Asia Pacific Energy Regulatory Forum (APER Forum) (*2) was held in Korea.

Mr. Hatta, Ph.D., Chairman of the Commission and Mr. Matsuo, Secretariat General of Executive Bureau of the

Commission (at that time) gave presentations, respectively, on “Energy Market Reform in Japan” and “Challenges

of Transmission Tariff System in Japan”. The next APER is scheduled to be held in 2018 in Tokyo, and the

Executive Bureau of the Commission is now making preparations for the forum.

(*2) The Asia Pacific Energy Regulatory Forum (APER Forum) is a forum held once every two years in which

energy-related regulatory organizations of Asian Pacific countries participate. In the past, the forum was held in

2012 in the U.S., in 2014 in New Zealand and, in 2016 in Korea. There are 14 member countries: Australia,

Canada, China, India, Japan, New Zealand, Papua New Guinea, the Philippines, Samoa, Singapore, Korea,

Thailand, Tonga and the United States of America.

70

Section 2 Dispute resolution

Under the provisions of the Electricity Business Act, the Commission is authorized to conduct mediation and

arbitration of a contract, etc. regarding electricity trade and to process complaints filed in relation to electricity

trade.

Also, under the provisions of the Gas Business Act and the Heat Supply Business Act, the Commission is

authorized to conduct mediation and arbitration of a contract, etc. regarding gas trade and wholesale heat supply

trade and to process complaints filed in relation to gas trade and heat supply trade, etc.

Persons involved in the process of resolution of disputes are mainly members of the mediation committee and

arbitration committee. Those members are appointed for each case from persons predesignated by the

Commission out of commissioners and other staff of the Commission (Paragraph 3 of Article 35 and Paragraph 3

of Article 36 of the Electricity Business Act).

The following listed persons were appointed on September 1, 2015 as candidates for the members of the

mediation committee and arbitration committee of electricity business. Then the same persons were appointed on

April 15, 2016 as candidates for the members of the mediation committee and arbitration committee of gas

business and heat supply business. Therefore, a list of members of the arbitration committee was made in

accordance with provisions of Article 9 of the Order for Enforcement of Electricity Business Act (Order No. 206

of 1965) (including Article 6-3 of the Order for Enforcement of the Gas Business Act (Order No. 68 of 1954) prior

to Revisions pursuant to Article 1 of the Cabinet Ordinance on Arrangement and Transitional Measures for

Relevant Ordinance incidental to Partial Enforcement of the Act on Partial Revision, etc. of the Electricity

Business Act (Cabinet Ordinance No. 40 of 2017) and the case where those are applied mutatis mutandis pursuant

to Article 5 of the Order for Enforcement of the Heat Supply Business Act (Order No. 420 of 1972)) (See Note

below).

(Members of the committee)

・Ryuichi Inagaki

・Yasuhiro Hayashi

・Masanori Maruo

・Emiko Minowa

(Special Members)

・Ryoichi Komiyama

・Makoto Tanaka

・Azusa Tsutsumi

・Masahiro Murakami

・Arisa Wakabayashi

(Note) The term of Special Members expired on August 31, 2017 and each member was reappointed as a Special

Member on September 1, 2017. Therefore, they were designated as members of the candidate for the

mediation committee and the arbitration committee as of the same date.

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Status of cases processed in accordance with the provisions of Electricity Business Act is as follows:

[Processing status]

1. Number of mediation and arbitration filed

None

2. Number of cases which were decided not to be mediated and number of cases of which mediation procedure

was discontinued

None

3. Number of cases which were resolved through the mediation

None

4. Number of cases of which arbitral award was made

None

5. Number of complaints filed

2 cases (1 for electricity and 1 for gas/heat)

6. Other important matters relating to practical operations of committees for mediation and arbitration

(1) Revision of Dispute Resolution Rules of Electricity Market Surveillance Commission

In order to specify a detailed procedure of mediation and arbitration in accordance with provisions of

Article 4 of the Ordinance of Electricity and Gas Market Surveillance Commission (Ordinance No. 309 of

2015), the Dispute Resolution Rules of Electricity Market Surveillance Commission (20150901 EMSC No.

9) was developed on September 1, 2015. Thereafter, the Rules were revised and renewed as the Dispute

Resolution Rules of Electricity and Gas Market Surveillance Commission on April 1, 2016 to reflect the

required revisions incidental to the 2nd Step Revision of Act. Then the Dispute Resolution Rules of

Electricity and Gas Market Surveillance Commission were further revised on April 1, 2017.

(2) Revision of Dispute Handling Manual for Electricity Trade

Details of the dispute handling system for mediation/arbitration, handling procedure of complaint filed and

so on are stipulated across the Electricity Business Act, cabinet and ministry ordinances, dispute handling

rules and others. For the convenience of practical operations, the Dispute Handling Manual for Electricity

Trade was developed on September 17, 2015 to put those stipulations in order and to describe the flow of

procedures with process flow charts. Thereafter, the Manual was revised in April 2016 to reflect the

required revisions incidental to the enforcement of the 2nd Step Revision of Act and was renewed as the

Dispute Handling Manual for Electricity and Gas Trade. The Manual has been further revised in April 2017

and has been released to the public on the website of the Commission.

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Section 3 Efforts for public relations

In addition to market surveillance and submission of comments, recommendations and proposals to the Minister,

the Commission has also been conducting activities such as publications and protective measures for consumers.

The reason for such efforts of the Commission is that, for implementation of full liberalization of the electricity and

gas retail market, it is important for consumers to have adequate information so that they can make proper choices

that suit their needs without being involved in any trouble.

To make all consumers well informed about the liberalization, the Commission has been making proactive efforts

for public relations: holding of briefing sessions at various places throughout the country, public relations through

media such as TV, newspapers and magazines, distribution of pamphlets and posters, creation of an explanatory

video about the liberalization and set-up of an exclusive website and call-center. Survey by questionnaire was

conducted for consumers in September 2016. The knowledge acquired through the questionnaire about the

perception of consumers was also utilized for dissemination of liberalization and public relations.

Also for the enhancement of consumer protection, the Commission and the National Consumer Affairs Center of

Japan jointly published information on case examples of trouble posted by consumers as well as the guidance offered

for such cases.

Furthermore, the Commission enhanced its activities for consumer protection such as organizing of the “Electricity

and Gas Liberalization Seminar”, which is a public relations event to share accurate information on full

liberalization of the electricity and gas retail market to consumers in an understandable manner, at various places

throughout the country.

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[Examples of efforts for consumer protection in relation to electricity liberalization]

● Survey by questionnaire

A survey by questionnaire was conducted in September 2016 for 10,000 persons on their intentions, etc. to switch

electric entrants and rate plans. Then, a detailed survey by questionnaire was conducted for 1,000 persons who had

switched utilities or rate plans on the level of satisfaction, etc. derived from the switching.

● Various types of explanatory meetings, etc.

Explanatory meetings by block (10 areas throughout the country) and by prefecture as well as such meetings at

consumer group organizations and business entities were organized. Also, seminars focused on consumers were

held at event sites and shopping malls, etc. (10 locations).

● A Partnership Agreement with the National Consumer Affairs Center of Japan

As a continued effort from the previous year, information on contract-related troubles, etc. relevant to full

liberalization of the electricity retail market posted by consumers were shared as required, and the related

information including guidance on such troubles was published jointly. All such information is also released to the

Local Consumer Centers throughout the country. In addition, training courses and workshops were organized, as

needed, jointly with the National Consumer Affairs Center of Japan.

● Creation of a video for consumers

A video that explains the system of electricity liberalization and answers to frequently asked questions was created,

and was shown at seminars and placed on a website.

● An educational advertisement, etc.

An advertisement featuring electricity retail liberalization was published in a lifestyle information magazine for

housewives and 5,000 copies of a booklet that explains the same were distributed. In addition, 5,000 leaflets were

prepared for distribution to consumers at seminars and explanatory meetings, etc. from February to May 2017.

● Dispatch of information for the media

A press conference (a briefing at the economy/industry-related press club) was held to release information on the

status after full liberalization of the electricity retail market. Explanations on full liberalization of the electricity

retail market were also given, as needed, to newspapers and other publishers.

● Enhancement of liberalization-related pages of the website

Improvement of the website about full liberalization of the electricity retail market, namely, improvement of pages

for Q&A for consumers and the specific-purpose website was conducted.

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[Examples of efforts for the consumer protection in relation to gas liberalization]

● Various types of explanatory meetings, etc.

Explanatory meetings by block (10 areas throughout the country) and by prefecture as well as such meetings at

consumer group organizations and business entities were organized. Also, seminars focused on consumers were

held at event sites and shopping malls, etc. (10 locations).

● Distribution and display of posters and pamphlets

5,300 copies of a poster and 55,300 copies of a pamphlet were printed and distributed to every prefecture and

displayed at Tokyo Metro’s stations.

● Partnership Agreement with the National Consumer Affairs Center of Japan

Information on contract-related troubles, which relate to full liberalization of not only the electricity retail market

but also the gas retail market, posted by consumers were shared as required, and the related information including

guidance on such troubles was published jointly. All such information is also released to the consumer affairs

bureaus throughout the country. In addition, training courses and workshops were organized, as needed, jointly with

the National Consumer Affairs Center of Japan.

● Creation of a video for consumers

A video that explains gas liberalization in an understandable manner was created and shown at seminars and placed

on a website.

● An educational advertisement, etc.

An educational advertisement, etc. explaining gas liberalization was published in 47 local newspapers throughout

the country and an advertisement featuring the same was placed in a lifestyle information magazine for housewives.

Also 5,000 copies of a booklet that explains electricity and gas liberalization were printed and distributed to

consumers at seminars and explanatory meetings, etc. from February to May 2017. In addition, 5,000 copies of a

leaflet were printed and distributed.

● Dispatch of information for the media

Immediately before full liberalization of the gas retail market, a dialogue meeting was held with the Federation of

Local Newspaper Companies. Explanations on full liberalization of the gas retail market were also given, as needed,

to newspapers and other publishers.

● Creation of liberalization-related pages of website, etc.

Contents of the website such as Q&A pages and the banner as well as the specific-purpose website for consumers

about full liberalization of the gas market were created.

annual report of electricity and gas market surveillance ...august 2017) electricity and gas market...

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