The Fair Trade Commission has ordered three major regional utilities to pay record fines of about 101 billion yen ($757 million) in total for forming cartels that eliminated competition for corporate customers. 

The FTC announced the surcharges on March 30 against Hiroshima-based Chugoku Electric Power Co.; Nagoya-based Chubu Electric Power Co. and its retailing subsidiary, Chubu Electric Power Miraiz Co.; and Fukuoka-based Kyushu Electric Power Co.

They are accused of violating the Law on Prohibition of Private Monopolization and Maintenance of Fair Trade.

Chugoku Electric Power announced on March 30 that its president, Natsuhiko Takimoto, and board Chairman Mareshige Shimizu will resign to take responsibility for the scandal.

The government fully opened the retail electricity market in 2016 in a bid to break up regional dominance by the major utilities.

Following its investigation, the FTC concluded that the utilities were conspiring together in an anti-competitive scheme.

“The cartels are offenses that disregard the aim for the liberalization of the electricity market, which is to lower electricity prices as much as possible, and its principle of expanding business opportunities for utilities,” Osamu Tanabe, chief of the FTC’s investigation bureau, said at a news conference on March 30.

NUMEROUS VIOLATIONS PROMPTED RECORD FINES

The huge surcharges may put the companies under additional financial strain when their performances have already been suffering due to factors such as soaring energy costs.

The companies engaged in numerous rule-breaking activities by forming the cartels.

They included significantly lowing numerical targets for winning large customers outside the areas that they traditionally served; quoting higher electricity prices to potential customers; and not bidding on government contracts.

The FTC on March 30 informed the trade ministry’s electricity and gas market surveillance commission of these practices.

If the companies are not satisfied with the order to pay the fines, they can file a lawsuit to seek the revocation of the order within six months of its issuance.

Chugoku Electric Power has issued a statement saying, “We will carefully consider our options while taking into consideration the possibility of filing a lawsuit to seek to have the order revoked.”

Chubu Electric Power said in a statement, “As there are differences in views (between the FTC and our company), we will file a lawsuit to seek the revocation of the order.”

Kyushu Electric Power has said that the company will carefully consider how it will respond.

The surcharges to the three companies are 70.7 billion yen for Chugoku Electric Power; 27.5 billion yen for Chubu Electric Power and Chubu Electric Power Miraiz; and 2.7 billion yen for Kyushu Electric Power.

The FTC also issued “cease and desist orders” to Chubu Electric Power Miraiz, Chugoku Electric Power, Kyushu Electric Power and its retailing subsidiary Kyuden Mirai Energy Corp.

The FTC recognized that Kansai Electric Power Co. was involved in the cartels.

However, the Osaka-based company avoided an administrative penalty because it voluntarily reported the matter to the FTC prior to the start of its investigation using the “surcharge reduction or exemption system.”

In October 2020, the company voluntarily told the FTC about the cartels using the reporting mechanism.

The company had found the wrongdoing after it received information about it from someone outside the company and conducted an internal investigation.

The information by Kansai Electric Power greatly assisted the FTC in its investigation.

Kansai Electric Power President Nozomu Mori apologized at a news conference at the company’s headquarters on the evening of March 30.

“We will accelerate and thoroughly execute measures to prevent a recurrence (of the cartels) so that we will never have an incident like this again,” he said. 

In addition, the FTC reduced the surcharge for Kyushu Electric Power by 30 percent because the company cooperated with the investigation by giving the regulator information on its wrongdoing after the start of the probe.

The cartels were formed over the supply of extra-high voltage power for office buildings and large factories and the supply of high voltage power for small and midsize buildings and factories.

According to the FTC, the three utilities and Kansai Electric Power agreed between October 2018 and October 2020 to curb their sales activities so as not to compete for corporate customers beyond the areas they served.

It is estimated that the size of the lucrative market that the cartels covered totals more than 2 trillion yen annually.

The FTC concluded that the utilities exchanged information related to the cartels during the periods around events of the Federation of Electric Power Companies of Japan.

For this reason, Tanabe asked the FEPC’s chair to ensure that its members are thoroughly told that incidents like this should never be repeated.

DEREGULATION OF UTILITY MARKETS

After World War II, major electricity companies maintained their regional dominance in retail electricity markets.

As a result, electricity prices remained high due to a lack of competition.

The government regarded the situation as problematic and started liberalizing the market.

Firstly, it liberalized the market of the extra-high voltage power in March 2000.

It followed this by doing the same for the market of the high voltage power in 2004 before finally fully liberalizing the retail electricity market in Aril 2016.

As a result, new electricity companies entered the market in rapid succession and major utilities’ market shares dipped.

According to the trade ministry, major utilities’ share in the market of extra-high voltage power was around 90 percent before the liberalization but fell to 78 percent in the two years to April 2018.

Competition among major utilities became increasingly fierce at the same time.

Such companies expanded their businesses to areas traditionally served by other major utilities, heralding the start of the “warring period” among them.

For example, in 2014, Tokyo Electric Power Co. started its business in areas that Chubu Electric Power or Kansai Electric Power served, before doing so in other areas too.

In 2017, Kansai Electric Power set up sales offices in Okayama and Hiroshima prefectures, traditional strongholds of Chugoku Electric Power.

Mori said at the March 30 news conference that electricity bills fell during this warring period.

Responding to such a situation, in autumn 2018, his company, Kansai Electric Power, held a meeting with top management in attendance including then President Shigeki Iwane and then vice presidents Toyokazu Misono and Takashi Morimoto, who later became president.

They decided at the meeting to scale down the company’s sales activities beyond their traditional areas.

Then people at the company, including Morimoto, informed Chugoku Electric Power, Chubu Electric Power, and Kyushu Electric Power of this decision.

After this, the four companies ended their “war” by agreeing to refrain from conducting sales activities in other companies’ traditional areas, according to the FTC.

Until this case, the record surcharge by the FTC had been one imposed on eight asphalt mixture manufacturers in 2019.

They were ordered to pay around 39.8 billion yen in fines for forming cartels on fixing the price of asphalt mixture, which is used to pave roads.

(This article was written by Yuto Yoneda, Shiki Iwasawa, Junichi Miyagawa and Takashi Yoshida.)