Hokkaido Electric Power Company Inc. Business Information, Profile, and History

History of Hokkaido Electric Power Company Inc.

Hokkaido Electric Power Company Inc. (HEPCO) supplies electricity to the whole of Hokkaido, the second largest and least densely populated of Japan's main islands. Of the nine regional electric power companies in Japan, HEPCO is the smallest in terms of capitalization (¥113 billion) and the second smallest in terms of generating capacity, with 4,876 megawatts (MW). Local environmental, demographic, and economic conditions contribute to factors which set the company apart from the other regional electric power companies (EPCs) in other parts of Japan. With the exception of the island's administrative and economic capital, Sapporo, HEPCO's industrial and residential customers are thinly spread over a large area. Transmission costs are therefore higher than elsewhere in the archipelago and the average unit cost of electricity is the highest in Japan. Many of HEPCO's thermal power stations run on locally produced coal--virtually unique in Japan--and while purchase cost is higher than for imported coal, the local supply is secure and does not suffer from price instability as a result of fluctuating exchange rates. In addition to the core activity of electricity generation and distribution, HEPCO is currently involved in research and development into renewable energy sources like solar power and fuel cells. In the northernmost part of Japan with its notoriously cold winter weather, the company is undertaking research into heat insulation and energy conservation for domestic, industrial, and agricultural application. HEPCO is also diversifying into telecommunications following that sector's progressive liberalization from 1985 onward.

Although HEPCO was incorporated along with the other eight regional Electric Power Companies (EPCs) in May 1951, the history of its foundation goes back to the beginning of the Allied occupation of Japan in 1945. Japan's energy-intensive munitions industry had been eliminated by the start of the occupation, leading immediately to an electricity surplus in the first year of occupation. As the process of reconstruction gathered momentum, demand soon caught up with and exceeded supply. The General Headquarters of the Allied Powers (GHQ) feared that an expansion of electricity production under the surviving and highly centralized wartime structure of the Japan Electricity Generation and Transmission Company (JEGTCO) and the nine distribution companies could be a step in the direction of rearmament. In 1948 it was decided by GHQ to dismantle the JEGTCO structure and replace it with nine regionally-based and vertically-integrated electricity generation and distribution companies. After a number of disagreements between GHQ and the government of Japan about the precise structure, status, and organization of the new companies, the government acted to establish the nine EPCs by implementing the Electricity Utility Industry Reorganization Order and the Public Utilities Order.

Until the end of April 1951 generation and distribution of electricity in Hokkaido had been the responsibility of the centrally controlled Hokkaido branch of the Nippon Hasso Electric Company Ltd. (NHEC) and the locally based and only semi-autonomous Hokkaido Haiden Company Ltd. (HHC). On May 1, 1951, following the promulgation of the Public Utilities Order, the two companies were merged and the independent Hokkaido Electric Power Co. Inc. (HEPCO) was established to manage the generation and supply of electric power in Hokkaido. At that time, capitalization of HEPCO was ¥330 million and generating capacity 312,000 MW.

The early 1950s saw electricity demand increase rapidly throughout Japan as the process of economic and industrial regeneration got under way. In Hokkaido, as in other parts of Japan, demand for electricity in this period of growth exceeded supply and HEPCO was forced to restrict electric power consumption. Supplies were also affected by industrial action taken by members of the Council of All Japan Electric Workers Union from September to December 1952. The widespread and disruptive blackouts, which were particularly unsettling for industry during these early years, were finally outlawed by the Law for the Regulation of Strike Activity in the Electric Utility and Coal Industries, in 1953. The company actively developed hydroelectric and coal power sources to expand its generating capacity further in the face of the immediate problems. As a result HEPCO was able to remove restrictions on supply in 1953.

As Japan entered the prolonged period of rapid economic growth, industrial output and living standards rose. Demand for electricity from industry and from private consumers expanded by an average of 10% per annum throughout Japan as a whole, and to meet this demand locally HEPCO had to develop further power sources. For hydroelectric power (HEP) resources, HEPCO promoted the Hidaka Development of Power Resources scheme. This led to the construction of the 13,500 kilowatt (kW) Iwachishi Power Station and in 1963 HEPCO completed the 44,000 kW Okunikappu Power Station, the first "Arch-Dam" type--a concrete structure across a valley which is arch-shaped and faces up the valley, when seen in plan--to be built in Hokkaido.

In the field of thermoelectric resources, following the governmental policy of protection and promotion of coal mining industrial areas, HEPCO promoted the construction of coal-powered generating stations, Takigawa Power Station (225,000kW) and Ebetsu Power Station (375,000kW). In 1962 HEPCO thermal electric generation capacity overtook its HEP generating capacity for the first time and in 1964 total electricity generation broke through the one million kW barrier for the first time.

Although the nine EPCs had been established at the same time from the components of the previously centralized JEGTCO, HEPCO had always remained a "semi-detached" part of the Japanese electricity generating industry--even before 1965, there were no transmission links between HEPCO and the rest of Japan, while the other EPCs traded electricity between their areas of supply. This detachment became more apparent when in October 1965 the 300MW Sakuma Frequency Converter Station started operations in central Honshu, Japan's main island, effectively connecting the 50 Herz and 60 Herz systems used in Japan. As a result, the other eight EPCs were connected up into a national grid, while Hokkaido remained on the outside.

The year 1973 was the 100th anniversary of the Hokkaido government. This was heralded by the Winter Olympics held in 1972 in and around Sapporo and by the completion of the Sapporo underground railway system and underground shopping center. HEPCO had been actively involved in supporting these projects as they represented a boost to demand for electric power and provided a useful showcase for HEPCO's involvement in Hokkaido's rapid reconstruction and development. By the end of the year, however, HEPCO's fourth president, Iwamoto Tsunetsugu, found himself in charge of a company that was about to receive the biggest shock of its short history.

The outbreak of war in the Middle East in 1973 and subsequent quadrupling of the crude oil price imposed by the Organization of Petroleum Exporting Countries (OPEC) affected Japan more than most industrially advanced countries because the country received about 70% of its oil from the region. The Japanese EPCs were hit in two ways by the oil crisis and its aftermath. Firstly, the price of oil for oil-powered thermal power stations skyrocketed, adversely affecting the companies' daily financial position. Secondly, in the longer term, higher energy costs stimulated a dramatic restructuring of Japan's economy away from energy-intensive industry. HEPCO's ability to deal with these changes in conditions was greater than the other EPCs because imported oil accounted for only a small fraction of electricity-generating capacity, while HEP and locally-mined coal provided a secure energy source. Nevertheless, such was the impact of the oil price rise on the company's oil-powered thermal power stations that in April 1974 HEPCO sought government approval for a 48% raise in charges. This was in fact the lowest raise of those requested by the nine EPCs.

As a result of the oil shocks, electricity rates throughout Japan were raised on a number of occasions and in 1981 HEPCO raised its rates once again, thereby becoming the most expensive electricity supplier in Japan and reflecting the company's poor financial structure. The company's deteriorating financial position could not be blamed entirely on international pressures. The late 1970s had witnessed further OPEC price rises, the second oil crisis following the Iranian revolution, economic stagnation throughout Japan, and a dramatic depreciation of the value of the yen against the dollar. The other eight EPCs had weathered the storm after suffering their worst losses in financial year 1979-1980. For the eight, salvation came in the form of an agreement from the Ministry of International Trade and Industry (MITI) to allow the companies to raise their electricity rates by an average of 50% which, combined with windfall profits from currency fluctuations and a fall in demand for expensive oil-generated electricity, led to a spectacular recovery the following year. HEPCO, on the other hand, had been offered a lower rate increase by MITI because at the time it was considered to be less dependent on imported oil. Unfortunately, the price of locally-produced coal was also escalating, but because of a long-term commitment on the part of MITI to promote the development of Japan's domestic coal reserves, HEPCO had not been in a position to develop oil, as the cheap and flexible power source, to anything like the degree of the other EPCs. HEPCO thus suffered the consequences of its own close relationship with the local coal industry until the company was able to develop a more diverse electricity generating capacity.

Regarding development of new power resources, HEPCO started construction of the crude oil-powered thermoelectric Date Power Station (700,000kW) in 1979, and announced the selection of the site for the Tomari Power Station, which was to be Hokkaido's first nuclear plant. In 1980 Date Power Station was completed, as was the construction of Tomatoatsuma Power Station (960,000kW) which was the first facility designed to use imported coal. In the nuclear sector, construction eventually started on the Tomari Power Station (1,158,000kW), progress on which had been suspended for one year in the wake of the Three Mile Island nuclear accident in the United States.

The demand for electricity did not increase in the latter half of this period, though it could be recognized as an era in which the "best mix" of resources was promoted between hydroelectric power, oil, coal, and nuclear-powered electricity generation under the company's fifth president, Yotsuyanagi Takashige. In order to stimulate demand for electricity in the region, HEPCO embarked upon a variety of public relations and electricity promotion schemes, and in January 1988 HEPCO cut its electricity rates. This was beneficial to local consumers but resulted in a steep drop in profits the following year.

In March 1989 HEPCO's first nuclear facility, its 579MW Tomari No. 1 generating plant, began full-power testing. In June of the same year it went into commercial operation. Tomari No. 2 Nuclear Power Plant was scheduled to start operations in June 1991. Together, the nuclear generating plants became HEPCO's largest generation facilities. HEPCO lagged behind the other EPCs in diversifying generating capacity but generating costs were expected to fall as the current phase of nuclear power development was completed.

HEPCO is instituting a number of measures to lower the cost of producing electricity at coal-fired power stations. Its aim is to reduce reliance on higher priced domestic coal in the years ahead as part of the diversification strategy. At Tomatoatsuma No. 2 HECPO is now using low-cost coal imported from Australia and Canada. The interim aim is to reduce the coal content of the total electricity generation equation from 64.1% in 1988 to about 29.3% by 1993.

Faced with structural disadvantages in the provision of electricity in Hokkaido, namely higher generating and transmission costs than in other parts of Japan, HEPCO has been keen to diversify its activities. Following the start of the liberalizing of Japan's telecommunications business in 1985, the company paid great attention to opportunities within the telecommunications market. Telecommunications was identified as a potential market because the company had already obtained a wealth of experience in developing and maintaining an expansive electricity transmission network. It was felt that this experience, combined with the latest technological innovations, would enable the company to run a parallel telecommunications network to challenge the Nippon Telegraph and Telephone Corporation (NTT) monopoly. In October 1987 HEPCO became involved in setting up Hokkaido Telemessage Inc. to market paging systems. In July 1988, together with Daini Denden, it set up Hokkaido Cellular Telephone Co. to market automobile telephones, and in April 1989, in conjunction with Mitsui Co. and Mitsubishi Co., it established Hokkaido Telecommunications Network Co. Inc. This new company uses a portion of the optical fiber cable system installed by HEPCO to provide low-cost data transmission and specialized telephone services.

In recent years the company has successfully introduced a number of new technologies and products developed specifically for the climate of Hokkaido, which is characterized by cold winters and abundant snowfall. These products include a range of electric heaters which incorporate heat storage devices utilizing cheap offpeak electricity. The company has also developed new snow melting equipment.

As part of the company effort to promote the use of electricity, HEPCO constructed an experimental, all-electric cold weather research house in 1988. Similarly, with an eye to the local agricultural producer, HEPCO has been conducting research, in an experimental greenhouse, into the possibility of growing vegetables in cold climates. In line with strict national regulations on emissions of pollutants from power stations, work has been carried out on a new system of dry desulfurization using coal ash. The results of this work are expected to be incorporated in the huge Tomatoatsuma No. 1 coal fired generating plant.

In spite of these encouraging developments, HEPCO is still faced with a number of longer-term structural problems which need to be resolved. Dependency on expensive local coal is still high in relation to the other EPCs, and full diversification into oil, nuclear power, and imported coal has yet to be achieved. But as sole supplier of electricity to Hokkaido, HEPCO's operational base is stable.