The Kansai Electric Power Co., Inc. Business Information, Profile, and History

History of The Kansai Electric Power Co., Inc.

The Kansai Electric Power Co., Inc. (Kansai Electric) is the second largest Japanese electricity utility and accounts for 19% of utility electricity sales in Japan. The company is one of the nine Japanese electric power companies established on May 1, 1951, as a result of a nationwide reorganization of the electric utility industry under the Law for the Elimination of Excessive Concentration of Economic Power, which was directed at breaking up monopolistic enterprises.

Kansai Electric services the central part of the main island of the Japanese archipelago, covering an area of 28,643 square kilometers--about 8% of the nation's total land area. This area includes the three major cities of Osaka, Kyoto, and Kobe as well as the industrial region along the coast of Osaka. Thus the region served by Kansai Electric is highly urbanized and industrialized and constitutes an economic area of prime importance for Japan, ranking second to the Tokyo metropolitan area. The electricity consumption in the area therefore amounts to 19% of the nation's total, while the service area accounts for only 8% of Japan's total land area.

Although immediately after World War II there was a sharp decrease in demand for electricity, since the bulk of electricity prior to this had been allocated to munitions production, the speed of reconstruction gathered pace so quickly that by the time of its inauguration the most pressing need for Kansai Electric was to build up its generating capacity to meet a critical power shortage. Despite booming demand, however, national pricing policies kept electricity rates so low that even costs could not be covered. Over the next three years, therefore, three rates reviews were allowed. In 1951 the average rates of the electric power companies (EPCs) rose by 30%; in 1952 they rose by 28%; and in 1954 they rose by 11%. In July 1952 the Electric Power Development Promotion Law was enacted, to further the construction of generating plants and transmission and transformation facilities. The law created the Electric Power Development Coordination Council under the Prime Minister's Office, which enabled the Electric Power Development Co. Ltd. (EPDC)--a government-owned corporation which could use government funds to promote power generation and transmission development--to begin operations in September 1952 using authorized capital totaling ¥100 billion.

With its share of this money, and with its financial situation improved by the three rates reviews, Kansai Electric was able to commence construction of the 125MW Maruyama hydroelectric power plant, which was then the largest in Japan and which pioneered large-scale hydroelectric power development. In 1954, with the completion of the Maruyama hydroelectric power plant, the power supply situation began to stabilize, and the shortage was gradually met.

In 1956 the company began the Kurobegawa No. 4 hydroelectric power project, an unprecedentedly arduous and large-scale civil engineering undertaking. Kurobegawa No. 4 was finally completed in 1963. However, from the mid-1950s, hydroelectric power had begun to take a back seat to thermal power in Japan. This was due to several factors: firstly, most of the good sites for hydroelectric power generation had already been developed; secondly, rapid progress in thermal power technology had improved efficiency and made large-scale plants possible; thirdly, thermal construction costs per kilowatt (KW) had fallen; and fourthly, fossil fuel costs were lower. Following this trend, in the mid-1950s Kansai Electric began replacing its worn-out fossil-fired generating capacity by constructing new high-performance plants using the latest technology from the United States. The first such plant was Tanagawa, with two units of 75MW. With the completion of Osaka Unit No. 1, by 1959 the system's total fossil-fired generating capacity had exceeded its total hydro-generating capacity.

Although all through the period of high economic growth in Japan--1961-1973--oil remained the principal source of electrical energy, accounting for 43% of fuels used for generation by the EPCs in 1963 and 87% in 1973, it was in 1954 that the first inroads into research and development on nuclear power were made. Albeit not without hindrances, this was a trend which was to develop substantially over the next four decades.

The 1950s had seen a general settling into the new system for the EPCs in Japan. This had been encouraged in part by the establishment of various regulatory bodies. The Public Utility Bureau, established in 1952, took the place of the abolished Public Utilities Commission as part of the Ministry of International Trade and Industry (MITI). The Federation of Electric Power Workers Unions was formed in May 1954 in response to labor disputes that had led to blackouts and serious disruptions of industry in the early 1950s. It was also part of an attempt to reconcile labor with the Law for the Regulation of Strike Activities in Electric Utility and Coal Industries, enacted in August 1953, which prohibited strikes that interrupted service. The Research Committee on Electricity Rate System was created in December 1957 in order to examine the existing rates and adjust them, through MITI, to a level more in line with actual conditions. The Japan Electric Power Information Center, Inc. was created in May 1958 to encourage the free flow of information within the industry on an international basis.

The 1960s saw the development of the electric power industry in Japan on an impressive scale. With many of its initial problems ironed out in the 1950s, flourishing industry and rising living standards led to an ever-booming market for the EPCs during the 1960s and a chance to build on the foundations they had already laid.

During the years 1961-1973, Japan's EPCs experienced an average annual increase in demand of 10.7%. This was due not only to Japan's booming economy but also to technological advances made by the industry during the period. Fossil fuel was the chief generator of energy in this period, and technological advancement in this area was impressive. Innovation in this area was also encouraged by the low price of oil. Crude oil, which cost $2.30 per barrel in 1960, went down to as little as $1.80 in 1971. Conversely, with improved technology, steam pressure increased from 60kg/cm2 to 246kg/cm2. Steam temperature went from 450°C to 566°C, and unit generating capacity from 53MW to 600MW. Heat efficiency also went up from 32% to 38%. As experience was gained in constructing these new superplants, costs were cut and capacity per unit was increased. Also, the introduction of computers made possible the rationalization of personnel.

Fuel was also switched, initially from coal to heavy oil, and then from heavy to crude oil, which was more cost-efficient as well as more environmentally friendly. Also with a view to pollution problems, LNG-fired plants began to be introduced in an effort to reduce sulfur emissions as well as to remove dependence on oil, all of which had to be imported. Tokyo Electric took the lead in this area from 1963-1973, and from 1964-1971 Kansai Electric commissioned two LNG/oil-fired plants, one at Himeji 2 and one at Sakaiko.

In December 1966 the company started to construct its first nuclear power plant, Mihama Unit No. 1--rated at 340MW-(c)which employed a pressurized water reactor imported from the United States. In August 1970 the first nuclear-generated power from the unit was sent to the site of the EXPO '70 exhibition of industry, technology, and commerce held in Osaka. The unit itself was completed in November 1970.

Technological advances in transmission and distribution were also made during this period. Building on foundations laid in the mid-1950s, in 1960 Kansai Electric and Chubu Electric linked up utilities with Tokyo and Tohoku Electric Power companies. In 1962 Kansai Electric commissioned an Economic Load Dispatching System. This led to the starting of an automatic load dispatching operation in 1968, which made possible centralized control of unmanned hydroelectric power plants and substations. In 1964 Kansai Electric launched a campaign to provide a more reliable service to customers. In 1967 a Technical Research Center was established to strengthen the organization's research and development.

Thicker cables, adoption of multiconductors, allowing pylons to carry more than one transmission line, and improved pylons helped with the linking of systems. In addition, after Tokyo Electric boosted its Boso line in Chiba prefecture to 500kV, Kansai Electric completed its first 500kV trunkline, the Wakasa Line, in 1969. In 1970 the company's first large-scale pumped storage hydro plant, Kisenyama (466MW), was completed.

However, industrial development was to take its toll on the Japanese environment. The problem was particularly severe in comparison to other countries, and the electric power industry was involved. As the use of oil increased in the effort to meet demand for electricity, sulfur oxide emissions rose, causing bronchial problems and noise pollution. In the face of mounting public anger in the second half of the 1960s, the EPCs, along with other industrial sectors, began to take steps toward pollution control. These included the desulfurization of crude oil, a shift to the use of crude oil and LNG, using higher chimneys, and efforts to reduce particle emissions.

After years of hedging the issue owing to its links with the industrial sector, the government was eventually moved to tackle the problem and a number of pollution control laws were finally forced through the Diet. These included in 1967 the Basic Law for Environmental Pollution Control, and in 1968 the Air Pollution Control Law and Noise Control Law. In 1970 the Diet made these laws more stringent and added the Water Pollution Control Law so that now the electric power stations acted under a strict set of pollution regulations. The result of this was that by the mid-1970s Japan had begun to lead the world in terms of pollution control.

Also during this period, in 1966, owing to the rapid increase of the use of air-conditioning units, system peak demand changed from winter to summer.

In the 1970s, after enjoying a boom for many years, the electric power industry in Japan was plunged into an acute slump. The major reason for this was the fourth Middle East conflict, which broke out in autumn 1973, upsetting the world oil market. Two sharp increases in the price of oil ensued, in 1973-1974, and in 1978-1979, which profoundly changed the shape of the Japanese economy. Since oil was the prime source of fuel for electricity generation up until the first oil shock, accounting for 87% of fuels used, the electric power industry was hit particularly hard by the steep price increases. Kansai Electric was forced to revise its electricity rates in 1974 for the first time in 19 years, so that between 1970 and 1980 the price per unit of electric power for Kansai rose from ¥4.74 to ¥19.58 per kilowatt-hour.

The oil crises led to two main changes in the Japanese economy which affected the electricity industry directly. Firstly, demand for electricity within the industrial sector nosedived as higher energy costs forced smokestack industries out of business and encouraged a shift to high technology and service sectors. Energy conservation measures also contributed to declining demand.

Secondly, owing to increases in the price of oil, the EPCs were forced to seek alternative fuels for generation. Between 1973 and 1975, the percentage of oil-fired thermal generation was virtually halved in terms of total generation. The shortfall was made up largely by nuclear generation and liquefied natural gas (LNG).

In 1974, 1976, and 1980, the EPCs sought major rate increases to counteract the soaring price of oil. After the third increase in 1980, the cost of electricity was 3.5 times higher than it had been before the first oil shock. The average rise on each occasion was 56.8% in 1974, 23.1% in 1976, and 52% in 1980.

By 1977, because of these hikes, and also because of the rising value of the yen, the EPCs' profits began to improve again. In 1977 Kansai Electric's sales were 23.2% higher than in the previous year, and post-tax profits were 21.3% higher. Originally the EPCs had marked out new rate increase margins far in excess of those actually enforced, in anticipation of a 5% increase in the price of crude oil and fuel oil in 1976.

Judging that no oil markup would take place, however, MITI cut down the original proposals. In approving the increases, MITI also set the value of the yen against the dollar at $1.00: ¥299, which was important to the EPCs as they procured all of their oil supplies from abroad. The yen subsequently continued to rise, reaching ¥272 against the dollar in the second half of 1977. In six months, the foreign exchange gains of Kansai Electric rose by ¥10 billion. Operation costs during the same period increased by ¥5 billion.

Thus, despite further oil price hikes by OPEC in 1979, leading to the 1980 rate hike, the EPCs did not fare as badly as they might have done, or indeed as they seem to have expected, partly due to the rising value of the yen. With decreases in the price of oil beginning in late 1985, the companies temporarily and tentatively cut their rates, in 1986 for seven months and in 1987 for one year. In 1988 MITI approved a further cut, bringing the average reduction in rates for the industrial and residential sectors of the EPCs to about 17%.

Because of its heavy dependence on imported oil, and because of the two oil shocks, Japan developed nuclear and other alternative energy sources. Nuclear power has assumed an important position in Japan's energy policy.

Kansai Electric started its research and study of nuclear power in the 1950s and completed its first nuclear reactor in 1970. The company owns and operates nine reactors, with nuclear plant making up just over a quarter of its capacity and about 45% of its power needs. The development of nuclear power, however, has not been without obstacles.

A total of 36 legislations and 66 different legal procedures are required before construction of a nuclear-power plant can proceed. The process may take 7 to 15 years from the announcement of construction to the start of operation. Approval for construction is granted by the Electric Power Development Adjustment Council, which is chaired by the prime minister. After approval, the plan is then subjected to strict safety examinations by the Nuclear Safety Commission. After the government procedure, two public hearings must be held to reflect the interests of local residents. These hearings are sponsored by MITI. The system was established in 1978.

Another problem with nuclear power generation has been the non-nuclear proliferation policy followed by the United States. Following this policy, nations buying nuclear fuel from the United States need to get case-by-case U.S. permission to reprocess spent uranium. In 1988 the U.S. Congress refused to ratify a Japan-U.S. nuclear cooperation agreement signed by Tokyo and Washington in November 1987, which would have allowed Japan to reprocess spent fuel for a 30-year period.

Especially in the early 1980s, in the light of President Ronald Reagan's massive arms build-up, demonstrations against the use of nuclear power have been widespread in Japan. In 1980, the venue for the public hearings regarding Kansai Electric's plans to build the No. 3 and No. 4 reactors at Takahama was surrounded by demonstrators.

Public outcry was exacerbated and construction of nuclear reactors further set back by a number of accidents around the world in the late 1970s, the 1980s, and the early 1990s. Repercussions of the Three Mile Island accident in the United States in March 1979 were keenly felt in Japan, resulting in the suspension for one year of all plans to build nuclear power plant. This delayed the construction of Kansai's 3 and 4 reactors at Takahama for a year, and partly accounted for the public demonstrations when the hearings eventually began. Public confidence in nuclear power was not improved by the leaking of nuclear waste at Tsuruga nuclear plant, which was intentionally left unannounced by the Japan Atomic Power Co. The Chernobyl accident in the Soviet Union again shook public confidence. However, it must be noted that Japan has developed technology to prevent accidents due to tubing stress corrosion and steam generator tubing pit holing. Although accident prevention is extremely expensive, the EPCs have had no alternative but to follow a safety-first nuclear program because of public concern.

Accidents do still happen in Japan, however, and in February 1991 Unit No. 2 at Kansai Electric's Mihama plant had to be closed down after a problem with a steam generator. Although there was no radioactive leakage, this incident indicates that despite a waning of public opposition to nuclear fuel in the light of global warming, and despite the safety measures followed by the EPCs, nuclear power generation is still unlikely to be free of problems for the foreseeable future.

Partly as a response to environmental pollution, several non-nuclear alternatives to oil have been developed by the EPCs since 1970, when Tokyo Electric opened the world's first LNG-fired plant at Minami-Yokohama. A little less than one-fifth of Kansai Electric's capacity is LNG-fired, or LPG (Liquid Petroleum Gas)-fired, accounting for about 25% of thermal power generation.

In 1984, partly due to an industrial move into a high-technology environment and partly in order to exploit their utilities more fully, the EPCs began diversifying into the telecommunications business. While this is to remain a peripheral aspect of the industry, the EPCs have become major rivals of NTT (Nippon Telegraph and Telephone Ltd.). Kansai Electric plans to continue its exploitation of the telecommunications industry, as well as launching into cogeneration and other local heat supply business.

Continuing its diversification, as well as contributing to various regional projects such as the construction of the 24-hour Kansai International Airport in Osaka Bay and the Kansai Science and Research Park, Kansai Electric is producing new businesses that are being incorporated as the company's subsidiaries and affiliates. As of March 1991, the company had a direct equity participation of 20% or more in 40 corporations.

In 1984 Kansai Electric was awarded the prestigious Demming Prize by the Association of Quality Control in the United States and Japan for the performance of its Total (company-wide) Quality Control program. Kansai Electric was the first EPC ever to be awarded the prize and the company intends to develop its quality improvement activities further.

Since the first oil crisis the EPCs have been developing power-saving electrical devices. Paradoxically, this development has led to a boost in demand for power. Kansai Electric expects a continued rise in demand for electricity, and so continues to construct generating plants.

Kansai Electric continues to take an interest in environmental issues, and in April 1991 organized a Global Environment Project Development Conference, chaired by the president of the company. The conference adopted a four-point plan to continue tackling the environmental issue, and also has recently made some headway in the field of reducing emissions from thermal-fired plants.

The present breakdown of the company's energy sources is as follows: nuclear--7,408MW (24%); oil-fired--11,519MW (37%); LNG-fired--6,062MW (19%); combustion turbines-360MW (1%); conventional hydro--3,109MW (10%); and pumped storage hydro--2,920MW (9%). Its long-range plan, Kansai Electric Power in the Year 2030, released in 1988, envisages a generating capacity mix of 40% nuclear, 33% oil and LNG, 18% hydro, and 9% coal.