JAPAN Law and Practice Contributed by: Yutaro Fujimoto, Yurika Masakane, Hirokazu Tanaka and Yutaro Kato, Nagashima Ohno & Tsunematsu
when all electricity retailers were incorporated into a single category for regulatory purposes). In the transmission and distribution sectors, a Speci- fied Electricity Business operator licence scheme was established in 1995 under which the holder of such licence may sell its generated electricity to consumers in a limited geographical area through a transmission and distribution network that it operates and main- tains on its own in such area. In 2003, an electricity wholesale market, the Japan Electric Power Exchange (JEPX), was established to provide a liquid market of electricity. In 2004, J-Pow- er was privatised through being listed on the Tokyo Stock Exchange. The power industry also completed a series of struc- tural reforms that began in 2013: • establishing a system to efficiently manage elec- tricity across the transmission networks in Japan; • fully liberalising the retail sector; and • “legally unbundling” the transmission and distribu- tion sectors from the generation and retail sectors. The Organisation for Cross-Regional Co-Ordination of Transmission Operators (OCCTO) and the Electricity and Gas Market Surveillance Commission (EGC) were established in 2015 (see 1.5 Central Planning Author- ities ). Subsequent to which, the retail sector was fully liberalised in 2016. However, as the major utilities and their affiliates still dominate the market, the existing basic electricity retail tariffs have continued to be reg- ulated to secure fair competition with other retailers. This regulation is expected to be lifted at such time as the government considers that a sound competitive market has been established. “Legal unbundling” occurred in April 2020 when new rules were introduced prohibiting a transmission sys- tem operator (TSO) – except for Okinawa Electric Power Company, Inc – from operating an Electricity Generation Business (for the purpose of supplying electricity to retailers) or Electricity Retail Business (except for such business on certain isolated Japa- nese islands).
Under this prohibition, TSOs are required to create a separate entity if they also want to conduct an Elec- tricity Generation Business or Electricity Retail Busi- ness within the group. Further, TSOs are prohibited from using information on electricity generators and customers for purposes other than their transmission and distribution business and are obliged to estab- lish an information management system. This new rule aims to secure the impartiality of the major utilities as operators of transmission and distribution networks so that every electricity retailer and electricity genera- tor may be given equal access to their networks under fair and equal conditions. In order to achieve this goal, new regulations were also promulgated to prevent the TSOs from exercising influence over the operations of their affiliate retailers. See 4.3 Terms and Conditions Imposed on Approv- als to Construct and Operate a Transmission Line and Associated Facilities . Further, in order to respond to new entrants’ needs after this structural reform, the government has estab- lished several new electricity markets: • the capacity market; • the long-term decarbonised power source auction (LTDA); • the futures market; • the base-load market; • the balancing market; and • the non-fossil fuel energy certificates trading mar- ket. See 2.1 The Wholesale Electricity Market . Principal Laws The Electricity Business Act (Act No 170 of 1964, as amended) is the principal law governing electric- ity business in Japan. Under this act there are seven types of regulated business, as follows. Electricity Generation Business (Hatsuden Jigyo) This business generates and sells electricity to retail sellers and TSOs.
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