ON THE NATIONAL ELECTRIC POWER POLICY
DEPARTMENT OF COMMUNICATIONS
STATE control of electric power in Japan, when efficiently conducted, will constitute an essential and basic step in the augmentation of productive power, the promotion of industries, and the security of the economic life of the people at large. Under existing circumstances, its bearing upon the strengthening of national defence is great. Nationalization of electric power is therefore one of the most important economic problems, and at the same time is a problem directly and vitally related to the existence and development of the Japanese nation. When viewed in this light, the urgent need for a measure to effect State control may be fully appreciated.
Electricity has now taken the place of coal as the pivotal factor in modern civilization. In point of fact, it forms today the very foundation of industry and the essential element in the development of contemporary life. In certain industries electric power may almost be regarded as the raw material, and in certain cases of exports from Japan the increasing amount of commodities may essentially be classified as the exportation of electric power itself. On the other hand, cases have increased in Japan in which the efficient operation of electric power has enabled a check in the importing of certain commodities.
The much discussed problems of development of agrarian communities and electrification of homes also can be solved, to a considerable extent, by the cheap and abundant supply of electric power. In other words, by substituting human labour with electric power and by economizing the labour thus saved through the full utilization of power a totally new phase will be inaugurated in the crude, naive system of Japanese agriculture. To illustrate further, the improvement in irrigation and drainage facilities, which is the first requisite for the increase of better rice-fields and crops, can be effected only by supplying power to agrarian communities in abundance and at moderate rates.
Another important point to be noted here is that to utilize fully the water power which is one of the most valuable natural resources peculiar to the topography of Japan is, in positive terms, to realize the greatest of Nature's blessings and, in negative terms, to economize on other sources of power such as coal and petroleum which can be
substituted by water power. The real significance of this point can be brought home to the Japanese mind when we are reminded of the fact that this latter set of resources, with which Japan is not blessed by nature, constitutes one of the basic elements in the material strength upon which a modern nation stands.
With regard to the bearing of the power problem upon national defence, Great Britain's experience during the World War is sufficient to prove its serious nature. With her many small-scale generating systems, Great Britain encountered serious difficulties in supplying power which had come to be demanded urgently and increasingly by munition plants. It is therefore an unqualified neccessity [sic] for the efficient mobilization of power in time of emergency to be fully prepared in time of peace with a complete plan of connecting and adjusting all systems of power distribution. To plan in time of peace for the development of chemical industries through adequate supply of electric power with a view to facilitating their conversion into munition industries in time of war is certainly a practical measure for effecting economy in national defence.
Hence, State control of electric power is perfectly justified on economic as well as on national grounds. Furthermore, the facts that the power industry requires stupendous equipment, that its enterprises tend naturally to monopoly, that large-scale and unified operation alone can ensure advantages in construction and management, and that it has both national and public uses call necessarily for a single system of unified operation and State supervision. The necessity for such a drastic measure is, in fact, born out of technical as well as political considerations. This too accounts for the resuscitation of the problem of power control as an important national measure.
Practical Measures for Power Control
The ideal to be attained through control of power is to bring about the highest state of technological efficiency in achieving nationalization of power supply, by coordinating all power equipment in the country for unified national purposes and by operating it accordingly, thus eliminating abuses of monopoly and reducing costs of generation. Because of such possibilities, the policy of State power control has long been advocated by thinking people both in learned and business circles, creating favourable repercussions among the general public.
However, the realization of State ownership and management of the power industry is difficult in view of the present financial
condition of Japan, for it entails the annual issuing of enormous public loans for the development of new power sources. And although these are in the nature of transfer and productive loans under the special account, they cannot but bear seriously on the whole of the public loan policy, inevitably bringing about the expansion of national finance. In particular, the present emergency in Japan's national life makes it well-nigh impossible to carry out such a measure. Even if it were possible to purchase the whole equipment, changes in financial policies, rejection of the budget by the Diet and other unfavourable developments might interrupt the execution of the expansion and improvement of the equipment, and the regulations concerning the governmental accounts system and other limitations might interfere with its economical construction and maintenance.
Another conceivable measure for control is the amalgamation of the "Big Five" power companies. Accordingly, it has been proposed to amalgamate the Tokyo Electric Light, Tokyo Electric Power, Daido Electric Power, Japan Electric Power and Ujigawa Electric Power companies, whose fixed assets aggregate 1,500,000,000 yen and whose total generation capacity covers the greater part of the aggregate total of the entire capacity in Japan. This amalgamation would establish connections in generation and transmission systems, and bring an increase in the load and economy in the reserve equipment, and consequently realize the purpose of controlling electrical undertakings in Japan. In fact, this measure would go a long way toward attaining the desired purpose in respect to power economy in terms of equipment. From the viewpoint of national economy, however, it would only intensify capitalistic monopoly, resulting increasingly in threatening consumers and destroying the thorough, efficient working of governmental supervision.
The last measure proposed is one of planning for a coordinated unification of all the generation and transmission systems by means of voluntary achievement of common account management by the "Big Five." Though not without certain merits, this measure would, through introduction of common account management, make the existence of individual participating companies merely nominal. By framing various plans perhaps well intended but by no means free from considerations of conflicting interests between the individual companies, this measure would defeat the purpose of unification. It cannot, therefore, be expected to prove effective in developing power sources in accordance with national policy, nor can it safeguard itself against the evils of monopoly which similarly form an obstacle in the preceding amalgamation measure.
Yet these considerations will in no way serve as refutation of the necessity of power control. They indicate the necessity of careful study in the matter of the measure finally to be adopted, in view of its effect upon existing enterprises, and on business efficiency after the enforcement of control. Accordingly the Government considered it wise to seek cooperation of governmental and private experts, those actually engaged in the industry and representatives of consumers, and created the Electric Power Commission to render a decision on a concrete measure for the early execution of power control.
This Commission has consequently made the recommendation that State power control is most exigent and that it should be carried out through the cooperation of governmental and private interests. In order, however, to ensure penetration of the will of the State in carrying out the control and to realize the ideal of cooperation between the Government and the people, giving full scope to the merits of each party within the structure so designed, it has been recommended that the basic matters regarding the operation of the industry and other matters pertaining to its business aspect should be in the hands respectively of the Government and private institutions.
After the thorough examination of the contents of the recommendation, the Government has approved it as embodying the most appropriate practical measure for the purpose, and has framed, on its basis, the outline of a national power policy, which is to be proposed at the 73rd session of the Imperial Diet as a legislative bill.
Outline of the Power Policy
The following are the essential points of the proposed national power policy.
I. Scope and Extent of Control
1. Generation and transmission of electric power by means of the equipment which is necessary for State control and which is described below shall be controlled by the Government :
(a) The important new equipment for hydraulic generation, which includes the existing hydraulic generation equipment that cannot be dispensed with for rational utilization of water power resources.
(b) The important equipment for thermal generation.
(c) The important equipment for power transmission.
The physical features of Japan can best be described as narrow and long. The main islands are traversed in the centre, throughout their entire length, by a chain of mountains, forming a series of available heads of water. Being also a sea-girt country, Japan abounds in rainfall, naturally affected by the seas. These topographical and climatic features provide throughout the country rivers extremely rich in volume of water and in head, thus providing the nation with an abundance of water power sources which is an invaluable blessing for a country deficient in natural resources.
According to an investigation conducted in 1918, the total quantity of stored water power in Japan was estimated, on the basis of the average volume of water and in terms of electric power, at 11,000,000 theoretical kilowatts. It should be noted, however, that as the quantity of water power already developed to this date amounts, in terms of electric power, to 5,000,000 theoretical kilowatts, the quantity left undeveloped does not exceed 6,000,000 theoretical kilowatts. This forces the conclusion that, if a quantity representing 400,000 or 500,000 kilowatts is developed annually to meet the growing demand for electric power, the total available quantity will be exhausted in about ten years. Such a state of affairs with reference to water power which is the principal source of electric power is certainly serious, in view of the national and social significance of the latter. It is therefore imperative that utilization to the fullest extent of human intellect of undeveloped water power resources should be made. By so doing the quantity of water power as the source of electric power can be doubled under the present state of technical progress. Particularly, if the regions ranging from the point of the higher head upstream to the point of the lower head downstream which were not approached from business and technical points of view in 1918 are explored for the perfect development of new resources, the stored quantity of water power in Japan is certain to rise, again in terms of electric power, to more than 20,000,000 theoretical kilowatts.
However, in the situation prevailing in the power industry, in which many private institutions with conflicting interests are operating and in which plans for developing resources are being made only on the basis of their limited economic power and of the consuming capacity of their constituencies, such plans cannot be expected to be carried out in a way most effective for and satisfactory to national purposes. It is therefore essential that the undeveloped resources at least be placed under direct national control so as to make it possible to exploit them positively and rationally exhausting all material and intellectual means and taking into consideration the
physical features and surroundings. In connection with the development of the new resources, conservation works such as large-scale afforestation and storing of water should also be carried out so that relations between the hydraulic power industry and other water utilization activities such as fisheries, the floating of timber and irrigation works may be kept free from friction. Such friction has in the past constituted a noticeable factor in higher construction costs in the work of developing water power resources and the consequent higher costs of generation. Such maladjustment can be eliminated only by means of State control.
The proposed plan of State power control, unlike the plan drawn up last year, does not, in principle, make water power resources already developed the direct objective of its control. This exemption is made out of considerations that the volume of water in those resources which can be utilized for purposes of generation is more or less fixed according to the scale of the existing equipment, that the control of the transmission equipment will be sufficient for the purpose of their full utilization, that the economy achieved in providing capital funds for the special company to be created in this connection will make smaller the possible effect of this control measure upon economic circles, and that the saving of time by making unnecessary such a procedure as appraising the invested equipment will hasten realization of the State power control policy demanded by the present emergency. However, the equipment such as that for the purpose of supplementary supply and of the peak load which is used in a similar way as that for thermal generation, and the hydraulic generation equipment already in operation which must be radically reconstructed in order to ensure better and more complete utilization of resources should necessarily be placed under State control.
In regard to point (b), the technical progress of hydraulic generation in recent years has greatly enhanced the value of thermal generation. This progress is of particular value because of the fact that, since the volume of river water available for generation purposes is developed on the basis of that for three months, the joint use of the thermal generation method is essential to make up for the shortage of the volume of water, thus enabling electric power of high value to be obtained all the time. After the coming into force of the proposed measure of control—when water power resources are developed on a large scale and transmission connections are completed throughout the country between different water systems—it will be particularly important that the existing thermal generation equipment be reconstructed or put into different methods of operation, with a view
to employing the plant according to priority in respect to the efficiency and scale so that the reserve heating power is economized and preserved for a time of emergency.
With regard to the thermal generation equipment to be constructed, it must also be efficiently planned on such a scale as to keep itself in close relation to the existing hydraulic generation equipment, with the result that utilization of water power resources is effectively made. Such planning will certainly contribute toward economy in fuel consumption and in the lowering of generating costs. The existing thermal generation equipment, however, being under the divided ownership of industrial concerns with conflicting interests, cannot be expected to be operated in harmony and coordination. Further difficulties are found in the fact that, as different owners of the equipment operate it in accordance with their own special circumstances, some of them suffer from having the greater part of their large-scale and highly efficient equipment lie idle while others in adjoining districts are operating their small-scale and inefficient equipment to the fullest extent of its capacity at higher costs of generation.
This state of affairs imposes a heavier burden on consumers, runs counter to the conservation of fuel resources, and creates in consequence many undesirable national and social problems. Here are grounds for attaching great importance on the part of the Government to the thermal generation equipment and for placing it within the scope of direct State control.
Now let us consider point (c). Rivers differ greatly in volume of water according to their geographical situation, while the demand for electric power differs considerably both in respect to the quantity and in respect to the seasonal fluctuation according to the method of its use. Consequently, economy in the use of electric power cannot be achieved until connections between transmission lines and between different water systems are completed throughout the country. Without such connections it is absolutely impossible to make up for shortages in the total volume of water and in the aggregate total of the volume of all resources, through the efficient operation of thermal generation. Without them it is impossible to make adjustment of supply and demand, especially in cases where there are demands for power differing in load. These connections, again, are essential for increasing the reserve working capacity of the equipment and its utilization efficiency, and in consequence for cheap and abundant supply of power. Divided ownership and utilization at will, however, of the transmission lines form serious obstacles in
carrying out such measures as supplying surplus water power to districts where shortage in the volume of water is supplemented by thermal generation, such measures as eliminating waste in transmission equipment and improving its utilization efficiency, and such measures as concentrating all the electric power available for emergency purposes by mobilizing all the generation capacity. State control of the important transmission equipment, therefore, constitutes a fundamental provision in the proposed national power policy.
2. The equipment coming within the scope of State control as described in the foregoing paragraphs shall be constructed by a special company created for the purpose, and that which is already in operation shall be placed at the use of the new institution as the investment of its owners.
The electric power generated by the existing equipment for hydraulic generation which is connected with the above-described transmission equipment shall be purchased. In certain cases, however, its transmission by means of the equipment owned by the new institution may be allowed.
Appraisal of the invested equipment and decisions on the rate of power purchase shall be made on definite standards of computation and on the approval of a Commission which will be specially created for the purpose. With regard to the loans secured on the invested equipment, the Government shall take adequate and just steps necessary for safeguarding the rights of the creditors.
The existing power equipment coming within the scope of the control of the State is required, as has been made clear, to be invested in the special company. Public utility enterprises such as electric power, local railways, tram-ways and water works are generally stipulated in law as enterprises which can be expropriated by the State or public bodies on grounds of their being licensed, utility enterprises. It is inevitable, therefore, for the power industry to be forced to invest its equipment in the enterprise having a definite national purpose in order to fulfil the mission of the industry which has become increasingly momentous in recent years.
Since the proposed measure includes the enforcement at the will of the State of transfer of property rights in the form of investment in the new company, the appraisal of the invested equipment should be made in an adequate and equitable way, to the complete satisfaction both of the investors and of the nation. Accordingly, it is expected that in the proposed measure the agreement on this important
practical matter will be reached in a harmonious and conciliatory manner between the interested parties. And when the agreement is thus reached, it will be authorized by the Government. When, however, the negotiation fails, the Government will make the decision. In both cases the Government will act not arbitrarily but in accordance with a certain definite standard and upon the recommendation of an appraisal commission composed of men with expert knowledge and practical experience selected from governmental and private circles. A provision is also being contemplated allowing civil action against an unsatisfactory decision.
All the electric power generated by the existing hydraulic generation equipment connected with the invested transmission equipment, will be purchased by the special company, and the rate of purchase will be decided on with the same careful procedure as in the case of the invested equipment appraisal, safeguarding the business interests of its owners. This measure will relieve institutions operating only in power generation of anxiety as to whether the whole of the generated power will be purchased. Consequently business conditions will be greatly stabilized. In the case of companies operating both in generation and transmission, the proposed measure will not react to their disadvantage, if power is purchased at the power plant at a price less transmission costs. In the case of companies whose operations cover the whole process of electrical undertakings from generation to distribution, they will be able to concentrate their business in the distribution of power by having access to power sources everywhere ; they will be free from cares concerning generating and transmission finances and construction work.
As to the problem arising concomitantly from the transfer to the special company of the power equipment which is held in mortgage against the debentures, the question with reference to debentures, especially foreign loans, which is likely to be raised with the execution of the control measure, will be settled in such a way as to respect the rights and interests of debenture holders and creditors. In respect to the material mortgage, ways will be provided in which the contents of floating mortgages will remain unchanged and valid even after the property representing those mortgages is invested, in accordance with the requirement of the new measure, in the proposed semi-official institution.
Furthermore, the Government is contemplating providing for means of causing the proposed company to be responsible for payment of the principals and interests of the debentures, and even guaranteeing or allowing the new company to guarantee payments. The Government is firmly convinced, in this connection, of the
practicability of its appropriate measure for safeguarding the rights of the creditors and eliminating any sense of insecurity. In particular, with regard to foreign loans, as these involve the question of international good faith, the Government gives assurance that nothing contrary to that international principle will take place.
II. Procedure of Control
1. In carrying out the control measure, important matters relating to supply and demand, plans for the construction of the generating and transmission equipment shall be decided on by the Board of Electricity which will be created for this purpose. Issuing of instructions regarding power distribution and supply shall also be made by the Board.
2. The construction of equipment and the operation of business shall be executed by the special company to be created, in accordance with the decisions rendered by the aforementioned Board.
3. In order to ensure adequate and equitable functioning of the measure, all important matters shall be referred to the Electric Power Council for its recommendations. This Council shall be created with a membership including the best minds in official and private circles.
The purpose of State power control is, through close cooperation between the Government and the people, to effect the thoroughgoing and rational development and utilization of water power resources, the full and complete use of hydraulic and thermal generation, and the perfect and comprehensive improvement in utilization efficiency of the equipment in terms of national economy and defence. To achieve this purpose, it is thought advisable for the Government to assume responsibility in making decisions, on recommendation of the Electric Power Council, concerning basic matters in the operation of the industry—a measure which is also calculated to ensure the penetration of central control through the whole industry. On the other hand, it is considered advisable to leave the business aspects of operation of the industry in the hands of the special company which will promote energetic activity and economical management, thereby giving full scope to the initiative of private enterprise and to the economic advantage of the proposed system of Government-people collaboration. This participation by private interests in the enterprise will effectively eliminate the evils of pure governmental operation, while the complete control of important matters by the State will arrest any possible arbitrariness or selfish action on the part of the special company.
III. Special Company
1. The special company, of which mention has been made previously, shall be rendered govermental [sic] facilities for raising funds and guaranteeing dividends, reduction of and exemption from taxes and other privileges necessary for business operation.
2. Officers of the Company shall be appointed by the Government ; the creation of and changes in the articles of association, the issuing of debentures, the disposition of profits and other important matters shall be made with the approval of the Government ; and orders necessary for supervision of the business of the Company shall be given by the Government.
Since the proposed special company is in the nature of a substitute institution taking partial charge of the execution of the national power policy, it is natural that the raising of the funds and other facilities essential for the successful operation of business should be accorded, that the Governor and Vice-Governor of the company be appointed by the Government with Imperial sanction and the directors be selected from among the candidates, numbering twice as many as the directors, elected at the general meeting of the shareholders. As for the actual operation of business, however, this should be in the hands of an able and experienced staff so that full scope may be given to their initiative. The requirement of governmental approval, concerning the creation of and changes in the articles of association, the issuing of debentures, and the disposition of profits is intended to ensure the perfect execution of official supervision over the company. By these arrangements, it is felt that each party, whether governmental or private is safeguarded against falling into the evils of self-conceit.
IV. Power Distribution Business
1. For the purpose of enlarging and strengthening the scope and extent of control of the distribution business in keeping with the State control of power generation and transmission, the rearrangement and coordination of areas for distribution shall be effected and the improvement of business conditions and the popularization of power utilization shall be promoted by the Government.
2. For the purpose of lowering and equalizing the rate of distribution in keeping with the price policy under State control, governmental supervision shall be augmented.
The power distribution business is by nature complicated and
many-sided in its operations, being intimately associated with the daily life of the people, and has a greater element of business in its transactions and services than electrical undertakings as a whole. Furthermore, due to its local characteristics, it lacks the elements that would render its unified operation throughout the country technically and economically advantageous. Therefore it is considered advisable not to place it under State control, a consideration which is in accordance with the policy of making the effect on economic circles of the control measure as light as possible. It is to be borne in mind, however, that without augmenting the control of this phase of electrical undertakings in correspondence with the basic policy of the rational and economic planning of power production and supply, the whole purpose of the national power policy cannot be achieved. Accordingly, a measure for effecting rearrangement and coordination of distribution areas, the levelling down of operation costs, the improvement of business conditions, and the standardization of the rate of distribution should be adopted along with one enforcing more adequate and effective supervision of distribution rates in keeping with the proposed rate policy under State control. Nor should the strengthening of the supervision in the direction of realizing the positive plans and undertakings for the wider and better utilization of electric power in the rural communities be neglected.
V. Power Mobilization
1. A fair quantity of surplus power shall be stored at all times in preparation for emergencies and reserve equipment shall be properly arranged. As for the generation of power for private purposes, it shall also be subjected to control and coordination to a certain extent.
2. With a view to ensuring the supply of power and to meeting its immediate needs, the measure for control of consumption shall be carried out according to the requirements of circumstances.
In preparation for quick concentration of power in the places where it will be required during the time of large-scale national mobilization, transmission connections should be perfectly arranged ; thermal generation equipment which is not in use in ordinary times on account of lower efficiency should be preserved for emergency purposes ; and the generation equipment for private purposes should be connected in advance with principal transmission lines under State control. A measure for control of consumption should also be provided in order to complete the nation-wide preparations governing power supply in the time of emergency.