July 28, 2011

Special Seminar: Corporate Governance and Industrial Policies: Governance for Determining the Future Course of TEPCO

Program

Moderator: Iwao SATO (Institute of Social Science)

13:00-13:05 "Opening remarks" Mari OSAWA (Institute of Social Science)
13:05-13:10 "Preamble: A Century of the Electric Power Industry"
      Masaki NAKABAYASHI (Institute of Social Science)

Session 1 "Nuclear Power Companies' Responsibilities and their Enforcement"

13:10-13:40 "Various Issues on Liability of Nuclear Operators"
      Hiroyasu ISHIKAWA (Institute of Social Science)
13:40-14:10 "Deliberation on Determining the future Course of TEPCO with a Focus on the Possibility of Legal Restructuring and the Rules of Priority among the Rights of Creditors"
      Wataru TANAKA (Institute of Social Science)
14:10-14:50 Discussion

14:50-15:00 Break

Session 2 "The Structure of and Regulations Governing the electric Power Industry"

15:00-15:30 "The Nuclear Accident Compensation Issue and Revitalization of the Electric Power Industry"
      Makoto TANAKA (National Graduate Institute for Policy Studies)
15:30-16:00 "Can nuclear Power Plants be Maintained under Unbundling of the Electric Power Companies? The New Electricity System and nuclear Power Generation"
      Tatsuo HATTA (Osaka University/ Gakushuin University)
16:00-16:40 Discussion

*Note: The contents of the presentations from this seminar have appeared in The Keizai Seminar: Economics of Recovery and Hope, September 2011, Nippon-Hyoronsha Co. (in Japanese).

Abstracts

Various Issues on Liability of Nuclear Operators
Hiroyasu ISHIKAWA (Institute of Social Science, the University of Tokyo)

Concerning the compensation related to the nuclear damage caused by the Fukushima Daiichi nuclear accident, the guidelines (the first guideline, the second guideline and the supplement of the second guideline) which were developed by the Dispute Reconciliation Committee for Nuclear Damage Compensation set up in the Ministry of Education, Culture, Sport, Science and Technology were sequentially published. These serve as guidelines for judgments on the scope of compensation for damages related to the nuclear accident. Furthermore, deliberation has been conducted in the Diet regarding two bills on nuclear disaster damage compensation (the bill to Establish Nuclear Damage Compensation Facilitation Corporation Act and the Nuclear Damage Provisional Compensation Act, which cover the governmental support and advance payment for compensation by TEPCO). Concerning the compensation related to recent nuclear damage, it is clear that a prompt response at the administrative and legislative level is required, however, the decision concerning how and in what scope of damages the state should support compensation needs to be made based on sufficient and careful consideration. Now, more importantly, how to think about the issues regarding compensation is not a matter which should be dealt with as a result of some policy decision, rather it is shaped ipso iure by the structure of the rules in the Atomic Energy Damage Compensation Law. Every policy decision regarding compensation for nuclear damage should be legal-theoretically consistent with the frameworks and the aims of the institutions that are determined by the Atomic Energy Damage Compensation Law.
    This report, accordingly, will analyze the characteristic contents of the stipulations and directions of the Atomic Energy Damage Compensation Law concerning the liability for damages of a nuclear operator, as compared with the schemes of nuclear compensation applied in other countries. In concrete terms, the focus will be on the significance of the unlimited liability of a nuclear operator, a comparison of the measures taken by the government, as designated by article 16 and 17 of the law, and the scope to be applied to the compensation for nuclear damages.

Deliberation on Determining the Future Course of TEPCO with a Focus on the Possibility of legal Restructuring and the Rules of Priority among the Rights of Creditors
Wataru TANAKA (Institute of Social Science, the University of Tokyo)

The future course of Tokyo Electric Power Company (TEPCO) and its responsibility, due to its association with the Fukushima Daiichi nuclear accident, remains a heated topic with the legal restructuring of TEPCO still debated. In this presentation, I assume that 1) TEPCO is responsible for compensation relating to nuclear damage, as based on the best interpretation of the current law, and 2) in the case of TEPCO not being able to afford the relevant costs of compensation, the state (government) would be prepared to support the victims to ensure they receive their compensation. Considering this situation as a premise, I will argue that TEPCO should restructure itself in the legal proceeding. Such a recommendation is based on the fact that, wherein the government offers support to TEPCO and enables the company to continue to work, then the government would be responsible not only for covering, using public funds, the support allocated to the victims but also the unsecured creditors and stockholders of TEPCO. On the other hand, if TEPCO enters the legal restructuring proceeding and its shares and unsecured credits are cut, and thus the state compensates only the victims who had their compensation cut, this would reduce the financial burden of the state. Furthermore, it also would be preferable that stockholders and creditors accept their responsibility to provide compensation for the damage caused to third parties through the dangerous operations of the business they invested in, thus reducing the potential moral hazard the company's actions entail. I will also debate the contexts of the legislative proceedings necessary to make a legal restructuring scheme feasible, such as the choice of proceeding restructuring (corporate reorganization or civil rehabilitation) or concrete schemes (independent reconstruction or business transfer), and the problems of dealing with the electric power bond (in legal terms, it would be liquidated prior to the compensation bond for damages). In addition, some comment will be provided regarding the bill of Nuclear Damage Liability Facilitation Fund, which is currently on the table in the Diet.
   Finally, I will point out there is a general problem, namely, a possibility that the moral hazard of a company (referring to the conducting of dangerous business operations with an excessively lax concern, or attention for, issues of safety) could be fostered under the current legal system, in which the limited liability of stockholders is acknowledged and the credits due from torts would be treated at the same level as general unsecured credits. To address this issue, I will discuss the possibility of changing the current rules to prioritize between the rights of tort creditors and the rights of contract creditors, both secured and unsecured.

The nuclear Accident Compensation Issue and Revitalization of the Electric Power Industry
Makoto TANAKA (National Graduate Institute for Policy Studies)

A new bill of the Act to Establish Nuclear Damage Compensation Facilitation Corporation, which is designed to address Tokyo Electric Power Company's Fukushima Daiichi nuclear accident, is expected to be enacted. The core concept of this act is to establish a new Nuclear Damage Liability Facilitation Management Fund to support the cash flow of TEPCO, which is responsible for an immense amount of compensation. However, criticism towards this new act has persisted as critics contend that the framework for the Act to Establish Nuclear Damage Compensation Facilitation Corporation has, in effect, simply enabled TEPCO to save the stakeholders. Alternatively, some people have argued that by adopting a Corporate Reorganization Act, the stakeholders of TEPCO would be strictly held to their accountability and thus the total compensation for damages would be provided by the stakeholders.
   The recently enacted Act to Establish Nuclear Damage Compensation Facilitation Corporation or the claims surrounding the possibly application of a Corporate Reorganization Act are both heavily based on the existing Atomic Energy Damage Compensation Law. These frameworks, which lean on the Atomic Energy Damage Compensation Law, lead to different results. This report firstly, seeks to sort out the different consequences brought about by these frameworks. Particularly, the existing framework of the Act to Establish Nuclear Damage Compensation Facilitation Corporation, 1) require only a small liability from the stakeholders of TEPCO, which caused the accident, and instead places the larger responsibility for covering the liability onto general public funds and consequently 2) there are concerns that this is highly likely to lead to an increase in electricity bills over a long term period; meaning that the liability might also be shifted to the next generation.
   Thus, in order to implement the Act to Establish Nuclear Damage Compensation Facilitation Corporation in practice, it is necessary to carry out some measures to alleviate or prevent these two impacts. This report will accordingly argue that: 1) in order to minimize the liability of the public, the sale of assets is necessary and that this can be achieved by the separation of electrical power production from power distribution and transmission and 2) in the case that an increase in electricity bills is unavoidable, the liability should be covered by the present generation, meaning that any possibility of shifting burdens to the next generation should be avoided.
    Finally, this report will argue that the separation of electrical power production from power distribution and transmission would bring about the revitalization of the electricity industry. Under the circumstance in which there is a shortage in the supply capacity across Japan, a revitalization of the power generation market would encourage new entries and lead to an increase of electric power sources under a new more competitive environment. Moreover, the introduction of a smart grid will encourage demand-side control of electric power and the use of renewable energy, such as solar energy.

Can Nuclear Power Plants be Maintained under Unbundling of the electric Power Companies? The New Electricity System and Nuclear Power Generation
Tatsuo HATTA (Osaka University/ Gakushuin University)

TEPCO can secure the financial resources to compensate for the victims of the nuclear accident by selling its assets. The higher the sales price of such assets, the less the public's burden becomes. If TEPCO sold their non-nuclear power plants and the government bought the nuclear power plants and transmission lines, a government financed transmission company would be established and unbundling would be accomplished.
   One merit of unbundling is to facilitate the electric system to introduce price mechanism that is responsive to the demand and supply conditions in the electricity market.
   Introduction of flexible price mechanism in this market reduces the possibility of power outages. Under a flexible price mechanism, when the supply becomes scarce, the prices in markets such as the "real time market" and the "day-ahead spot market" will soar, creating an incentive for large-scale buyers to reduce their consumption. This is the reason why many countries have chosen to introduce price mechanism in their electricity markets.
   Another merit of unbundling is to increase new entrants in the power-generation sector.
   If this happens, Japanese power companies will be deprived of their existing regional monopoly power in the generation market, and of the associated interests. As a result, they will lose the influences that enabled them to keep shady relationships between the electric power companies and politicians.
   In order to prevent such unbundling from happening, power companies created "a story" claiming that "Nuclear energy is cheap," by undervaluing the disposal costs of spent-fuel. Power companies used their political power generated by regional monopolies and monetary resources financed by the jacked-up regulated electricity rates to entice politicians, government bodies, academics, the media and labor unions to advertise the "story," so that the public will accept it.
   Thus electric utilities have manipulated information on nuclear power, which enabled them to further solidify their monopoly.
   Only with elimination of the shady relationship between politicians and the electric industry, a comprehensive disclosure of the cost of nuclear power plants would be possible. Once such costs are disclosed, the people of Japan can start a rational discussion on whether or not to continue nuclear power generation.
   If unbundling takes place in the TEPCO region, political power of all the electric utilities will be weakened. This will be the first step towards resolving the shady relationship between electric companies and politicians in Japan.