73. Intra-utility Character of Transmission Facilities: Implications for Japan and Japanese Utilities Graniere Robert J., Yajima Masayuki (CRIEPI Report, Otemachi, Chiyoda-Ku, Tokyo, Japan, pp. 1–6.1) Abstract This report examines the public and private characters of transmission facilities as they refer to a liberalized electricity industry. Regulators and the courts have struggled with this joint issue for some time because the physics of electric-power transmission does not permit the tracking of electrons from receipt point to delivery point. The debate pertaining to this issue has narrowed down to two opposing characterizations – intra-utility social infrastructure versus inter-utility social infrastructure. We conclude in this paper – notwithstanding the physics of electric-power transmission – that the intent of use determines the public and private character of transmission facilities. Calling upon the doctrine of pre-dominant use, we conclude that the current use of the transmission facilities yield compelling evidence that the vast majority of transmission facilities should be characterized as intra-utility social infrastructure, or alternatively that only a small percentage of the existing transmission facilities should be characterized as inter-utility social infrastructure. We find that the transmission service provider has all of the information in its possession to discern the intent of use of the existing transmission facilities, which we find to be in the service of native load. Therefore, we conclude that regulators can characterize transmission facilities as either intra-utility or inter-utility social infrastructure with the assistance and cooperation of the transmission service provider. We also find that cross-border, incidental loop flow is not a sufficient reason to characterize the aggregate of transmission facilities as inter-utility social infrastructure. Further, we find that the regionalization of the transmission market has the potential to change the characterization of transmission facilities. Specifically, transmission facilities that currently are characterized as intra-utility social infrastructure may be more properly characterized as inter-utility social infrastructure after the transformation of the transmission market. However, we do not recommend that Japan take action to create a nationwide transmission market because of the cost involved in either significantly expanding the capacity of the Frequency Converter or converting the entire national transmission grid to a single frequency. Lastly, we find that market tests that monitor the actual use of the transmission network are critical inputs to the proper characterization and re-characterization of transmission facilities. On the basis of our prior conclusion that a two-part intrautility or inter-utility characterization is proper for transmission facilities we also conclude that the preferred public policy for Japan with respect to the use and expansion of transmission facilities is to support and encourage coordination and cooperation among Japan's general electric utilities. This policy will be more cost efficient in the short-run and the long-run because it avoids the transaction and information costs associated with a new transmission institution while at the same time causing only a slight increase in the market distortion costs associated with more coordination among vertically integrated utilities. However, we also find that more cooperation and coordination of the use of intra-utility and inter-utility social infrastructure raises concerns of anti-competitive behaviour on the part of the transmission providers. Therefore, we conclude that Japan's regulators will have to pay careful attention during the design of the rules and procedures that they will use to monitor the behaviour of the transmission service providers. In particular, we recommend that regulators be especially careful in the areas of accounting and other non-structural safeguards such as an effective code of conduct. In summary, we argue that Japan's Government can assist in gradually increasing the amount of inter-utility social infrastructure in a disciplined manner without dismantling the economic efficiencies of vertical integration, which suggests that a reasonable approach to electric-supply liberalization is to retain the vertically integrated corporate structure of transmission providers and to provide incentives or mandates for improving and expanding inter-ties between utilities. Top Keywords Electricity market, Liberalization, Deregulation, Market structure, Liberalization model. Top |