On November 12, the Electricity and Gas Market Surveillance Commission reprimanded JERA, the largest power generation company in Japan, issuing a recommendation to improve its business operations due to alleged market manipulation. In response, environmental NGOs and other civil society groups issued a statement protesting the fact that a major electric power company raised transaction prices while being aware of the effects of such manipulation, pointing out that this is a serious problem.
Market price of electricity
The market price of electricity is the contract price of electricity traded on the Japan Electric Power Exchange (JEPX). JEPX was established as a market where power providers can trade electricity to retailers by purchasing power from power providers and selling to retailers.
Market manupulation by JERA
In this case, it was pointed out that JERA had not offered a portion of the surplus power from generating units that were shut down, even though it had the extra capacity to supply power to the wholesale market. Japanese regulations require large power producers to supply all surplus electricity generated in excess of demand to the wholesale market. Despite this, JERA failed to provide some of its surplus electricity for four and a half years, from April 2019 to October 2023, as far as is known. As a result, the transaction price per kilowatt-hour may have increased by 50 yen or more in November 2021.
The Electricity and Gas Transactions Supervisory Commission under the Ministry of Economy, Trade and Industry (METI) issued a recommendation under the Electricity Business Act to JERA to improve its business, claiming that “withholding sales” by power generation companies constituted market manipulation. Although JERA explained that this was due to reasons such as defective system settings, the Commission found it problematic that JERA had been aware of the issue and the inadequacies of its own response for a long period of time, but had neglected to address them.
Is it only JERA that’s manipulating the market?
In March 2023, the Japan Fair Trade Commission (JFTC) issued cease and desist orders and surcharge payment orders against Chugoku Electric Power, Chubu Electric Power, Kyushu Electric Power, and others. In these cases, issues related to the provision of information to the Electricity and Gas Market Surveillance Commission, which issued the current recommendation to JERA, were pointed out.
The JFTC’s investigation revealed that the major power companies exchanged information with each other and even manipulated JEPX’s market prices. If major power companies provide less electricity to the wholesale market and raise prices, it will not only reduce the competitiveness of new electric power companies, but also deprive smaller regional electric power companies, which have no influence on prices, of opportunities for growth. Furthermore, price manipulation in the wholesale market can cause the cost of electricity to rise significantly, to the tremendous detriment of consumers.
Electricity is the foundation of industry and our daily lives. It is a serious problem if the market and the system are unable to deter the problematic behavior of electricity providers that manipulate the supply of their own generated electricity and intentionally alter prices while promoting the “stable supply” of electricity.
In order to ensure fair trading under an environment with appropriate competitiveness in the electricity market, conducting thorough investigations and information disclosure are essential, as well as strengthening regulations and monitoring systems for major power companies in order to prevent unfair price manipulation by the dominant power providers. As consumers, we should not just complain that electricity prices are going up; we also need to look behind the prices and pay close attention to what the power companies are doing.
METI: Business Improvement Admonition to JERA (in Japanese)
JERA: Receipt of Business Improvement Admonition from the Electricity and Gas Market Surveillance Commission regarding Unsolicited Bids in the Spot Market (JERA‘ release written in Japanese)