4-33, Komachi
The Chugoku Electric Power Company (CEPCO) generates and supplies electricity to the Chugoku region of Japan, the most westerly part of Japan's main island, Honshu. The region is made up of the prefectures of Yamaguchi, Hiroshima, Shimane, Tottori, and Okayama, which with local heavy industry and a total population of 7.75 million provides the sixth-largest customer base of the nine electric power companies in Japan. Its electricity-generating capacity is dominated by oil-and coal-burning thermal power stations, though many oil-burning stations are currently being converted to run on imported coal. The company also utilizes hydroelectric power to a great extent and is diversifying its generating capacity into liquefied natural gas (LNG)-powered plants. In February 1989, 15 years after opening its first nuclear power station, the company began operating its second, both located in the Shimane prefecture. Both coal and LNG are becoming more important as CEPCO seeks to further diversify its generating base.
CEPCO was incorporated along with the other eight regional electric power companies in May 1951, but the story of its foundation goes back to the start of the Allied occupation of Japan in 1945. Japan's energy-intensive, military industrial complex, centered around the production of steel, ships, and munitions, had been largely destroyed at the beginning of the occupation. Although the nuclear bomb dropped on Hiroshima in August 1945 had all but destroyed the main industrial city of the Chugoku region, and enormous damage had been caused by conventional bombing of other industrial sites in the region, Chugoku's electricity-generating facilities had survived the war relatively unscathed. The first year of the Allied occupation saw an energy surplus in the region due to the wartime depletion of industrial demand. This pattern was mirrored throughout the country. As the process of postwar reconstruction gathered pace, however, demand for electricity increased dramatically and soon exceeded supply. The General Headquarters of the Allied Powers (GHQ) feared that an expansion of electricity production under the surviving and highly centralized wartime structure of the Japan Electricity Generation and Transmission Company (JEGTCO) and the nine local distribution companies could be a step in the direction of rearmament. The wartime structure itself had played a key role in Japan's military expansion in the first place. In 1948 GHQ decided to dismantle the centralized JEGTCO structure and replace it with nine regionally-based, vertically-integrated electricity generation and distribution companies. After a certain amount of disagreement between GHQ and the fledgling Japanese government about the precise structure, status, and organization of the new companies, the government acted to establish the nine electric power companies by implementing the Electricity Utility Industry Reorganization Order and the Public Utilities Order.
On May 1, 1951 operating rights and facilities of the state-run Chugoku branch of the Japan Electricity Generation and Transmission Company and the Chugoku Electric Power Distribution Company were taken over by the newly created Chugoku Electric Power Company. Under government decree, the new company was given the task of generating and supplying electric power to the entire Chugoku district.
While the demand for electricity had already caught up with supply in the late 1940s as a result of rapid reconstruction, the manufacturing economy of Chugoku was given a further boost in the 1950s by the need for components and material support for the war raging on the Korean peninsula. The resulting surge in demand for electricity from local industry stimulated CEPCO to seek the immediate stabilization and expansion of its generating capabilities. The company turned to the United States for technical assistance toward expanding generating capacity through the construction of new coal- and oil-fired thermal power stations.
By the early 1960s the Japanese economy had entered a period of unprecedented growth, and demand for electricity in Chugoku was increasing by over 10% per year. This need was fueled by industrial demand from the chemicals, metals, steel, shipbuilding, and automobile industries which were growing up along the region's southern coastal corridor. New demand also came from the rapidly expanding small-business sector and from private consumers. The latter were beginning to see the fruits of Japan's rapid postwar growth as an increasing number of electric household goods came on the market. The additional electricity necessary for lighting and heating, and in the summer months for air-conditioning, contributed substantially to the company's business.
The surge in demand for electric power required the progressive modernization and expansion of CEPCO's electricity generation and transmission facilities. In 1962 the company completed the 81-kilometer, 220,000-volt Chugoku-West trunk line and substations, resulting in a super-high-voltage transmission system linking the Chugoku region with Kansai to the east and Kyushu to the west. By the mid-1960s the annual rate of growth in electricity demand and production was dramatic.
From the early 1960s new generating facilities developed by CEPCO were predominantly thermal plants using imported oil and coal rather than the more traditional hydroelectric power. These included a total of five coal-fired plants commissioned at Mizushima and Shin Ube between 1958 and 1964 and oil-powered facilities opened at Kudamatsu and Iwakuni in 1964 and 1966 respectively. In terms of generating volume, hydroelectric power exceeded that of thermal electric power in 1963, but a decade later the balance had changed to 88% thermal, 10% hydroelectric, and 2% nuclear. This was due not only to the new availability of cheap oil from overseas as an alternative source of energy, but also to technological advancements which had brought the cost of building thermal power stations substantially below that of hydroelectric equivalents.
By 1971, after more than 15 years of uninterrupted growth in demand for electricity in the region accompanied by the continued availability of cheap oil, the first signs of a slowdown in CEPCO's performance began to appear. In that year the Organization of Petroleum Exporting Countries (OPEC) managed to secure the first substantial increase in the price it was charging for oil. This did not cause immediate problems for CEPCO other than necessitating a slight revision of revenue projections, though this was more than offset by continued strong demand from the industrial and domestic sectors. On the expenditure side of the company's finances, rising personnel and repair costs were starting to undermine the company's annual financial performance, though not drastically. The company's investment plans were also influenced by government regulations aimed at reducing atmospheric pollution levels which required the installation of expensive flue gas scrubbers in thermal power stations. CEPCO responded to these changing and challenging conditions by bringing forward the completion dates for a number of its new power-generating projects. These included the company's first nuclear power plant at Shimane and two oil-burning plants at Tamashima and Iwakuni.
In early 1971, with Kansaku Yamane as president and Kimio Sakurauchi as chairman, CEPCO was anticipating further steady--and by international standards, spectacular--growth in the forseeable future. However, the outbreak of war in the Middle East in mid-1973 and the subsequent quadrupling of oil prices by OPEC hit Japan harder than any other country in the Organization for Economic Co-operation and Development (OECD) because of the country's heavy dependence on Middle-Eastern oil. The immediate effect on CEPCO was an increase in the price of fuel for its oil-powered thermal generating plants. This resulted in financial difficulties in the short term because the company, like Japan's eight other electric power companies, was not free to pass on the higher fuel rates to its industrial and domestic consumers without approval from the Ministry of International Trade and Industry (MITI). In December 1973 the Japanese government introduced measures to enforce conservation of electric power, but it was not until later the following year that MITI finally consented to allowing a 60% electricity rate increase for CEPCO and the other electric power companies. The first sharp rise in the electricity rate for 20 years, though alleviating short-term financial pressures on the industry as a whole, failed to ultimately benefit the power companies because the price of oil continued to rise. Furthermore, as higher charges were passed on to the large energy-intensive manufacturing sector, output fell, inflation rose, and the economy moved into its first real post-war recession.
The oil-price hikes which continued throughout the 1970s stimulated a major reappraisal of Japan's resource security. While individual power and oil companies were able to meet their requirements for oil by paying inflated prices at spot markets around the world, it soon became apparent that Japan needed to diversify its supply of energy away from the Middle East and its oil.
Although a number of projects had been in the planning phase for some time, the events of 1973-1974 added urgency to strategic decision-making in Tokyo and at CEPCO's head office in Hiroshima.
The commissioning in 1974 of the Shimane Boiling Water Reactor (BWR) as CEPCO's first nuclear power unit, with a capacity of 460 megawatts, contributed substantially to oil-saving measures. In 1976 the diversification policy was pursued actively through a large financial commitment towards construction of the 620-megawatt pumped-storage-type hydroelectric power complex at Nabara.
By 1976 both local and national economies were recovering, and CEPCO's sales for that year increased by 21% over the previous year after much lower sales in the 1974-1975 period.
In spite of the strenuous efforts made by CEPCO after the first oil shock in 1973-1974, by the time of the second oil crisis, following the Iranian revolution in 1979, CEPCO was still heavily dependent on imported oil for electricity generation. Its vulnerability to rising oil prices was such that in 1980 CEPCO was forced to raise its rates again, this time by 67%, the highest rate rise of the nine electric power companies. In the same year, in order to accelerate the diversification policy, it was decided that three existing oil-burning power stations at Shin Ube would be converted to coal power.
In 1981 CEPCO was still dependent on oil for 52% of its generating capacity, the highest dependency of the nine electric power companies. To reduce further the destabilizing effects of this dependency, in 1980 plans were launched by CEPCO to import coal from China and Australia, and since 1989 liquefied natural gas has been imported from Australia.
The Three Mile Island nuclear accident in the United States in 1979 led to a suspension of nuclear-plant construction plans in Japan for one year, and resulted in a general distrust of all nuclear-related matters by the Japanese population, especially in the Hiroshima region. Nevertheless, the building of Shimane No. 2 started in July 1984. The plant began operations less than five years later, in February 1989, adding a further 820 megawatts of capacity to the existing output of 460 megawatts from the Shimane No. 1 reactor. Also in 1989, plans were completed to build a third nuclear reactor in Yamaguchi Prefecture to provide electric power for the early 21st century.
In 1991 CEPCO's chairman, Kenichiro Matsutani, headed a company with a much-reduced dependency on imported oil and a generating capacity well diversified between imported LNG, coal, and oil, and locally-produced hydroelectric and nuclear power. As the leader of the Chugoku business community, with a regional monopoly in the supply and distribution of electricity to domestic and industrial customers, CEPCO is now better prepared for fluctuations in the price of energy resources and demand for electricity than it has been for many years.
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