Wednesday, 19 October 2011

Japan's Nuclear Power Plants

"Power Companies Borrow Record in Loans as Cost of Fuel Jumps" talks about the troubles of Japan's investor-owned utilities.

Tokyo Electric Power Co., Japan’s largest utility, and its peers are facing lower profit margins as the shutdown of Japan’s atomic plants after the world’s worst accident since Chernobyl has forced the utilities to burn more natural gas and coal to meet demand. ...

There were no bond sales announced by nuclear plant operators in Japan since the quake, Bloomberg data show. The extra yield investors demand to own power company debt instead of similar-maturity government notes soared to a peak of 202 basis points on June 29, from 12 basis points a day before the disaster, according to Bank of America Merrill Lynch data.

The spread narrowed to 39 basis points on Oct. 5, following Tokyo Electric’s win of state support to help compensate Fukushima victims on July 28. ...

The March 11 disaster triggered explosions at the Fukushima plant operated by Tokyo Electric, contaminating soil, waters and forests with radiation. Since then, reactors that were stopped for maintenance remain shut amid government- mandated tests to assess whether the plants can withstand strong quakes, tsunamis or a loss of power to cooling systems.

As of Oct. 6, only 10 of the country’s 54 nuclear reactors were generating power, according to Japan Nuclear Technology Institute data.

Should the utilities bear the cost of the nuclear plant shutdowns?


  1. I believe that since it's because of the security breaches of the power plant that such a disaster has occurred, the cost shouldn't be born by the entire society. And indeed the society has already suffered enough from the accident. They shouldn't pay further cost for this. However, as the article says, if the high costs remain for two to three years the power companies may really have funding trouble. In that case the government may do something to prevent them from falling.

  2. Natural disasters have always created economic instability in the countries they affect. The fact that the disaster triggered explosions points to ineffective security measures enforced by utility company. Though the company isn’t responsible for all the harm caused to the environment, they do need to bear the costs of improving security to avoid with problems caused by further possible leaks.

  3. Government financial aid such as lower interest loans should be provided to those utilities. Or at least, the government is supposed to do something like bond principal payback guarantee to reduce those utilities' cost of raising working capital. As learned from the lesson of Greek sovereign debt crisis, funding problem of those institutions that are "too big to fail" should be settled as soon as possible before it goes out of control. In this case, the utilities are not able to recover their profit margins until tests on nuclear plants are finished. As a result, we shouldn't expect themselves to get rid of this. We also don't want to see the top 5 utilities in the country to restructure. So the best solution is to use government power to cut down its financing cost instead of asking them to take the responsibility when they even have difficulty in surviving. However, after their profitability and financial health picks up, the utilities are expected to make up the tragedy resulted from their insufficient security measures. For example, the government could urge them to pay extra special tax or spend more in CSR events.

  4. Should there be distinction between Tokyo Power, which owned the plants with the meltdowns, and the other power companies?

  5. I think that with owning and operating any business, you run the risk of failure due to a number of reasons. In the case of Tokyo Power, they were extremely unfortunate that the tsunami slammed one of its plants. I do think that there should be significant government support in containing the after-effects of the tsunami, but with any privately run business, I think that Tokoyo Electric should bear the majority of the costs from the disaster.

  6. This effect and need to increase costs was due to an unpredictable force of nature and also the power companies lack of measuring safety precautions properly. Nothing in this cause was due to the utility companies and therefore they should not be bearing the cost of this. The power companies earn enough money as it is and should be paying for the lackluster security of their facilities.

  7. Government funding programs for damages seem quite necessary in this situation since human lives are at risk with longer exposure time or heightened risk to radiation. The government should help fund the restoration of the facilities and make firms pay the portion of ensuring compliance with the new regulations.

    Also, to address Professor's question there should not be a distinction between Tokyo Power and the other firms. The entire Japanese economy was affected by the tsunami and countless firms faced decreasing profit margins. All Japanese companies will face some difficulty overcoming the damages from the tsunami, but not all of these costs should be borne by the taxpayers.

  8. It only seems fair that all the parties involved should suffer equally. Therefore, the larger companies (Tokyo Power) maybe should be forced to bear a greater percentage of the overall burden.

    To answer the initial question though, it seems that the government should throw its hat in the ring, and bear some of the costs because after all it was the government's responsibility to implement, and ensure that safety regulations and procedures were being followed.

  9. Maximilian Roedder2 November 2011 at 12:44

    I think that the companies should bear the costs of nuclear plant shutdowns. The government should only participate in paying the costs if the new regulation were unnecessary and surprising for the regulated companies. In this case, however, the new regulation (tests and new safety requirements) seem to be very reasonable after the accident has proven that the old safety measures were not sufficient.