Tokai II Nuclear Power Plant’s 20 year extension: A story of economic inefficiency and passing the buck
On 28 November this year, the Tokai II NPP will turn 40. On 24 November last year, its operator, Japan Atomic Power Company (JAPC) applied to the Nuclear Regulation Authority (NRA) for a 20 year extension of operations, which would enable Tokai II to run until 2038. The NRA finished safety inspections last October and was preparing to issue a certificate of compliance to the new safety regulations, a prerequisite for granting the 20 year extension, followed by the extended license in April this year. However, at the final stage of proceedings (on 14 November 2017) in order to confirm the financial base of the NPP, the NRA requested an ‘exceptional disclosure’: the guarantor of the 174 billion yen loan that JAPC would be taking out in order to make the necessary safety upgrades.
In 2012, a group of us from Ibaraki Prefecture (where Tokai II is located) as well as eight other prefectures launched a class action lawsuit demanding an injunction on operations at Tokai II. One of our claims was that JAPC did not have an adequate financial base and its operations were therefore illegal. One of the causes of JAPC’s worsening business situation is the emergence of decommissioning costs and reprocessing of spent fuel costs which had, until now, been hidden in utility’s accounting. Below is a report of claims put forward by the citizens’ lawsuit regarding the accounting procedure for decommissioning and JAPC’s business situation.
Reforms to the ‘NPP Decommissioning Accounting’ system
The International Financial Reporting Standard (IFRS) Foundation’s accounting system for Asset Retirement Obligations was implemented in Japan in 2010. After the introduction of this standard, what used to appear on utility balance sheets as ‘reserve fund for dismantling’ became ‘asset retirement obligations.’ Under this standard, in principle, liabilities should be compensated by assets, but the Ministry of Economics, Trade and Industry (METI), in an attempt to veil the insufficiency in reserve funds for decommissioning, issued a ministerial ordinance which allowed utilities to allocate funds for dismantling NPPs based on how much electricity they had generated in a given period. Unfortunately, the following year, 2011, NPPs nationwide were shut down in the aftermath of the Fukushima Daiichi disaster, also bringing collection of reserve funds to a standstill. Somewhat in a panic, in October 2013, METI again reformed the accounting regulations for electricity utilities, setting a fixed amount to be reserved for decommissioning. To deal with the lack of sufficient funds to decommission reactors when they are shut down, they also allowed utilities to pass on decommissioning costs to consumers via their electricity bills, even after the reactor had ceased to generate electricity.
In 2013, we claimed in court that this kind of special arrangement by the national government is flouting business accounting standards.
In 2012, a group of us from Ibaraki Prefecture (where Tokai II is located) as well as eight other prefectures launched a class action lawsuit demanding an injunction on operations at Tokai II. One of our claims was that JAPC did not have an adequate financial base and its operations were therefore illegal. One of the causes of JAPC’s worsening business situation is the emergence of decommissioning costs and reprocessing of spent fuel costs which had, until now, been hidden in utility’s accounting. Below is a report of claims put forward by the citizens’ lawsuit regarding the accounting procedure for decommissioning and JAPC’s business situation.
Reforms to the ‘NPP Decommissioning Accounting’ system
The International Financial Reporting Standard (IFRS) Foundation’s accounting system for Asset Retirement Obligations was implemented in Japan in 2010. After the introduction of this standard, what used to appear on utility balance sheets as ‘reserve fund for dismantling’ became ‘asset retirement obligations.’ Under this standard, in principle, liabilities should be compensated by assets, but the Ministry of Economics, Trade and Industry (METI), in an attempt to veil the insufficiency in reserve funds for decommissioning, issued a ministerial ordinance which allowed utilities to allocate funds for dismantling NPPs based on how much electricity they had generated in a given period. Unfortunately, the following year, 2011, NPPs nationwide were shut down in the aftermath of the Fukushima Daiichi disaster, also bringing collection of reserve funds to a standstill. Somewhat in a panic, in October 2013, METI again reformed the accounting regulations for electricity utilities, setting a fixed amount to be reserved for decommissioning. To deal with the lack of sufficient funds to decommission reactors when they are shut down, they also allowed utilities to pass on decommissioning costs to consumers via their electricity bills, even after the reactor had ceased to generate electricity.
In 2013, we claimed in court that this kind of special arrangement by the national government is flouting business accounting standards.
National policy forcing spent fuel reprocessing
Another hidden cost of nuclear power generation is the processing of spent nuclear fuel, that is ‘backend costs,’ which include temporary storage, reprocessing and final disposal. ‘Reprocessing’ is a national policy which has clearly failed. It is said to cost nearly three times more than final disposal.
Up until recently, the cost of reprocessing was paid by each utility making contributions to the Radioactive Waste Management Funding and Research Center, (the accumulated funds belonging to the utilities) which was in turn paid to Japan Nuclear Fuel Ltd. (JNFL) to run the Rokkasho Reprocessing Plant. However, after the Fukushima Daiichi disaster, there was concern that some utilities may collapse, ending the guarantee of payments for reprocessing. So in 2016 the government set up a new body called the Nuclear Reprocessing Organization (NuRO) which utilities were legally bound to pay into, thereby bringing the state in control of managing reprocessing funds.
Entries such as ‘fund for spent fuel reprocessing’ have thus disappeared from utility’s balance sheets, replaced in their profit and loss statement with an ‘expense’ paid to a state entity, which is relative to electricity generated in regular set periods. If there are insufficient reserve funds, it is simply written off as a ‘reprocessing account payable.’ ‘Final disposal costs’ also do not appear on utility profit and loss statements, as this is now similarly handled by NUMO (Nuclear Waste Management Organization), set up by the government in 2000.
Another hidden cost of nuclear power generation is the processing of spent nuclear fuel, that is ‘backend costs,’ which include temporary storage, reprocessing and final disposal. ‘Reprocessing’ is a national policy which has clearly failed. It is said to cost nearly three times more than final disposal.
Up until recently, the cost of reprocessing was paid by each utility making contributions to the Radioactive Waste Management Funding and Research Center, (the accumulated funds belonging to the utilities) which was in turn paid to Japan Nuclear Fuel Ltd. (JNFL) to run the Rokkasho Reprocessing Plant. However, after the Fukushima Daiichi disaster, there was concern that some utilities may collapse, ending the guarantee of payments for reprocessing. So in 2016 the government set up a new body called the Nuclear Reprocessing Organization (NuRO) which utilities were legally bound to pay into, thereby bringing the state in control of managing reprocessing funds.
Entries such as ‘fund for spent fuel reprocessing’ have thus disappeared from utility’s balance sheets, replaced in their profit and loss statement with an ‘expense’ paid to a state entity, which is relative to electricity generated in regular set periods. If there are insufficient reserve funds, it is simply written off as a ‘reprocessing account payable.’ ‘Final disposal costs’ also do not appear on utility profit and loss statements, as this is now similarly handled by NUMO (Nuclear Waste Management Organization), set up by the government in 2000.
JAPC is already a failed company
1) The worsening financial structure crisis of 2010
The management balance that JAPC had maintained up until 2010 collapsed in that year. This collapse was triggered by a capital injection of 30.3 billion yen to JNFL to overcome the fund shortage at Rokkasho Reprocessing Plant, which was agreed to by each utility. In other words, supporting the national policy of reprocessing broke the business balance of the utility. Due to the introduction of the new accounting standard, other decommissioning costs, the ‘dismantling reserve fund’ of 143.2 billion yen became the ‘asset retirement obligations’ of 205.8 billion yen.
Also, in this year before the nuclear disaster, JAPC invested 58.9 billion yen on Tsuruga NPP Units 3 and 4. Along with other construction expenses and loan repayments, JAPC received 188.8 billion yen in external financing. At the end of the 2010 fiscal year (March 2011) JAPC’s interest payments on loans was 83.4 billion yen, a drastic increase from 16.7 billion yen in the previous year. Up until then, at least on paper, equipment investments had all been covered internally, but from 2010, JAPC became dependent on external financing. Due to these factors as well as their own judgments, 2010 saw JAPC’s business operations begin to tumble.
1) The worsening financial structure crisis of 2010
The management balance that JAPC had maintained up until 2010 collapsed in that year. This collapse was triggered by a capital injection of 30.3 billion yen to JNFL to overcome the fund shortage at Rokkasho Reprocessing Plant, which was agreed to by each utility. In other words, supporting the national policy of reprocessing broke the business balance of the utility. Due to the introduction of the new accounting standard, other decommissioning costs, the ‘dismantling reserve fund’ of 143.2 billion yen became the ‘asset retirement obligations’ of 205.8 billion yen.
Also, in this year before the nuclear disaster, JAPC invested 58.9 billion yen on Tsuruga NPP Units 3 and 4. Along with other construction expenses and loan repayments, JAPC received 188.8 billion yen in external financing. At the end of the 2010 fiscal year (March 2011) JAPC’s interest payments on loans was 83.4 billion yen, a drastic increase from 16.7 billion yen in the previous year. Up until then, at least on paper, equipment investments had all been covered internally, but from 2010, JAPC became dependent on external financing. Due to these factors as well as their own judgments, 2010 saw JAPC’s business operations begin to tumble.
2) From 2011, a growing cash crunch
The Great Eastern Japan Earthquake and Tsunami in 2011 put further pressure on operations, JAPC having to make emergency safety modifications as demanded by the Nuclear and Industrial Safety Agency, which meant short term operating funds all but dried up. JAPC tried various ways of raising cash throughout 2011 and 2012, including selling 7.8 billion yen worth of uranium fuel and taking out a short term loan of 104 billion yen to cover running costs, but in April 2013, the deadline for repayment of the loan, JAPC had only 68 billion yen in available cash. By the end of 2013, there was talk of a possible bankruptcy.
In order to secure another loan, the lending banks demanded that the outstanding loan of 104 billion yen be guaranteed by four other utilities, including Kansai Electric Power Co. (KEPCO), which was arranged by the Chair of the Federation of Electric Power Companies (Denjiren). This enabled JAPC to avoid a cash crisis but this loan guarantee has continued every year since. JAPC also owes 83 billion yen in reprocessing fees which they must pay to NuRO over the next three years. At the end of the fiscal year (March 2017) closure of accounts, JAPC had only 14.1 billion yen in cash.
The Great Eastern Japan Earthquake and Tsunami in 2011 put further pressure on operations, JAPC having to make emergency safety modifications as demanded by the Nuclear and Industrial Safety Agency, which meant short term operating funds all but dried up. JAPC tried various ways of raising cash throughout 2011 and 2012, including selling 7.8 billion yen worth of uranium fuel and taking out a short term loan of 104 billion yen to cover running costs, but in April 2013, the deadline for repayment of the loan, JAPC had only 68 billion yen in available cash. By the end of 2013, there was talk of a possible bankruptcy.
In order to secure another loan, the lending banks demanded that the outstanding loan of 104 billion yen be guaranteed by four other utilities, including Kansai Electric Power Co. (KEPCO), which was arranged by the Chair of the Federation of Electric Power Companies (Denjiren). This enabled JAPC to avoid a cash crisis but this loan guarantee has continued every year since. JAPC also owes 83 billion yen in reprocessing fees which they must pay to NuRO over the next three years. At the end of the fiscal year (March 2017) closure of accounts, JAPC had only 14.1 billion yen in cash.
3) Raising funds for measures to fulfill the new safety regulations
The cost of improving safety measures at Tokai II shot up from 43 billion yen to 174 billion yen when the NRA inspections showed that additional equipment would be required. JAPC must show that they can secure a loan to cover these costs if they are to receive approval for the extension of operations.
The cost of improving safety measures at Tokai II shot up from 43 billion yen to 174 billion yen when the NRA inspections showed that additional equipment would be required. JAPC must show that they can secure a loan to cover these costs if they are to receive approval for the extension of operations.
4) Thinning responsibility and passing the buck
The NRA Chair, Mr. Fuketa, commented in November last year that the condition, which JAPC must fulfill, is limited to securing a loan only for the safety measures, and it is really the responsibility of Denjiren, as a ‘parent company’ to ensure the safety and future business as ‘shareholders.’ He also mentioned that METI was also responsible as they have administrative jurisdiction over the entire enterprise. Mr. Fuketa showed openly how responsibility is passed on.
Denjiren’s Chair responded by saying that the utilities would come up with something if a concrete fundraising plan was presented to them, and that as ‘shareholders’ they want Tokai to restart as soon as possible so finances can be stabilized.
At the same time, METI leaked information to the media that JAPC had a serious shortage of decommissioning funds because they had diverted their reserve funds to construction work at Tsuruga Units 3 and 4. It is not exactly true to say that they ‘diverted their reserve funds.’ Since the change in accounting standard there is no such thing as ‘decommissioning funds,’ and therefore one can only look at the balance between debts and assets. However, almost all of JAPC’s present fixed assets will have lost their value before decommissioning. At the same time, decommissioning costs will extend into the long term but JAPC’s ability to generate cash is in serious doubt. Already the financing they receive is not for decommissioning, so if they were to shift that cost onto power bills again, it would be double-dipping, that is, forcing customers to pay twice. The message that METI is trying to send by leaking such information to the media is ‘Utilities are the shareholders of JAPC. They should therefore finance the restart of Tokai II by increasing equity capital’ or ‘JAPC should be bailed out by TEPCO acquiring Tokai II and KEPCO acquiring Tsuruga.’ It’s their last gasp.
The NRA Chair, Mr. Fuketa, commented in November last year that the condition, which JAPC must fulfill, is limited to securing a loan only for the safety measures, and it is really the responsibility of Denjiren, as a ‘parent company’ to ensure the safety and future business as ‘shareholders.’ He also mentioned that METI was also responsible as they have administrative jurisdiction over the entire enterprise. Mr. Fuketa showed openly how responsibility is passed on.
Denjiren’s Chair responded by saying that the utilities would come up with something if a concrete fundraising plan was presented to them, and that as ‘shareholders’ they want Tokai to restart as soon as possible so finances can be stabilized.
At the same time, METI leaked information to the media that JAPC had a serious shortage of decommissioning funds because they had diverted their reserve funds to construction work at Tsuruga Units 3 and 4. It is not exactly true to say that they ‘diverted their reserve funds.’ Since the change in accounting standard there is no such thing as ‘decommissioning funds,’ and therefore one can only look at the balance between debts and assets. However, almost all of JAPC’s present fixed assets will have lost their value before decommissioning. At the same time, decommissioning costs will extend into the long term but JAPC’s ability to generate cash is in serious doubt. Already the financing they receive is not for decommissioning, so if they were to shift that cost onto power bills again, it would be double-dipping, that is, forcing customers to pay twice. The message that METI is trying to send by leaking such information to the media is ‘Utilities are the shareholders of JAPC. They should therefore finance the restart of Tokai II by increasing equity capital’ or ‘JAPC should be bailed out by TEPCO acquiring Tokai II and KEPCO acquiring Tsuruga.’ It’s their last gasp.
5) JAPC is the ‘subsidiary’ of TEPCO and the utilities? Tokai II is the ‘product’ of their joint research?
JAPC is the public/private golden child of the nine utilities and J−Power, which was then a public entity. It has now ended this role and is instead showing us the end of the road for the ‘nuclear power specialist model company,’ as the structural problems with nuclear power profitability come to the surface.
JAPC has claimed in court that they are a subsidiary of TEPCO and KEPCO and that Tokai II is the product of joint research of TEPCO and Tohoku Electric. That is why it is only natural that these utilities cover maintenance costs while they are shut down and investment costs to get them restarted and even decommissioning costs when the time comes. The plaintiffs are demanding that utilities sign a basic agreement setting out who will pay costs after Tokai II is shut down.
JAPC is the public/private golden child of the nine utilities and J−Power, which was then a public entity. It has now ended this role and is instead showing us the end of the road for the ‘nuclear power specialist model company,’ as the structural problems with nuclear power profitability come to the surface.
JAPC has claimed in court that they are a subsidiary of TEPCO and KEPCO and that Tokai II is the product of joint research of TEPCO and Tohoku Electric. That is why it is only natural that these utilities cover maintenance costs while they are shut down and investment costs to get them restarted and even decommissioning costs when the time comes. The plaintiffs are demanding that utilities sign a basic agreement setting out who will pay costs after Tokai II is shut down.
Conclusion
The tug-of-war over restarts of NPPs in Japan since the Fukushima Daiichi accident which started in western Japan has finally reached eastern Japan and the capital area where people experienced the disaster first hand.
The restart of Tokai II starkly shows the contradictions inherent in nuclear power. What is becoming increasingly obvious here in Japan is the shirking of responsibility on the part of the government, the NRA commissioners and the utilities. As the miserable end of public/private nuclear power generation, after a half century, draws closer, Tokai II clearly shows the battle lines between electricity capital and citizens, who want utilities, including TEPCO, to take responsibility until decommissioning is complete.
Drawing on the persistence and strength of those who have fought the no-nukes battle for long years, as well as the grief and suffering of the people of Fukushima, this battle, to stop restarts and to demand that responsibility for decommissioning is fully realized, is one that we must win.
The tug-of-war over restarts of NPPs in Japan since the Fukushima Daiichi accident which started in western Japan has finally reached eastern Japan and the capital area where people experienced the disaster first hand.
The restart of Tokai II starkly shows the contradictions inherent in nuclear power. What is becoming increasingly obvious here in Japan is the shirking of responsibility on the part of the government, the NRA commissioners and the utilities. As the miserable end of public/private nuclear power generation, after a half century, draws closer, Tokai II clearly shows the battle lines between electricity capital and citizens, who want utilities, including TEPCO, to take responsibility until decommissioning is complete.
Drawing on the persistence and strength of those who have fought the no-nukes battle for long years, as well as the grief and suffering of the people of Fukushima, this battle, to stop restarts and to demand that responsibility for decommissioning is fully realized, is one that we must win.
<Summary of an article written by Mitsunobu Ohishi, Co-Representative of the class action lawsuit demanding an injunction on Tokai II>
