KYUSHU ELECTRIC POWER COMPANY INC. History

Company History:

The Kyushu Electric Power Company (KEPCO) supplies electricity and other services to the most southerly of Japan's four main islands, Kyushu, and to a large number of much smaller islands within the jurisdiction of Kyushu's prefectural governments. Its electricity-generating capacity is well diversified between hydroelectric power (HEP), nuclear power, coal, oil, and gas. In addition KEPCO runs the largest geothermal electricity-generating program in Japan. Of the company's thermal electricity-generating capacity, about 60% is conventionally generated, with oil-powered plants accounting for the majority of production, and liquid natural gas (LNG) and coal accounting for the rest. Both coal and LNG are becoming more important as KEPCO seeks to diversify its generating base further. The company now receives LNG on long-term contract from Indonesia and Australia, and coal from the People's Republic of China and Australia. In terms of nuclear generating capacity, KEPCO is the third largest producer out of Japan's ten electric power companies (EPCs) and has consistently performed better than the sector average in terms of both reliability and in terms of nuclear energy's share of total electricity output. Forty-one percent of the electricity in Kyushu is nuclear generated, against the Japanese average of twenty-one percent. In addition to the company's mainstream activities, it is conducting research and development into a number of electricity-related fields aimed at raising demand for electricity by making it a cheaper and more flexible alternative to other power sources. These activities include research into domestic cookers, and heat pumps for the agricultural sector. The company is also developing generating systems that combine solar panels and diesel generators for use on Kyushu's remote islands. In 1987, in an effort to diversify business operations and to make the best use of available technology and equipment within the company, KEPCO established a car telephone business and expanded its optical fiber communications network for possible commercial use.

KEPCO was incorporated along with the other eight regional EPCs 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 eradicated by the start of the occupation. Although the nuclear bomb aimed at one of Kyushu's major shipyards, Nagasaki, had failed to destroy the industrial target, enormous damage had been caused by conventional bombing of other industrial sites in northern Kyushu. Because part of Kyushu's electricity-generating facilities had survived the war relatively unscathed, the first year of occupation saw an energy surplus in the region. This pattern was mirrored throughout the country. As the process of reconstruction gathered pace, 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 local distribution companies could be a step in the direction of rearmament because the structure itself had been an integral factor in Japan's military expansion in the first place. In 1948 CHQ decided to dismantle the centralized JEGTCO structure and replace it with regionally-based, vertically-integrated electricity generation and distribution companies. After a certain amount of disagreement between GHQ and the fledgling Japanese government regarding the precise structure, status, and organization of the new companies, the government acted to establish the EPCs by implementing the Electricity Utility Industry Reorganization Order and the Public Utilities Order.

On May 1, 1951, operating rights and facilities of the staterun Kyushu branch of the Japan Electricity Generation and Transmission Company and the Kyushu Electric Power Distribution Company were taken over by the newly-created Kyushu Electric Power Company. KEPCO's first president was Tokujiro Sato, and under government decree the new company was given the task of generating and supplying electric power to the entire Kyushu district including outlying islands. The company's start-up capital was ¥760 million.

While the demand for electricity had already caught up with supply in the late 1940s thanks to rapid reconstruction, the manufacturing economy of Kyushu was given a second boost by demand for components and material support for the war raging on the Korean peninsula. The resulting surge in demand for electricity from local industry stimulated KEPCO to seek the immediate stabilization and expansion of its generating capabilities and the company turned to the United States for assistance. The latest technology was imported for Kyushu's first Arch-Type dam--an arch-shaped concrete structure across a valley, which faces up the valley when seen in plan--at the Kamishiba HEP station. In addition, the company imported a model plant--bought off-the-shelf, and of a tried and tested design--from the United States, which was built at Karita, and work was undertaken to expand and strengthen the high-voltage distribution trunk lines and other installations in the central and northern parts of Kyushu.

In April 1957 a new 220,000-volt trunk line was inaugurated in order to enhance distribution of electricity to the industrial centers of Kyushu where demand was already starting to outstrip KEPCO's ability to distribute electricity, and to allow further expansion of electricity consumption in the future. By the end of the 1950s, as a result of the incorporation of new technology and plant, KEPCO had managed to double its generating capacity while increasing its thermal efficiency--a measure of the conversion rate from thermal energy to electrical energy in a generating system--from 20% to over 30%.

By the early 1960s demand for electricity in Kyushu was increasing by over 10% per year, fueled by industrial demand from heavy industry in the north of the island, from the rapidly-expanding small business sector, and from private consumers. The latter were using more electricity for lighting and heating, and in the summer months for air conditioning. By the mid-1960s the annual peak demand for electricity in Kyushu, with its warm climate, had switched from winter to summer as a direct result of the growing use of air conditioning.

In the past KEPCO and its predecessor had relied on local coal production to generate electricity, but by the late 1950s oil had started to appear a far cheaper and more flexible alternative. In 1955 Kyushu had produced 23 million tons of coal or 43% of Japan's coal output, much of it for the energy industry. But as the switch to oil-fired power stations proceeded, local coal production was progressively cut back. By 1988 Kyushu produced slightly more than 4 million tons of coal.

In the meantime, new generating facilities were tending to use imported oil and coal. While hydroelectric power (HEP) had accounted for a large proportion of generating capacity in the first half of the century in Kyushu, its relative importance had started to decline by the early 1960s. This was due not only to the availability of cheaper alternative sources of energy, but because technological advancements had brought the cost of building thermal power stations substantially below that of HEP equivalents.

In August 1968 KEPCO achieved 3,000 megawatts of electricity production for the first time and, with demand still rising year by year, further oil- and coal-powered facilities were inaugurated. In July 1969 a large crude-oil-powered thermal power station opened at Oita. In the same year KEPCO strengthened its international standing by establishing a technical exchange agreement with the Korea Electric Power Co.

In early 1973, with Kiyoshi Kawarabayashi in the position of president, KEPCO was looking towards further steady--and by international standards, spectacular--growth in the foreseeable future. The outbreak of war in the Middle East in mid-1973 and the subsequent quadrupling of oil prices imposed by the Organization of Petroleum Exporting Countries (OPEC) hit Japan harder than any other Organization for Economic Cooperation and Development (OECD) country because of the country's heavy dependence on Middle Eastern oil. The immediate effect on KEPCO was to raise the price of fuel for its oil-powered thermal generating plants. This resulted in financial difficulties in the short term because the company, like the rest of Japan's EPCs, was not free to pass the higher fuel rates on 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 48% electricity rate rise for KEPCO and the other EPCs. Although it alleviated short-term financial pressures on the generation industry as a whole, the first sharp rise in the price of electricity in 20 years failed to benefit the power companies in the medium term because the price of oil continued to rise. Furthermore, as higher charges were passed on to the large energy-intensive manufacturing sector in Kyushu, a chain of events was set under way leading to a wholesale restructuring of the Kyushu economy away from energy-intensive industrial production. This in turn stimulated KEPCO to reappraise its customer base and eventually concentrate on the non-manufacturing sector--consumption by offices and the retail and service sectors--to make up the shortfall in demand from heavy industry.

The oil price hikes which continued throughout the 1970s stimulated a major reappraisal of resource security at the national level. While individual power companies and oil companies were able to meet their requirements for oil by paying inflated prices in spot markets around the world, it soon became apparent that Japan needed to diversify its supply of energy away from the Middle East and away from 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 KEPCO's head office in Fukuoka. In July 1974 the Electric Power Resource Development Adjustment Council in Tokyo approved construction of a second nuclear plant at Genkai in northwest Kyushu with a planned capacity of 559,000kW. In October 1975 Genkai No. 1 Nuclear Power Station was inaugurated and in December 1975 the Taihei thermal power station started operations.

While the Japanese economy languished in recession in the mid-1970s, KEPCO was achieving encouraging results at its Genkai No. 1 Nuclear Power Station. The pressurized water reactor (PWR) set a Japanese record for trouble-free running by operating for 367 days without an unscheduled break, much to the pleasure of the then president of KEPCO, Saburo Nagakura. In addition to the nuclear development program, liquid natural gas (LNG)-fired thermal energy was actively pursued as an efficient and clean alternative to oil. In 1977 KEPCO entered into a long-term contract to the year 2000 for the supply of LNG from North Sumatra.

The island of Kyushu is noted for its geothermal resources and by the end of the 1970s these were also being utilized by KEPCO to complement its conventional generating facilities. In June 1977 Hachobaru geothermal power station opened, and in April 1980 it achieved an output of 55,000kW, making it the largest of its type in the country. The company is actively developing its geothermal sites on the Hakusan and Kirishima volcanic plateaus. Together, KEPCO's geothermal facilities account for half of Japan's geothermal energy production.

Although there had been some easing of electricity prices in 1978, in 1980 KEPCO was forced to raise its rates again by a further 46%. This was a result of further steep rises in the price of oil in the aftermath of the Iranian revolution. But by this stage KEPCO's prospects of a secure and stable energy supply were looking better than they had for a number of years. Despite the widespread alarm in Japan caused by the Three Mile Island nuclear accident in 1979, KEPCO took several steps toward becoming one of Japan's major generators of nuclear power. In 1980 the Nuclear Safety Commission (NSC) held public hearings concerning the construction of No.2 Sendai nuclear plant and in the same year MITI started hearings about the construction of Genkai No.3 and No.4 PWR projects. These new nuclear plants will be the first of their type in Japan and are designed so that they can quickly adjust their generation to changes in demand in the daytime and at night. Their planned generation capacity is 1,180MW each and they are due to start operation in the mid-1990s.

Electric Power Development Company (EPDC) was founded jointly by the Japanese government and the power companies immediately after the end of World War II for the purpose of propelling the nation's power resource development. KEPCO is now working with EPDC to build a large coal-powered power station at Matsuura, Nagasaki Prefecture. Due for completion in 1994, and with a planned capacity of 2000MW, the Matsuura No. 2 coal-fired generating plant is currently under construction, also in collaboration with EPDC. KEPCO is also building two coal-powered units at Reihoku with a planned combined output of 1400MW.

KEPCO's current chairman, Tetsuya Watenabe, is now heading a company with better future prospects than it had for many years. The leader of the Kyushu business community is also leading Japan's other EPCs in the development of new energy resources. Despite opposition from the anti-nuclear lobby, particularly after nuclear accidents at Three Mile Island and Chernobyl, the company has managed to commission a nuclear program which accounts for 41% of its electricity production, twice the national average. With an electricity monopoly in Kyushu and a highly diversified generation base, the company's future looks secure.

Further Reading:

Thomas, Steve and Chris Cragg, Japan Power Station Fuel Demand to 2000, London, Financial Times Business Information, 1987. History of the Electric Power Industry in Japan, Tokyo, Japan Electric Power Information Center, March 1988.

Source: International Directory of Company Histories, Vol. 5. St. James Press, 1992.

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