Shikoku Electric Power Company, Inc. History

Company Perspectives:

Making effective use of its human, technological, and other corporate resources, Shikoku Electric Power, as a leading enterprise in the locality, carries on positive business operations in various sectors in cooperation with Shikoku Electric Group companies under its three-point basic corporate philosophy: "Living together with the local community, advancing with the local community, and prospering with the local community."

Key Dates:

1911:

Japan enacts the Electric Utility Industry Law.

1920:

By now, there are 3,000 power companies in Japan.

1948:

The General Headquarters of the Allied Powers creates nine regionally based electricity generation and distribution companies.

1951:

Shikoku Electric is incorporated to provide power to the island of Shikoku.

1978:

The Ikata Nuclear Plant goes online.

1995:

Japan partially liberalizes its electricity market.

2000:

Deregulation begins in the retail sector of Japan's electric power industry.

Company History:

Shikoku Electric Power Company, Inc. is one of the ten major regional power companies that generate, transmit, and distribute electricity throughout Japan. The company supplies electricity to all four of Shikoku's prefectures--Tokushima, Kochi, Ehime, and Kagawa--and serves over four million customers. As of March 2003, its generating capacity was 6,894 megawatts, stemming mostly from its thermal and nuclear generating operations. Japan partially deregulated its retail electric power sector in March 2000, leaving Shikoku's market open to competition. As such, the company is focused on strengthening its core operations while branching out into new business areas.

Shikoku Electric was formed as a company on May 1, 1951, when the General Headquarters of the Allied Powers (GHQ) under General MacArthur approved a plan submitted by the Japanese government to reorganize and rationalize the electrical power industry. Under the scheme, which was developed in 1948, the nation was divided into nine blocks, each with its own privately owned electric power company (EPC). In 1972, the Okinawa EPC was added as a tenth company.

At the time of inauguration, the nine companies served 16 million customers with a combined capacity of 8,500 megawatts (MW). Of this, Shikoku Electric's portion was a relatively small 290MW, or just over 3 percent. Shikoku was the smallest and least developed of Japan's four main islands but since ancient times maintained close ties with the old capital cities in Honshu such as nearby Kyoto, Nara, and more recently Tokyo. It has played an important role as a transit island in shipping between Japan and its trading partners through ports such as Kochi on the south Pacific Coast. Although the chief industries in the region have traditionally been low-technology, such as forestry and handicrafts, there was a boom in the Ehime and Kagawa prefectures in the high-technology sector in the 1980s, prompted in part by the government's "Technopolis" scheme to promote high-technology industry in Shikoku. There was also an increase in tourism on the island, peaking in 1989. Thus the history of electric power on a large scale in Shikoku starts fairly recently.

Early History of Japan's Electric Power

The history of electric power in Japan as a whole, however, goes back to 1878 when Professor W.E. Aryton of the Institute of Technology in Tokyo unveiled an arc lamp to celebrate the opening of the Central Telegraph Office. Japan's first electric utility company was established in 1886, seven years after Thomas Edison invented the incandescent lamp in the United States. The company was Tokyo Electric Lighting Company, and its first electric power plant--which was also the first in Japan--was completed in 1887 as a 25 kilowatt (kW) facility in Nihonbashi, Tokyo.

Throughout its history, Japan had been able to assimilate and improve upon outside technology and ideas, and electric power was no exception. After the opening of the Tokyo Electric Lighting plant, many electric utilities started up in main cities. Although demand had increased rapidly--electricity was a great improvement over the troublesome oil lamps then in use--service was generally limited to government and commercial offices and factories. Most of the first plants in Japan were thermal, powered by coal, but in 1891 the first hydroelectric power station was completed in Kyoto. A large part of the demand for electricity came from the electric railways that were springing up all over the country. Spurred on by these developments, electricity in the form of electric lighting was first introduced to Shikoku in 1896 by the Tokushima Electric Lighting Company in Tokushima City. The next seven years saw the spread of electric lighting into Shikoku's four prefectures by Takamatsu Lighting, Tosa Lighting, and Iyo Hydroelectric Power, which pioneered hydroelectricity in Shikoku by building the first plant in Ehime prefecture in 1903. The years 1896 to 1912 saw the rapid development of these four power companies. The turnover of Tokushima Electric, for example, increased a thousandfold between 1900 and 1912. The most common initial usage of electricity was in the lighting of streets and public areas, but increasingly the upper-class town dwellers had electric lights installed in their homes.

In 1911, the government enacted the Electric Utility Industry Law. The law necessitated government permission for the production and distribution of electric power. By 1920, there were 3,000 power companies in Japan, riding on Japan's economic boom, and the number operating in the towns of Shikoku numbered about 50. The depression of the 1920s in Japan, following its defeat in World War I, was exacerbated by the Great Kanto Earthquake in 1923 and the worldwide market crash in 1929. While the Great Depression did not have an excessive effect on the economy of Shikoku, it did prevent growth during this period. The period between 1926 and 1937 can be characterized as the era of the "Big Five" in the history of electric power in Japan. It was dominated by Tokyo Electric Lighting and Daido Power in particular. The government regulated the industry by passing four laws in 1938 which ensured state control over prices, plant development, transmission, and all other aspects of the industry. In effect, it had formed one of the largest electric companies in the world with the establishment of JEGTCO (Japan Electric Generation and Transmission Company). The Allied bombing of Japan from 1943 to 1945 seriously damaged 44 percent of Japan's power stations and devastated Japanese industry. Shikoku, however, not being a strategic target, was largely untouched. The GHQ, which was effectively in charge of Japan from 1945 to 1952, made sweeping changes in Japan's electric power industry.

Postwar Changes

The Council for Reorganization of Electric Utility Industry was formed in 1949 and chaired by Yasuzaemon Matsunaga, former president of Toho Electric Power Company. After much negotiation, a plan was produced that divided the country into nine areas, each with its own privately owned electric power company. Thus the Shikoku Electric Power Company was formed, with initial capitalization of ¥400 million ($1.1 million).

The first chairman was Yoichi Takeoka, who was formally in charge of Takamatsu Electric Light Company. Takeoka began a consolidation of Shikoku Electric's facilities and the company embarked on an immediate expansion program. Just two months after the company's establishment, work began on a hydroelectric facility on the Kuro River. Like the rest of Japan, much of the center of Shikoku is mountainous and thus a good source of hydroelectric power, on which most of Shikoku's power facilities at this time operated. The company began to promote the use of electric power in the more rural areas that had previously been uneconomical markets for the smaller utilities in Shikoku. The central headquarters were rationalized and divisions between the regional offices abolished. Pensions, healthcare, and insurance were offered on an equal basis to all company employees. Some of the less modern generating facilities were closed and replaced with more efficient plants, with more thermal facilities being built. A listing on the Osaka Stock Exchange in October 1952 was followed by a Tokyo listing in May 1953. By the end of 1953, customer service branches were established in all the major towns of Shikoku, and the capitalization of the company had trebled to ¥1.19 billion. Also in this year, a pioneering automatic combustion control system was installed on all Shikoku Electric's transmission and generating equipment to regulate the amount of fuel burnt and hence save energy. This was followed in the 1950s and early 1960s with a series of technological upgrades. Emphasis was also placed on the training of staff and customers in the safe use of electrical equipment. As a result, Shikoku had the lowest electricity-related accident rate in the country.

In 1956, company president Chikuma Miyagawa initiated research into the use of nuclear power by the company. Shikoku Electric was at this time the most advanced of Japan's nine regional electric utility companies with regards to nuclear power. By 1985, nuclear energy had become the dominant source of power in Shikoku, accounting for 39 percent of the total, and was expected to rise to 50 percent by the year 2000. Realizing that the potential of hydroelectric power in the region was ultimately limited, a section was created within the company in 1956 devoted to the development of coal, gas, and oil-fired power. In order to keep abreast of the latest technology in electric power generation, Shikoku Electric sent its chief engineers and planning officers to Europe and the United States on conferences, training courses, and exchange programs. This was typical of Japanese industry at the time, which was desperate for the technological knowledge which it saw as the key to success.

During this period, the company began in earnest the process of closing down redundant transformer substations and replacing them with a smaller number of higher voltage, more efficient units. Also in 1956, by boosting the existing capacity of Hirayama Power Station by 470kW to 2900kW, Shikoku Electric came to own the largest hydroelectric facility in the country and in 1959 began operating the country's first reverse wheel hydroelectric plant, the 11,800kW facility on Omori River. The year 1958 saw changes in the organization of the company, with increasing centralization of planning, engineering, and sales operations. In 1960, Miyazawa took over as chairman of the company, which by this time was the largest company in Shikoku with a capitalization of $19 million. For the next decade, like the other EPCs in Japan, Shikoku Electric concentrated on the building of oil-fired generating stations such as the 125MW plant completed in Tokushima in 1963. Cheap and plentiful Middle Eastern oil and lax environmental controls at the time made this form of generation the most economically attractive.

Ikata Nuclear Plant Goes Online in 1978

The oil shocks of 1973 and 1978 and increasing emission control quotas changed all this, however, and Shikoku Electric's main priority following these events was the development and construction of a nuclear power station. With technological help from and cooperation with France's nuclear power program, as well as the other domestic companies, Ikata Nuclear Plant was completed in 1978 with two initial pressurized water reactors and a combined output of almost 1,200MW, with an additional 890MW planned for 1995. Japan's nuclear program was a sensitive public issue and therefore extremely stringent safety controls were laid down. Japan's nuclear energy safety record was one of the world's best at the time, and Shikoku Electric had the additional distinction of operating the world's most efficient reactor.

During the 1970s, Shikoku Electric's sales trebled, and although the company's work force remained fairly steady at about 5,000, its revenues and profits increased dramatically. These profits were spent almost entirely on capital investment and research. In the early 1980s, plans for the largest bridge in the world, to link Shikoku with the main island of Honshu, were drawn up. The impressive Seto bridge was completed in 1988 at a cost of about ¥1.13 trillion and had the important effect of creating a tourist boom and urban renewal in the area. For Shikoku Electric, not only did the Seto bridge bring in more business, it could also be used to carry a major trunkline connecting the company with Kansai Electric Power's grid.

The late 1980s saw a slowdown in growth as Shikoku Electric's market matured. To some extent, the company diversified into new areas such as telecommunications with the formation of Shikoku Information & Telecommunication Network and the production of electric power equipment with Techno-Success Company. At the time, it was unlikely that these ventures would contribute significantly to profits and the firm's main emphasis remained on the continued development of the electric power market. Some examples of the company's efforts in this area were the all-electric house, increased customer service, and the application of the hourly rate fluctuation system. On the international scene, the company continued to exchange information with similar companies worldwide and was a founding member of the World Association of Nuclear Operators formed in 1989. As most of the company's crucial raw materials came from abroad, a tight check was kept on commodity prices, and long-term purchase agreements such as those for uranium from France and Australia were entered into. Financially, the company was in an excellent position, holding a AAA rating with regard to raising money on the domestic bond market. Overseas, the company conducted two bond issues in Europe in 1989.

To mark the 40th year of business as Shikoku Electric, the company in 1991 launched a new corporate profile based on the environmentally safe and efficient generation of power along with increased provision for the development of customer services related to the core business of power generation.

Deregulation in the Mid-1990s and Beyond

In the years leading up to the new century, Shikoku Electric faced a host of challenges brought on by liberalization in Japan's energy sectors. By the mid-1990s, the electricity industry in Japan was undergoing major changes. In 1995, adjustments to the Electricity Utilities Industry Law allowed competition to enter into the electricity generation and supply market. Then, in 1996, a wholesale electric power bidding system enabled non-electric power companies to sell electricity to electric power companies. Finally, in March 2000, the retail sale of electricity was partially deregulated, allowing large-lot customers--those demanding large amounts of electricity--to choose their power supplier.

The intent of deregulation was to foster competition, which in turn would lower the electricity costs in the country. The deregulation was slow to change the Japanese industry, however, and during 2001 Shikoku Electric and the nine other regional companies still controlled 99 percent of the market. In fact, only six Japanese-based companies--other than the original ten--supplied power to large customers such as retail stores and office buildings. This accounted for a .2 percent share of the overall market.

Nevertheless, Shikoku Electric and its domestic peers were forced to deal with the changes brought on by deregulation. The electric companies were also pushed to seek out and develop environmentally friendly power sources. According to a March 2000 Business Week article, nuclear power accounted for nearly 35 percent of Japan's electricity. For much of the 1990s, Japan's industry had aggressively focused on shifting from expensive and polluting coal-fired plants to nuclear power. Due to rising concerns over the safety of these nuclear facilities, Japan's government was forced to rethink its expansion efforts, cut back on its nuclear development plans, and find alternative sources of power.

As such, Shikoku Electric worked not only to diversify its holdings in response to the changing business environment but also looked for new alternative methods for generating power. Believing that competition could eventually wreak havoc on its bottom line, the company moved into new business areas, including Internet access, cable television, real estate, engineering, aviation, and energy equipment manufacturing. Cable Media Shikoku Company Inc., a cable television broadcasting and telecommunications subsidiary, was established in 1995. The following year, Netwave Shikoku Company Inc. was created to oversee Internet provider services. The firm also set up subsidiaries related to video production, nursing facilities, and forestation.

While Shikoku Electric set new strategies in place, it faced yet another challenge. During the early years of the new century, Japan's economy was faltering. Demand from steel and manufacturing sectors fell, and in fiscal 2002 electricity sales were lackluster at best. The company's operating revenue fell in 2002 and again in 2003. In order to shore up profits, Shikoku Electric focused on several key initiatives: providing enhanced customer service and consulting services, continual diversification in the energy and telecommunication fields, streamlining costs, and restructuring its businesses into a divisional system. Japan's electric industry would no doubt continue to institute deregulating measures in the upcoming years, forcing Shikoku Electric to adapt its business polices as necessary. As one of Japan's original regional electric utilities, the company stood well positioned to face future obstacles head on.

Principal Subsidiaries: Shikoku Research Institute Inc.; Eco-Tech Company Inc.; Yondenko Corporation; Yonden Engineering Company Inc.; Yonden Consultants Company Inc.; Shihen Technical Corporation; Shikoku Instrumentation Company Ltd.; Techno-Success Company Inc.; STNet Inc.; Netwave Shikoku Company Inc.; Cable Media Shikoku Company Inc.; Shikoku Air Service Company Ltd.; Yonden Business Company Inc.; Yonden Energy Services Company Inc.; Ikata Service Company Inc.; Tachibana Thermal Power Port Service Company Inc.; Yonden Media Works Company Inc.; Yonden Life Care Company Inc.; Yonden Afforestation Australia Pty. Ltd.; Tokushima Automobile Service Company Inc.

Principal Competitors: The Kansai Electric Power Company Inc.; Nippon Telegraph and Telephone Corporation; The Tokyo Electric Power Company Inc.

Further Reading:

• Bogler, Daniel, "Profits Tumble at Japanese Electricity Groups," Financial Times, November 21, 1996, p. 38.
• Bremner, Brian, "Tokyo's Nuclear Dilemma," Business Week, March 15, 2000.
• "Ehime Residents Lose Lawsuit over Nuke-Plant Red Tape," Japan Economic Newswire, February 9, 2001.
• Goto, Yasuhiro, "No Single Recipe for Deregulation of Utilities," Nikkei Weekly, March 5, 2001.
• History of the Electric Power Industry in Japan, Tokyo: Japan Electric Power Information Center, 1989.
• "Nuclear Industry Seeks to Regain Public Trust," Yomiuri Shimbun/Daily Yomiuri, November 1, 2003.
• "Shikoku Elec. Profit, Sales Drop in FY '96," Jiji Press Ticker Service, May 23, 1997.
• "Shikoku Electric Sets up Tree-Planting Firm in Australia," Jiji Press Ticker Service, April 7, 2000.

Source: International Directory of Company Histories, Vol.60. St. James Press, 2004.

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