Renewables Update

Series: Considering the True Acceleration of Electricity System Reform
Vol.4: How special is the accounting system for nuclear power? in Japanese

21 December 2016 (Japanese original published on 2 December 2016)
Eri Kanamori, Professor, Faculty of Business Administration, Ritsumeikan University

The government is developing a system to impose the costs for compensation, decontamination and decommissioning incurred by the accident at Fukushima Daiichi Nuclear Power Plant on not only nuclear power generators but also on PPS even after electricity system reform. The most feasible method to impose these costs is to add them to wheeling charges for transmission and distribution system operators. The working group for finance and accounting, which is closely related to the pricing system, has been established, and five meetings have been held so far.

However, most of the discussions in this working group lack the perspective of accounting, which makes me wonder if they have some problems in setting an agenda. For example, in the meeting to discuss whether a tax or wheeling charges would be the most suitable method to impose the costs for compensation, decontamination and decommissioning of the Fukushima Daiichi reactors on citizens, one of the members said “I think wheeling charges are more suitable than a tax because business operators should be responsible for these costs.” This opinion is far removed from what an accounting specialist would be expected to give.

Tax and wheeling charges are completely different in terms of accounting. If the costs are collected as wheeling charges, they will be included in the operating revenues of transmission and distribution system operators, and cannot be specified in their financial statements. If we then tried to develop a system to specify these costs in the breakdown of a financial statement, it would cause further accounting problems because the expenses for settlement of the accident, such as compensation, decontamination and decommissioning of the Fukushima Daiichi reactors would need to be included in the operating profit and loss calculation. As the accounts related to the settlement of accidents are supposed to be recorded as extraordinary profit and loss, such a system would be unprecedented.

In this respect, the previous damage compensation system was transparent in terms of the accounting. More specifically, TEPCO’s financial statements listed the amounts paid to the victims as “Compensation for nuclear damages” and the financial support received from the government as “Grants-in-aid from Nuclear Damage Compensation Facilitation Corporation” under extraordinary profit and loss, and it was very obvious that these two items balanced out. Aside from controversies over the amount of the grants-in-aid, and the pros and cons of TEPCO’s survival, it is fair to say that the system was very clear from an accounting perspective. (However, since the organization was renamed as the Nuclear Damage Compensation and Decommissioning Facilitation Corporation in FY2014, the transparency of the system has been lost because the accounting information for compensation and decontamination has been calculated differently but listed collectively as the same item.)

This kind of discussion focused on accounting may be unfamiliar to the general public, but the point in question is very clear to the members of the working group which consists of accounting specialists such as certified public accountants and academic accounting experts. However, this point has not been discussed in the working group. Those who agree with the proposal of the secretariat do not point out the issue, and those who disagree do not try to pursue the issue even though they probably feel that something is wrong. Why is this?

This question has been clearly answered by the opinion of Ms. Ito, a member of the working group. She said that this accounting system was impossible in ordinary business, but could be possible considering the public interest of electric utilities that develop infrastructure for citizens through large and long-term investments. Even though they feel that something might be wrong from a general point of view, they think that public utilities are special and therefore it may be unavoidable to offer them exceptional treatment. That is probably why the members cannot pursue this issue aggressively.

Indeed, electric utilities are special. Unlike general business operators, they serve the public interest. The question is how and to what extent they are special.

To find out the answer to this question, let’s review the concept of electric utility accounting (from “Electric Utility Accounting” by Shigenobu Wakabayashi and Susumu Saito, The Japan Electric Association, 1958). It clearly states that modern general companies have a social nature, and electric power companies have a particularly strong social nature (pages 5-6). In other words, electric utility accounting is special because its social nature is much stronger than that of general corporate accounting. Having a strong social nature, electric utilities need to strive to improve themselves consistently in the public interest by communicating with all stakeholders through its accounting information.

In contrast, the current discussions in the Finance and Accounting Working Group are confusing and obscuring the accounting information, instead of using it to communicate. One such example, as mentioned earlier, is the proposal to include the costs for settlement of the accident, which should be recorded as extraordinary profit and loss, in the wheeling charges, which are profits from business activities. Another example is the logic of collecting additional charges from those who were supposed to be charged in the past. As this is quite an unusual action in general business, there is almost no precedent for its accounting treatment. Let me provide one more example. At the fifth meeting of the working group, one of the members, Mr. Kagaya, inquired about the calculation process and the future outlook for the amount of general contributions by the Nuclear Damage Compensation and Decommissioning Facilitation Corporation, but there was no answer at all. This represents the ultimate lack of readiness to provide information. Under such circumstances, it is impossible to promote communication between the electric power companies and citizens through accounting information while pursuing the better public interest.

Through the current discussions in the Finance and Accounting Working Group, the government is trying to develop a system which is far removed from a general point of view by misusing the special characteristics of electric utilities. Once again, we should return to the question of how special the accounting system for nuclear power is, and conduct discussions carefully.