Summary of Comments Made at a Press Conference by Nobuya Minami, FEPC Chairman, on July 19, 2002

There are two topics I would like to comment on today. The first is tax policies that affect the electric power industry. The second is recent electric power demand and economic trends.

First, with regard to tax policies and the electric power industry, I would like to direct your attention to the information shown in Reference Document 1-1.

On the fifth of this month, the Fukushima Prefectural Assembly passed a Nuclear Fuel Tax. As I think many of you are already aware, the day before yesterday I called on Mr. Torasuke Katayama, the Minister of Public Management, Home Affairs, Posts and Telecommunications, to express our views on this subject. I also understand that as members of the Energy Press Club, you are quite interested in this problem. So today, I would like to discuss this topic and express the FEPC's views on tax policy in general.

As is shown on page 1 of the Reference Document, FEPC member companies are subject not only to national and regional taxes, but also a promotion of Power-resources Development and a Nuclear Fuel Taxes. Furthermore, our corporate taxes are calculated on the basis of gross operating profits rather than net earnings (so-called "pro forma standard" taxation). As the graph on the right-hand side of page 2 shows, the industry as a whole pays an enormous amount of tax -- some 1.4707 trillion yen in 2001 alone. This works out to about 4 billion yen in taxes each day, which -- when calculated in terms of electricity rates for a single household - means that out of an average monthly electric bill of 7,200 yen, approximately 1,000 yen, or 14%, is accounted for by taxes.

Page 3 of the reference materials compares the tax burden imposed on the electric power industry with other industries. As you can see, the average tax rate across the 10 FEPC member companies is 9.3%, which is more than four times higher than the average for all industries. Further, page 4 of the reference materials compares taxation rates with electricity rate income. In the 27 years since the Promotion of Power-Resources Development Tax was introduced in 1974, our electricity rate income has increased fourfold, but our tax burden has increased eightfold.

It is against this background that the Fukushima Prefectural Assembly voted its own nuclear fuel tax into law on July 5th. The FEPC's position on the new tax is shown in Reference Document 1-2, which outlines a number of vital points that urgently need to be addressed.

First of all, the law was enacted without proper explanation to the taxpayer. In the past, revisions to nuclear fuel tax laws have always been made after discussions have been held with Tokyo Electric Power Company, the sole payer of nuclear fuel taxes. This time, however -- despite the fact that the weight-based tax structure put forth by Fukushima prefecture represents an entirely new form of taxation -- the new structure was suddenly proposed on April 25th of this year, and an explanation of the rationale for why the tax is necessary was offered on May 9th.
In addition to the inordinately short period of time allowed for discussion -- only one-and-a half months -- the tax bill in question was sent to the assembly without a detailed explanation of the rationale for its existence being made. Furthermore, despite an urgent request that we be given an opportunity to present our views on the matter, the bill was ratified on July 5th without us even being given a chance to do so.

Therefore, because the Fukushima authorities did not fulfill their obligation to provide an adequate explanation to the party that must bear the burden of the nuclear fuel tax, and because they sent the bill to the assembly before an understanding could be reached, there continues to be a wide gap between our views on this matter. This is a most regrettable state of affairs.

Secondly, we feel there are problems with the new tax both in terms of the interpretation of the right of regional governments to impose taxes, and in terms of its compliance with the nation's constitution.
Although the Fukushima tax increase targets a specific company -- Tokyo Electric Power Company -- prevailing regulatory and political mechanisms make it extremely difficult for that company to express its opinions to regional governments. In addition, the failure to provide an explanation or logical rationale for the tax can be said to constitute either an abuse of the right of regional governments to impose taxes, or an abrogation of their duty to follow proper procedure, both of which contravene the spirit of the national constitution and are issues of serious concern.
Furthermore, with the exception of holding discussions directly with the Minister of Public Management, Home Affairs, Posts and Telecommunications, the current system provides no mechanism by which taxpayers can defend themselves against the imposition or revision of such extralegal taxation. If such taxes can be unilaterally imposed on taxpayers who have no voting rights in the jurisdiction in question, or any right to speak out in its legislature, the taxpayer is effectively without representation. Such a situation fundamentally contravenes the principles of taxation defined in Article 84 of the constitution. And while regional governments do have the right to impose taxes, it goes without saying that such taxes should never contravene the spirit or legal principles set forth in the national constitution.

Thirdly, the new tax not only imposes an unreasonable burden on the taxpayer, it also effectively amounts to double taxation. Not only does the Fukushima tax more than double the tax rate from 7% to 16.5%, in comparison to the tax rates approved by Fukui and Niigata prefectures -- as well as the one approved by the Ishikawa Prefectural Assembly in June of this year (10%) -- it is an increase that it is entirely without precedent. Furthermore, the implementation of a weight-based tax structure on top of the existing value-based tax structure effectively amounts to double taxation -- a clearly unreasonable state of affairs.

Our fourth point is that the proposed uses of the increased nuclear fuel tax revenues are in many instances illogical. The first step in ensuring the financial health of any regional government is for that government to manage its finances efficiently. This is clearly stated in the Basic Policy on Structural Reforms for Social and Financial Management in the Future that was released by the Council on Fiscal and Economy Policy.
For any increase in extralegal taxes, it is essential that there be a logical relationship between the item taxed and the use to which the revenues will be put. In the current case, however, the Fukushima government has stated that it needs the increased tax revenues to cover half the administrative costs of Fukushima Airport. Included are costs for civil engineering work, lighting maintenance and upkeep, airport office security and fire control services, and other administrative costs that would be incurred even if there were no nuclear power plants sited within the prefecture. In addition, they propose to fund a number of items entirely from nuclear fuel tax revenues in spite of the fact that a more rational allocation structure would draw only a portion of the needed funds from that source. In many other cases, their rationale for apportioning nuclear tax revenues to a particularly item is simply illogical and unsupported by any evidence. In short, they have failed to provide an adequate explanation for their revenue needs.

Our fifth point is that the Law on Special Measure concerning Promotion of the Development of Nuclear Power Sited Regions should be given precedence.
Road maintenance costs in the immediate vicinity of nuclear power facility sites account for the bulk of many host community revenue needs, and it was to meet such needs that the Law on Special Measure concerning Promotion of the Development of Nuclear Power Sited Regions that was enacted last April. By making full use of the support options offered under the law, it is believed that a considerable portion of Fukushima prefecture's revenue needs could be met.
Fukui and Shimane prefectures have already begun implementing revitalization plans developed under this law. In addition, Aomori, Miyagi, Ibaraki, Niigata, Aichi, and Kagoshima prefectures have already been certified as Nuclear Power Generating Facility Host Communities and are currently developing their own revitalization plans. We therefore think that Fukushima should also quickly seek certification as a Nuclear Power Generating Facility Host Community under the law, and work to develop its own revitalization plan.

Our sixth and final point is that the Fukushima tax is simply not in accord with the nation's overall economic policies.
The Promotion of Power-resources development Tax, the Three Laws for Power development, the Atomic Energy Basic law, and the Law on Special Measures concerning Promotion of the Development of Nuclear Power Sited Regions all position nuclear power as one of the nation's most fundamental energy resources. In addition, the Outline for Promotion of Efforts to Prevent Global Warming make it clear that nuclear power has an important role to play in national efforts to reduce greenhouse gas production.
If unprecedented tax increases like the one imposed by the Fukushima Prefectural Assembly were to spread to other areas in the nation, vastly increasing the tax burden on nuclear power generating facilities, it will not only stunt construction of new and expanded facilities, it will increase the possibility of a tax war breaking out in host communities throughout the country. And if such a tax war were to break out, it would have an extremely detrimental effect on the nation's energy policies, and the nuclear power development that is essential to our long-term energy security, and to our efforts to address global warming. Even the Ministry of Economy, Trade and Industry, which oversees energy policy, has expressed misgivings about the effect this would have on policy implementation.
In addition, we would like to point out that Article 6 of the Basic Law on Energy Policy Making enacted on June 14th states that "Regional public entities have a duty to follow the basic policy guidelines (on energy supply and demand issues), and to develop and implement policies that meet local needs while remaining in accord with policy implementation at the national level."
The Action Plan for Structural Economic Reform and Growth that was approved by the Cabinet in 1997 also states that the revitalization of industry through lower electricity costs is a policy priority. However, high taxes will put a significantly higher burden on producers, which -- if passed on to the market -- would seriously damage national policy efforts to achieve this goal.
If tax rates as high as 16.5% were somehow to be implemented nationwide, it would result in an increased tax burden of some 22 billion yen, which -- if I can pursue this argument to its logical conclusion -- could even fall on the residents of Fukushima prefecture.

The Federation of Electric Power Companies considers this problem to be an industry-wide issue, and will continue to explain its position to the Ministry of Public Management, Home Affairs, Posts and Telecommunications, the Fukushima prefectural government, and other concerned parties in the future.

I would now like to turn to my second topic, which is recent electric power demand and economic trends. The June demand bulletin released today is shown in Reference Document 2-1.

As is shown, total electricity sales across the 10 companies were 64.2 billion kWh, down 0.7% on last year. The decline follows two consecutive months of growth.
Of particular note is the fact that large-industrial user demand, a key economic indicator, fell by 1.4% and marked its 17th consecutive month of year-on-year decline. Reference Document 2-2 shows demand trends by industrial sector. Although the rate of decline for machinery and some other sectors has increased somewhat, chemicals have rebounded for the first time in 17 months, and the steel sector has recorded two consecutive months of year-on-year growth. As a result, the rate of decline for total large industrial user demand has continued to shrink since April.

For reference, Tokyo Electric Power Company's large industrial user demand figures are shown on page 2 of the materials. As the figures show, the Large Industrial User Curve that plots year-on-year figures for inclusive electricity sales (including privately generated electricity) against contracted electricity sales turned the corner in April with inclusive sales outpacing contracted sales for the first time in 11 months. While this is indicative of an economic turnaround, the figures reversed themselves twice in the following two months, indicating that there is still considerable uncertainty as to which direction the economy is headed.

Although the government's July economic report included a positive forecast for the first time in two months, the Large Industrial User Curve figures just mentioned indicate a need for caution. On the one hand, the economy does appear to have turned the corner, but it is still unclear whether it is strong enough to for us to declare that a recovery is in progress. As a result, we will be keeping a close eye on electric power demand trends in the months ahead.

As the rainy season draws to a close, I sincerely hope we can look forward to some hot, summery weather that will brighten the economic outlook by stimulating seasonal demand.