September 10, 2002

Japan Hit With TEPCO Scandal

  

  

By Susan Kellogg

Issues Analyst

[News item from Ridder/Tribune News Service] Three top officials of Tokyo Electric Power Co. (TEPCO), Japan's largest electric utility, resigned on Monday, Sept. 2, after finally acknowledging that the company had violated safety regulations and falsified records at three of its largest nuclear-power plants. The cover-up, which has been ongoing since the 1980s, was revealed to the public in the last few weeks by the Ministry of Economy, Trade and Industry (METI). METI had been investigating allegations from a whistleblower report that was provided by a General Electric International Inc. (GEII) inspector in July 2000.

Analysis:  The reports of the recent nuclear-power industry scandal plaguing Japanese officials eerily plays out like a timeline of the U.S. power industry of the past two years: power industry cover-up by largest industry player, whistleblower blows cover, ensuing government agency investigation, top executive resignations, major scandal that rocks stock market, betrayal of public trust, and impact on deregulation. Were the motives behind the scandal another example of corporate greed, as in the Enron washout? Or was the utility victim to another kind of hubris? Tradition as well as convenience may have been the Achilles heel that has fanned the flames of public betrayal and jeopardized the future of nuclear power and deregulation in Japan.

METI announced that it had found evidence of falsified records of cracks in three TEPCO nuclear-power plants. The public was informed that the agency had been conducting a two-year investigation spurred by a whistleblower from GEII who had been hired by the utility to inspect its nuclear reactors. The inspector had filed a report showing two 9-centimeter (3.6-inch) cracks in the middle of one reactor's core shroud, which company personnel falsified to prevent a halt to plant operations. The nuclear plant continued to operate without repairing or replacing the damaged parts.

METI was contacted by the then-anonymous GEII whistleblower in July 2000. Although the ministry affirmed it immediately and began investigating the cover-up allegations, the TEPCO facilities were allowed to continue operating. In a country that considers the safety of its nuclear reactors to be of paramount importance, this oversight seems incongruous. But as facts continue to reveal themselves, it appears that over 100 nuclear division employees may have complied with the cover-ups. In the fallout, TEPCO President Nobuya Minami, Chairman Hiroshi Araki, Executive Vice President Toshiaki Enomoto, and Advisers Gaishi Hiraiwa and Sho Nasu announced plans to resign by October.

Nuclear Powerhouse

Japan is dependent on nuclear power. With no native resources of oil or natural gas, the country turned to nuclear power to reduce its dependence on foreign oil and to comply with goals set by the Kyoto Protocol to reduce emissions. With 17 nuclear-power plants that generate about a third of the nation's electric power, Japan is the world's third-largest commercial operator of nuclear-power facilities.

As the largest utility and stronghold of the nuclear-power industry, TEPCO was both a monopoly of power and pivot of public trust. Public confidence in the state's nuclear program was severely damaged several years ago in 1999, after an accident at Tokai-Ibaraki Prefecture, a nuclear-reprocessing facility, took the lives of two employees and almost triggered a massive leak of nuclear radiation.

It has taken two years to reveal problems at nuclear plants that have been around for decades. Safety problems in at least 13 of 17 reactors at three major nuclear plants may have been concealed, said METI officials. The utility allegedly admitted that 29 falsified reports did not disclose concealed damage to the core shroud of the 13 reactors at TEPCO's Kashiwazaki-Kariwa nuclear-power plant in Niigata Prefecture and the No. 1 and No. 2 Fukushima nuclear plants in Fukushima Prefecture. The shroud is the steel cylinder of welded plates that surrounds a nuclear reactor's core. Extensive cracking of the welds that hold these plates together could make it difficult to control the speed of a nuclear reaction.

After finally acknowledging the problem, TEPCO has begun an internal probe, according to industry sources, questioning some 100 workers, including senior- and executive-level employees who worked at the plants in the 1980s and 1990s. About 30 to 40 people have already been reportedly interviewed. Of those, one former worker at the No. 1 Fukushima plant told internal investigators that in 1986 he asked the outside contractor, a GEII inspector, to falsify records when it found cracks on the shroud of the No. 2 reactor during an inspection. Another Fukushima plant worker admitted a similar deception in inspection records on the steam drier of the No. 1 reactor in 1989. TEPCO had outsourced inspections to GEII, the Japanese unit of the U.S.-based General Electric Co. In July 2000, a GEII employee finally notified the Ministry of International Trade and Industry (MITI), the predecessor of METI about the 1989 case, prompting the nuclear-safety agency to look into the allegations.

The revelation of the decade-long deception at the three plants finally forced TEPCO officials to take notice and halt operations at five of eight reactors that are suspected of having unrepaired damage. The reactors will be closed down in succession so as to not disrupt power supplies, confirmed company officials. The Nuclear and Industrial Safety Agency, operating under METI, reportedly conducted on-the-spot inspections at the three nuclear-power plants earlier this week.

Why the Delay?

It was another case of "he said-she said." Up until the revelations sparked indignation and public outcry, TEPCO had repeatedly reported no knowledge of the cracks or other problems. MITI began questioning TEPCO about the cracks and other trouble in September 2000. When MITI officials visited the Fukushima No. 1 nuclear plant they couldn't find any problems because the company had already fixed the cracks. Another informer tip in December was a catalyst for further investigations, but it took TEPCO eight months to comply. METI stepped in and finally coordinated with GEII to get the official testimony. With GEII's cooperation, the full investigation began.

One official, Toshiaki Enomoto, former head of the Kashiwazaki-Kariwa plant and current vice president of TEPCO, admitted that he had received a damage report from GEII as plant chief during 1995-1997 that he never passed up to senior officials. "They were just informed that the tests went O.K.," reported the Kyodo News.

Japan has very stringent nuclear-plant inspection requirements. Nuclear reactors must be inspected every 13 months in Japan, compared to once every two years for U.S. and European nuclear plants. According to Kyodo News, the cover-ups were motivated chiefly by an increased need to keep up with rising electricity demand during Japan's economic boom in the 1980s and early 1990s. Maintaining power supply was the company's top priority, reported Kyodo News.

Part of the issue revolves around the team mentality of Japanese workers, analysts believe. According to TEPCO and METI interviewees, employees made the decision that there was no need to mend the damage and that the delay would not pose a danger. Cracks in nuclear-reactor shrouds are caused by decay and stress. They are usually replaced in Japan, although in the United States and Europe they are often mended, or left alone if the damage is not considered dangerous, said company sources. Stopping to make the repairs would have taken plants offline, affecting both service and expenditures. Nuclear repairs are very expensive. The cost of suspending operations for a single day at a 1-million-kilowatt nuclear reactor can reach 100 million yen (US $84,500) because electricity to customers during repair periods must be generated through thermal and other forms of power generation.

Former TEPCO President Nobuya Minami told reporters that government requirements in the nuclear-power industry were behind the "efficiency culture" that motivated the workers. Japanese nuclear plants are required to repair even the tiniest scratches, putting workers under great pressure, said Minami. Faking reports on damages and repairs was an instant solution to keep plants running, please their bosses and protect the name of the company.

Resolutions

Unlike their Enron-counterparts, Minami, Araki and other top TEPCO officials have acknowledged their responsibility for the cover-ups and announced their resignations. The severity of the cover-ups revealed that officials might have taken their oversight too lightly.

A number of recommendations have emerged from the fallout. It takes up to two years to inspect a suspicious nuclear-power plant. The Economy, Trade and Industry Ministry's Nuclear and Industrial Safety Agency is looking at amending the Electric Utilities Law to allow inspectors immediate access to nuclear plants under suspicion and raise fines for violators. Current law protected TEPCO from inspection on the premises without its permission. The ministry will revise the law so that utility companies will be required to submit documents on internal tip-offs on problems at nuclear-power plants.

The Japanese government will also consider adjusting its policies to allow Japanese nuclear plants to continue operating damaged facilities if the damage isn't considered serious enough to cause major safety problems, the Nihon Keizai Shimbun reported. This move comes in response to criticism that the current rigorous safety standards are partly behind the falsification of TEPCO nuclear-power plant inspection records. Revised procedures would include conducting surprise inspections at nuclear-power facilities.

Another reform will be to improve the setup of the company's nuclear-power division, which has often been criticized for its closed, hands-off policies, and dubbed a "nuclear power village." It will be necessary, says newly appointed TEPCO President Tsunehisa Katsumata, to make corporate culture more transparent. The investigation was delayed by many difficulties, including TEPCO's tight ties with the bureaucratic and political establishment. Outgoing TEPCO Chairman Araki was also a vice-chairman of the powerful Keidanren business lobby, but also chairman of the Keidanren's Committee on Corporate Behavior of the Japan Business Federation, set up to address issues of business ethics and corporate governance.

Reforms aside, the damage has been done. Public trust and investor trust will be on the line in the next few months. Time will tell whether deregulation timelines and the development of nuclear-power strategies will be affected. As the U.S. power industry has been forced to revise its priorities, so may the Japanese power industry.

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