Power-generation, equipment and output

Driving for greater efficiency and lower cost

In setting the directions for future business, the company went about clearly defining the basic objectives:

To become more price-competitive and bring the group strengths to bear.

To win the trust of customers, stockholders and investors so as to remain their first choice.

To become a company infused with vigour.

Clear targets were laid down quantifying volumes, values, and ratios measuring milestones to be achieved. These covered capital expenditure, maintenance and operating expenditure, income before taxes, return on assets and free cash flow. Productivity and the use of human capital were raised to a fine art and the tracking of annual increases in productivity made a mandatory measure of management efficiency. The 10-year record of control and achievement of targets gives confidence for the future. Using the benefits from streamlining and increased efficiencies, the company reduced electricity rates in October 2000 by an average of 6.9 per cent. This was the biggest cut in electricity rates of any power company in Japan, and represented a cut of approximately 10 per cent to commercial users, and 5 per cent to industrial users. Modern methods and efficient management mean little if operational efficiency is not benchmarked against the best and the fruits of corporate capability, competence, and excellence are not shared with the consumer.

Ensuring a stable and dependable supply of electricity

The three main methods of power generation are hydroelectric, thermal, and nuclear. According to managing director, Mr Shigeo Suehiro, by carefully balancing the advantages and disadvantages of these various methods, it is possible to supply electricity reliably and at a reasonable cost. "Japan depends on imported resources for almost 80 per cent of its energy needs." Matsui had told me. Therefore, the wide variety of sources of fuel for power generation, from the viewpoint of energy security. The current split of generating capacity in the company is as under.

Oil: 25 per cent

LNG: 15 per cent

Coal: 30 per cent

Hydroelectric: 20 per cent

Nuclear: 10 per cent

Progressively, the share of nuclear source is planned to be increased, to obtain a more equal spread of fuels. The company's chairman, Mr Shitomi Takasu, makes corporate policy on quality, very clear. He states "Chugoku is determined to guarantee a stable, long-term supply of electricity by using the highest quality plants and equipment in the best combination, with due consideration given to environmental issues." In order to reliably supply electricity to its customers, Chugoku is working to further enhance its power transmission and distribution facilities as well as develop technologies and techniques that allow facilities maintenance to be performed without disruption to the electrical supply. Today, Chugoku has the distinction of being one of the leading electric power supply companies, in terms of reliability. The data in support of this claim is compelling and is sourced from the survey of the Federation of Electric Power Companies.

Look at the average Duration of Electricity Disruptions per Household on an Annual Basis, calculated in terms of the minutes a household went without electricity in 1988: The US — 90 minutes; the UK — 77 minutes; France — 58 minutes; Japan — 11 minutes.

Compare this with Chugoku Electric — 5 minutes. That is 0.82 seconds in a day. It is in such crannies of hard reality that the secrets of progress and development lie.

Imagine the impact on the economy, the quality of life, on competitive advantage, and ultimately employment, wealth creation and poverty alleviation. The true beneficiaries are the common citizens of the land.

The answer does not lie in slogans and platitudes.

Research

Chugoku is conducting a wide range of research activity with themes based on mid- and long-range perspectives. These efforts are focussed on ensuring the stable supply of electricity, promoting the efficient use of energy and resources, preserving the environment, developing new areas of business and reducing costs.

There is continued focus on load-levelling measures. The increased use of air-conditioning in homes and commercial buildings results in sharply growing peak load demand, especially during daytime in summer. The effect of this is to lower the operational efficiency of plant facilities and push up the cost of supplying electricity. In order to shift some of the electricity consumption from the day to the night, Chugoku Electric is encouraging the wider use of ice thermal-storage air- conditioning systems and electric water heaters that use electricity at night, when power demand is lower.

Customer focus and interaction

Being good is no longer a competitive advantage in the new century. The two core thrust areas are:

The company renewed contracts with 358 customers for fiscal 2002. Only one customer contracted to receive electricity from another supplier in the business. To prevent loss of customers, Chugoku Electric is encouraging adoption of long-term contracts. For fiscal 2000, over half the contracts closed with customers were such long-term contracts, reflecting their high level of customer satisfaction.

The rate reductions averaging 6.9 per cent (Y 1.42 per kWh) were well received by the customers. As a part of its efforts to deepen customer trust, Chugoku Electric is offering various technical services, applying its technologies and expertise. These value-added services now provided are:

Facilities diagnostic services: The company's technicians make regular visits to customers to advise on how to maintain and supervise their electricity facilities.

Energy Conservation Diagnostic Services: Based on surveys and analysis of the energy consumption of customers' equipment such as air-conditioning, cooling and lighting, the company proposes ways to upgrade customers' operations.

Lightning forecast service: Through the Internet, the company provides customers with real-time forecasts of lightning, which can cause sudden drops in voltage, and other problems that may damage their equipment.

Operating results

All the customer service, technical efficiency, research thrusts and overall excellence would come to naught if the commercial parameters of profitability were not to be met. Chugoku Electric places the utmost importance on delivery of profits and returns to shareholders, even as it serves the consumer. Over the first 50 years, the company's assets had grown from 25 billion yen to 2.8 trillion yen. In the year ended March 31 2001, the company achieved a turnover of 1.044 trillion yen, ($8.426 billion). Total ordinary expenditures were 937.8 billion yen, a decrease of 14.8 billion yen from the previous year. The income before income-taxes rose 19.3 per cent to 69.1 billion yen.

The PBIT and net income targets were exceeded. The power generated totalled 44,910 million kWh and together with purchases, sales amounted to 55,503 million kWh. Of this total, 30 per cent was sold to residential users and the balance to commercial, industrial and other users. Transmission and other losses were restricted to 12 per cent of the total generated and bought power. The very next week I had a tennis match with Matsui, which he won, although not without a struggle, with clearly superior tactics and power play. He gently enquired if I had read the Chugoku Electric annual report.

Having lived in Bangalore for the past six months, he was eager to know my reaction to the power situation in his hometown. He was quite perplexed and unable to understand the Karnataka Electricity Board's total inability to deliver power, leave alone maintain a modicum of quality on what power was delivered. There was no way I was going to be drawn into a critique of my EB.

As indeed I had avoided on previous occasions, discussions and attempted explanations for roads made of pot holes, speed breakers that break axles, pavements that defy all pedestrian effort to walk on them. As also the total lack of parking facilities in most commercial areas, even where new construction was evident, on numberless buildings with garages miraculously converted to shops, to the eternal inconvenience to the citizens of the city. And the mountains of fetid rubbish that lie uncleared at street corners. I was quick to readily express my great admiration for the Chugoku Electric Power Co., Inc. I was charged by the experience of reading the Chugoku Electric report. The sheer excellence of delivery against the vision! With planned steps to achieve their objectives! Building on proven strengths and keeping differentiated from competition! Most of all in providing excellence in service in the delivery of power to the consumer.

Matsui had been privy to my metaphor on the Magic Carpet and Superman, and being blessed with a keen sense of humour, he queried if I could handle the paradigm shift? I let him into a secret. I was not only beginning to handle the paradigm shift, but had now begun to believe that even the Perfect Marriage could become a possibility if I could reach the exacting standards of delivery of The Chugoku Electric Power Co., Inc. It is great for man to live in hope. The tragedy is if and when he dies in despair!

(The author is a Bangalore-based consultant and writer.)

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