Tepco Expects Narrower Net Loss as Government Takes Control

Tokyo Electric Power Co. (9501) expects a narrower annual loss after a government-approved business plan proposed measures including an increase in electricity rates to return the company to profitability in two years.

The utility known as Tepco forecast a 100 billion yen ($1.2 billion) net loss for the year ending March 2013, according to a statement from the company. Tepco, which posted a loss of 781.6 billion yen in the previous fiscal year, last week provided earnings on an unconsolidated level.

The Japan government on May 9 agreed to provide 1 trillion yen to Tepco in return for more than 50 percent of voting stock, effectively nationalizing the owner of the crippled Fukushima Dai-Ichi nuclear station. Tepco may return to a profit in two years if the government approves an increase in electricity rates and the restart of the Kashiwazaki Kariwa nuclear station, according to the business plan.

“The government will have no choice but approve” the two measures, Hirofumi Kawachi, a Tokyo-based analyst at Mizuho Investors Securities Co., said by phone before the release of the earnings.

Tepco shares fell 0.5 percent to 184 yen as of 2:14 p.m. on the Tokyo Stock Exchange, after rising as much as 4.3 percent after the earnings announcement. The stock has plunged about 90 percent since the day before the Fukushima disaster.

The company said today it will apply to delist from the Osaka and Nagoya stock exchanges.

Power Rates

Tepco submitted a request to the Trade and Industry Ministry, which oversees the nation’s power industry, on May 11 to raise electricity rates for households and small users by an average 10.28 percent from July. Tepco has increased power tariffs for companies by an average of 17 percent from April when their contracts are renewed.

The utility has been on government support since the March 11, 2011, quake and tsunami wrecked the Fukushima Dai-Ichi station, causing reactor meltdowns and forcing about 160,000 people to evacuate from towns around the plant. The government has set aside 9 trillion yen as part of the bailout of Tepco and to pay compensation and cleanup costs related to radiation leaks from the Fukushima nuclear plant.

New Outside Directors

To create a “new” Tepco, the company will adopt a committee system and increase the number of outside directors, according to the plan. Six new outside directors will be appointed, including Fumio Sudo, adviser to JFE Holdings Inc. (5411) and Yoshimitsu Kobayashi, president of Mitsubishi Chemical Holdings Corp. (4188), according to today’s statement.

The number of board members will decrease to 11 from 16, pending shareholder approval, according to the statement.

Corporate turnaround lawyer Kazuhiko Shimokobe, who leads the government-backed Nuclear Damage Liability Facilitation Fund, was named to replace Chairman Tsunehisa Katsumata, 72. Naomi Hirose, 59, will take President Toshio Nishizawa’s job, according to a Tepco statement on May 8.

The business plan, drawn up by Tepco and the compensation fund, assumes the Kashiwazaki Kariwa nuclear plant, the world’s biggest, would be gradually restarted after April 2013. The restart of one Kashiwazaki Kariwa reactor is expected to cut Tepco’s annual costs by about 78 billion yen, according to the business plan.

Operating Loss

Tepco forecast its operating loss this fiscal year will narrow to 235 billion yen, from 272.5 billion yen a year earlier. Sales will rise to 6.03 trillion yen from 5.35 trillion yen, the statement said.

Japan shut its last operating reactor on May 5, leaving the country without atomic power for the first time in more than four decades. Japan’s nuclear reactors provided 30 percent of its electricity prior to meltdowns and radiation leaks at the Fukushima Dai-Ichi station.

The business plan may need to be revised if the Kashiwazaki plant is not restarted as assumed, incoming chairman Shimokobe said on May 9.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Teo Chian Wei at cwteo@bloomberg.net

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