Tepco Plan Wins Approval for Post-Disaster Recovery

Tokyo Electric Power Co. (9501) won the support of the government and banks for a plan to rebuild its business, the latest step in the recovery from the nuclear disaster three years ago that almost destroyed the company.

The agreement between the utility, now under government control, and its biggest lenders includes more than 1 trillion yen ($9.6 billion) in cost cuts. The plan hinges on the restart of two reactors in July at the Kashiwazaki-Kariwa nuclear plant, the world’s biggest. Most of the public oppose restarts of Japan’s 48 reactors, which are all offline for safety checks.

“If the plant remains idled, losses will incur, and the public won’t agree on increases in electricity charges when the utility tries to cover losses,” said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. “The company faces a risk that its plan won’t work if resumption of the Kashiwazaki-Kariwa plant is delayed.”

Nuclear plants produced more than 25 percent of Japan’s electricity before the disaster, meaning it’s had to switch on oil-, coal- and gas-fired plants to make up the difference. The cost of importing those fuels has driven the country into a trade deficit for 17 straight months while the current-account shortfall widened to a record in November.

Photographer: Yuriko Nakao/Bloomberg

A man fishes near Tokyo Electric Power Co.'s Kashiwazaki Kariwa nuclear power station in Kashiwazaki City, Niigata Prefecture. Close

A man fishes near Tokyo Electric Power Co.'s Kashiwazaki Kariwa nuclear power station... Read More

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Photographer: Yuriko Nakao/Bloomberg

A man fishes near Tokyo Electric Power Co.'s Kashiwazaki Kariwa nuclear power station in Kashiwazaki City, Niigata Prefecture.

Tokyo Electric, Japan’s biggest power utility. burned twice as much coal for power generation in 2013 than it did in 2012. The company used 6.4 million metric tons of coal last year, compared with 3.1 million in 2012, according to Bloomberg News calculations based on data from the company’s website.

The Plan

Other items in the turnaround plan announced by the company today include slashing fuel costs by 650 billion yen a year and setting up a joint venture with other utilities to purchase as much as 40 million metric tons of liquefied natural gas a year.

The utility will cut 2,000 jobs as part of its cost reductions and will shift to a holding company structure by 2016.

Its parent operating profit target in the year ending March is 99.7 billion yen, and 205.7 billion yen for the year ending March 2015, compared with the 220 billion yen estimated by analysts.

The company delivered the business targets in a 92-page report given to reporters at a briefing in Tokyo today.

Abe’s Public

Prime Minister Shinzo Abe has backed away from the previous government’s plan to end the country’s use of atomic power, saying some reactors will be needed to provide lower cost power to keep the economy growing. That puts him in disagreement with polls showing a majority oppose restarts.

It also puts him at odds with several predecessors across various political parties who held the prime minister’s job.

Abe’s mentor from the Liberal Democratic Party and former Prime Minister Junichiro Koizumi has said Japan should end use of nuclear power. Naoto Kan, who held the top job representing the Democratic Party of Japan, has said the same.

Koizumi has also backed another anti-nuclear former prime minister, Morihiro Hosokawa, who is running for Tokyo governor, according to Kyodo News. The Feb. 9 election will be a mandate on nuclear power, Koizumi said, according to Kyodo.

“2014 would be the year of making a choice between pro-nuclear and anti-nuclear,”Shinichi Yamazaki, an analyst at Okasan Securities Group Inc., said in a Jan. 15 phone interview. The results of the Tokyo election may impact the government’s policy to some extent, said Yamazaki, who expects as many as six reactors to restart in 2014.

A poll released today by national broadcaster NHK showed 42 percent oppose nuclear power, 21 percent support, and 33 percent are undecided. NHK said it surveyed 1,066 people with a 66 percent response rate for three days from Nov. 11. No margin of error was given.

Responsibilities

An earthquake and tsunami in March 2011 caused the meltdown of three reactors at Tokyo Electric’s Fukushima Dai-Ichi atomic plant, the worst civilian atomic disaster since Chernobyl in 1986. About 160,000 people were forced to evacuate because of radiation fallout, handing Tokyo Electric with billions of dollars in compensation and cleanup costs.

The responsibility for those costs is made clear in the business strategy based on a plan from the Nuclear Emergency Response Headquarters, which makes the government responsible for decontamination costs, while the utility will handle compensation claims. That gives clarity to potential investors, Nomura Holdings Inc. said on Dec. 17.

Junk

The utility, known as Tepco, has junk credit ratings from Moody’s Investors Service and Standard & Poor’s. It had total debt of 7.7 trillion yen as of Sept. 30, 2013, according to earnings data.

S&P said in a Sept. 6 statement that its ratings outlook on Tepco was negative despite a 1 trillion yen capital infusion from the government in 2012 and the company’s success that year in raising electricity rates 8.46 percent for regulated household customers and an average of 17 percent for industrial and commercial customers.

“The company’s business situation remains difficult because it continues to incur heavy fuel costs to replace lost nuclear power generation,” S&P said. “We believe Tepco faces a tough task to stabilize its profitability without restarting some of its Kashiwazaki-Kariwa nuclear reactors.”

Fuel Costs

The restart of one reactor at the Kashiwazaki-Kariwa plant would have cut Tepco’s annual costs by about 78 billion yen, according to the previous version of the company’s turnaround plan, which was approved by the government in May 2012.

After the earlier plan was approved, the state-run Nuclear Damage Liability Facilitation Fund took control of the utility, which was on the brink of insolvency.

The new version of the turnaround plan was made necessary because Tepco was unable to win approval to restart the Kashiwazaki-Kariwa reactors in April 2013 as intended. Tepco applied to the Nuclear Regulation Authority in September for safety checks on the reactors. The regulator has declined to say when those checks will be completed.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Jacob Adelman in Tokyo at jadelman1@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; Peter Langan at plangan@bloomberg.net

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