Japan Utilities Raising Prices Offer Abe Wrong Inflation

Japan’s power utilities reported combined losses of about 1.6 trillion yen a year ago, the equivalent of $20 billion at the time. Yesterday, they repeated the performance.

On the face of it, the bad news for the companies looks like a boost for Prime Minister Shinzo Abe and his 2 percent inflation target in Japan as the utilities will probably raise electricity tariffs. Except it’s the wrong kind of inflation.

“I have a hard time seeing the government declining the move for higher tariffs, I don’t think they can,” said Klaus Baader, chief Asia Pacific economist for Societe Generale SA in Hong Kong. “But this isn’t the kind of inflation we want in Japan to break the deflation mindset. We’d like inflation that is a reflection of higher wages, whereas this is pure cost inflation that decreases purchasing power.”

Tokyo Electric Power Co. and eight other power utilities reported combined losses of 1.59 trillion yen in the latest year ended March 31, or $16 billion at current rates, according to data compiled by Bloomberg.

Tokyo Electric, operator of the stricken Fukushima Dai-Ichi nuclear plant, was the last to report yesterday. It had a net loss of 685.3 billion yen, almost six times its earlier forecast. Kansai Electric, Japan’s second-biggest power company by capacity, had a net loss of 243.4 billion yen.

Price Pressure

The shares of Tepco, as Tokyo Electric is known, fell 3 percent to close at 417 yen on the Tokyo Stock Exchange, a 94 percent decline since the day before the March 11 disaster. Kansai Electric rose 3.9 percent. Both companies released earnings after markets closed yesterday.

The results add pressure on atomic utilities to pass on rising fuel costs after the Fukushima disaster prompted the shutdown of all but two of Japan’s 50 nuclear stations. Six have already raised or are planning to increase electricity prices.

Tokyo Electric, which has about 30 million customers in Japan’s biggest metropolitan area, raised household rates by about 8.5 percent in September 2012.

That was to cover purchases of oil, natural gas and coal needed in power plants switched on to replace nuclear reactors. Osaka-based Kansai Electric and Fukuoka-based Kyushu Electric Power Co. won the government’s approval to raise electricity prices last month.

Further delays in restarting nuclear plants suggest the three utilities may be forced to raise electricity prices again, Hidetoshi Shioda, a Tokyo-based analyst at SMBC Nikko Securities Inc., said by phone yesterday.

Reactor Restarts?

Japan’s nine nuclear plant operators will be forced to pay 3.8 trillion yen more in combined fuel bills this fiscal year compared with fiscal 2010 because of reactor shutdowns and a weaker yen, according to an estimate by a government advisory board released last month.

Japan remains mostly nuclear-free as reactors undergo checks and upgrades after the Fukushima earthquake and tsunami cast doubt on the safety of atomic energy. Power companies must meet new safety requirements, which will take effect in July, before restarting their reactors.

Shikoku Electric Power Co.’s Ikata No. 3 reactor may be restarted in October, the first resumption among the nation’s 48 idled nuclear units, Shioda wrote in a report last month. That may be followed by Kyushu Electric’s Sendai No. 1 and No. 2 reactors in November and Hokkaido Electric Power Co.’s Tomari No. 1 and No. 2 units in December, Shioda wrote.

Safety Checks

“Japan’s idled reactors will be restarted sooner or later as there seems to be a consensus among Japanese government officials about the need for doing so,” Shioda said yesterday.

Prime Minister Abe has said the country will restart the nuclear reactors once their safety is assured. Some reactors may resume in autumn after the nuclear watchdog carries out safety assessments, Kyodo News reported, citing Trade and Industry Minister Toshimitsu Motegi.

Tepco “will do its best to avoid a further price increase as the move will throw cold water on the mood that the economy is going up” though it is uncertain when it can restart its idled reactors, President Naomi Hirose told reporters yesterday.

The following table shows the reported losses of Japan’s nuclear plant operators for fiscal 2012 and their forecasts for this financial year. Figures are in billions of yen.

COMPANY                 FY EARNINGS               FORECAST
Tokyo Electric          -685.3                    Not provided
Chubu Electric          -32.2                     -85
Kansai Electric         -243.4                    Not provided
Chugoku Electric        -22.0                     Not provided
Hokuriku Electric       0.1                       Not provided
Tohoku Electric         -103.7                    Not provided
Shikoku Electric        -42.9                     Not provided
Kyushu Electric         -332.5                    Not provided
Hokkaido Electric       -132.8                    Not provided


Sources: Tokyo Electric, Chubu Electric, Kansai Electric, Chugoku Electric, Hokuriku Electric, Tohoku Electric, Shikoku Electric, Kyushu Electric, Hokkaido Electric