Tokyo Electric Power

[RBM]

Thriftville-san,

Thank you for your post; I apologise to you for taking so long to respond. I needed to check a couple of details, where I was on not-so-sure ground, with a knowledgeable Japanese chum in Kobe. I'll try to answer your three questions ............

1. Ishihara-san and the LDP? This one is more than a bit complicated. I do not pretend to fully grasp it! As I understand it, yes, Ishihara-san was (repeat: was) a long standing LDP opinion-leader/former, sitting at the rightist side of the party; Ishihara-san and his "faction" were however, very much a minority within the LDP.

He effectively parted ways with the LDP when it was still Japan’s ruling party in the early 1990's; during this period, the LDP lost power and became Japan’s opposition. Some of the confusion regarding Ishihara-san’s allegiances is down to the fact that a) his eldest son is the LDP’s Secretary General - in reality father and son are very different political animals, politically unrecognisable as father and son, and b) sometimes Ishihara-san still receives (visible or tacit) backing from the LDP. I do not pretend to fully understand this situation or to see much consistency in LDP’s approach – I sense it is one of those phenomena that can only happen within the opaque, intrigue-filled world of Japanese national politics. We should also bear in mind that the DPJ party, born in 1993, is a mix of former members of various political parties, i.e. including former LDP members. Wonderfully complex.

As another example of this wonderfully murky world, it is worth reviewing the recent history of Hashimoto-san, the very recently elected mayor of Osaka, whom I mentioned in a previous post. When Hashimoto-san ran for Osaka Governor in 2008, the LDP supported him……… but when he ran for Osaka Mayor earlier this month, both the LDP and the DPJ backed his rival – I don’t believe this is because of any profound shifts in Hashimoto-san’s policies, tactics or conduct, rather it is due to the profound instability, volatility and downright inconsistency of LDP and DPJ policies and tactics. It was interesting to see that after Hashimoto-san won the Osaka Mayor electoral race, both the LDP and the DPJ made overtures to him. My old Japanese chum believes that the fact Hashimoto-san had neither the support of the LDP or the DPJ was actually a strong factor in his favour.

2. Ownership of the Tokyo Grid. Yes, the electric grid system in Tokyo belongs to Tepco. So if the Tokyo Government does go ahead with developing a non-Tepco-owned power station, the electrons so generated by that plant can only get to their end consumers by means of transmission thru Tepco’s grid. But regulation obliges Tepco to transmit these “third party” electrons – the question is how much of a transmission tariff Tepco charges the power plant/producer. Tepco have used their grid position and the until-now relatively lax regulation of tariff levels to astutely suppress the growth aspirations of (competing) Independent Power Producers (IPP’s); this has in fact caused many IPP’s to withdraw from the industry in recent years. This has helped Tepco’s share price …….until recently.

I say “relatively lax” regulation because it was largely left to Tepco to determine the transmission tariff (Tepco publicly deny this but the reality was clear for industry observers to see). Tepco has been very successful in executing its strategy of not killing-off IPP companies but at the same time constraining their growth - Tepco wanted such IPP companies to maintain a token share of the generating industry in Tokyo order to avoid public criticism of monopolistic conduct.

I say “until-now” and “until recently” because, following the Fukishima debacle, Tepco’s cost and tariff charging structures are now placed under considerably more scrutiny. It is now most likely that Tepco will no longer be able to manipulate tariff levels as they have in the past – as a result of an 11th March 2011 edict by the Kan Government, electricity generated by third parties will henceforth be transported at much lower cost (a so called “minimum cost price”) and tariff structures and levels will henceforth be much more transparent - this will benefit existing IPP’s and the power plant the Tokyo Government is now pushing for – this development can only be good for Tepco’s competitors and bad for Tepco’s competitive position, its bottom line and its share price . And, at the end of the day, Tepco will lose out if it gets involved in a public scrap with the Tokyo Governor’s office – they need to work with the Governor, not against him.

3. Will the Tokyo governor need to get an operating license from Japan's Central Government, in order to operate a utility company? Yes, the Tokyo Government would need that their new power plant secures an operating and other licenses - but this will not be an issue – the Central Government would be seen as dishonest and protecting and favouring a public pariah (i.e. Tepco) if it resisted this – a sure way to lose both credibility and votes. I sense that in the future we may see more IPP companies entering the Japanese electricity sector because their economics and growth prospects will look substantially better.

Coupled with the ongoing and potentially future (including as yet unknown and unquantified) liabilities that will confront Tepco, I hope the above gives a tad more explanation and “colour” for why I am still not buying Tepco stock at this stage. The implications of Fukushima go way beyond fixing the plant and addressing nuclear leakage related liabilities – many aspects of Tepco’s wider business, including those that are nothing to do with Fukushima, are under threat.

Hope this gives some more insight. Its just my personal views. Best regards to you Thriftville.

Dommo (an almighty word).

Hey RBM,

Thank you very much for your valuable time to explain the political situation!

The Tokyo governor seems to have some power to go against the central government. Ishihara belongs to LDP, going against the central gov means that there're a lot of internal conflicts within the party?

The electric grid system belongs to Tepco. If Tokyo gov can produce electricity on their own, do they have to go through Tepco's distribution network?

Does Tokyo governor need to get license from central government, in order to operate a utility company?

Hope to hear your views! Thanks a lot!

[Thriftville]

Hey RBM-san,

Thank you so much for your time and the great effort to answer my questions! It's amazing to see how a nuclear accident triggers so much drama in the industry!

The political situation is indeed very murky. I will watch Tepco's next few quarter's report to understand their losses. Right now, my concern is more on their alternative fuel cost, which runs into billions.

Tepco needs about 5 years to restore its nuclear capacity. If Tokyo governor is willing to fund the construction of LNG plants, that will help Tepco to reduce reliance on petrol in the short-term. So what's confusing me was whether they are trying to use public money to help Tepco OR it was a true rivalry happening?

I find it hard to understand that a governor going against the ruling party. Would it be like a political suicide? As the central gov will find ways to kick out the disobedient guy soon.

The reason why I haven't give up on Tepco is because it's a national asset, just like the banks. If Tepco has funding issue and start to play tricks by reducing power supply, that will greatly hurt the economy.

Thank you RBM-san once again for your help!

[RBM]

Thriftville-san,

As regards your third paragraph, I believe one of the key aims of many of the "Young" (and Old) Turks now rising in Japan is to radically reduce Japan's reliance on nuclear power - people like Ishihara and Hashimoto want to see this happen and intend setting the plans in motion now - they do so with the knowledge that this approach will win them votes and make them more electable.

As regards your fifth paragraph, I don't believe Tepco will intentionally reduce power supplies - I do see the competition taking a greater share of the pie, i.e. Tokyo Gas, Shizuoka Gas, IPP's etc. etc. Not good for Tepco.

Best Regards

[Thriftville]

Hey RBM-san,

Your words of wisdom will be embedded in my mind. I will watch out for these cues closely.
Thank you so so much for your generosity to share your insights!

[RBM]

The latest on Tepco as seen by Reuters. My - admittedly amateur - instincts tell me this saga has a long way to go yet.......
++++++++++++++++++++++++++++++

Japan's Stricken Nuclear Operator Set for $13 Billion Bailout
Published: Wednesday, 25 Jan 2012 | 9:26 PM ET By: Reuters

The owner of Japan's stricken nuclear reactor, Tokyo Electric Power Co, will agree to be taken over by the government in a near-$13 billion bailout, sources said on Thursday, even as the country debates the future of nuclear power. The injection of 1 trillion yen ($12.8 billion) in public funds would effectively nationalize Tepco, supplier of power to almost 45 million people including Tokyo residents, in one of the world's biggest bailouts outside the banking sector.

Tepco has been dragging its feet over a proposal for the state-backed Nuclear Damage Liability Facilitation Fund to take at least a two-thirds stake in the company, which has been swamped by liabilities associated with the earthquake and tsunami which ruined its Fukushima nuclear power plant in March. "If the government has a two-thirds stake, they have a right to control management, so naturally, Tepco doesn't like that," said one source familiar with the matter.

Tepco's future as an independent firm has been in doubt since the disaster, which triggered the world's worst nuclear crisis in 25 years and left the utility with huge compensation payments, cleanup costs and rising fuel bills as public concerns over safety make it hard to restart other off-line reactors. Its plight has become emblematic of problems facing Japan's entire nuclear power industry, much of which has been idled since the disaster while authorities work to regain some public trust in an industry that had provided a third of Japan's power. Tepco's fate is also being watched for clues as to whether Japan will deregulate its system of monopolistic regional utilities that both generate and distribute electricity.

Tepco's share price soared on the news, jumping 8 percent in heavy trade to 219 yen. Tepco, which together with the fund is drafting a business reconstruction plan to be unveiled in March, is also seeking about 1 trillion yen in additional bank loans, sources said. Under the plan, the utility is expected to swing to profit in fiscal 2014 and resume issuing bonds two years later, the Nikkei business newspaper reported. The plan calls for government control to end in six or seven years, the Nikkei added, though other reports have said it might last about a decade.

According to the plan, Tepco is expected to post a parent-only net loss of about 580 billion yen in the year ending March 31 and next fiscal year, followed by a net profit of 37.7 billion yen in fiscal 2013, largely on the sale of real estate, the Nikkei said. Tepco is also expected to generate a pretax profit of 159.1 billion yen in fiscal 2014, it added. The projection for improved earnings is based on the assumption Tepco will increase household electricity rates by 10 percent in October and reduce fuel costs by restarting reactors at its Kashiwazaki-Kariwa nuclear plant in fiscal 2013 -- moves the utility will find difficult to execute, the daily said.

Tepco shareholders will need to approve an increase in its authorized share capital at an annual meeting in June before the nationalization plan could go ahead. ($1 = 78.2250 Japanese yen)
++++++++++

Not Vested (not brave enough)
RBM

[Thriftville]

Hey RBM, yup! long way to go... especially almost all nuclear plants have been shutdown for inspection recently.
the power bill is likely to be crazy for the coming months.

the nationalization rumour is pretty hot recently, but these news are mostly from smaller newspaper, instead of Nikkei. looking forward for the quarter report!

[sgd]

Similar case of this kind of magnitude that result in so many deaths and injury was the Bhopal Gas Leak disaster from pesticides plant in India in 1984 which exposed and killed 11 thousand and injured another 500+ thousand people and resolved only in 2010.

If looking at Bhopal you get the idea this incident at Tepco could take years and years to resolve and radiation sickness on survivors that have now been exposed may only start to surface several years later, this could take long long time and cost tepco a lot of money.

In the end Bhopal incident cost union carbide USD 3.4 billion and they even had to build a new hospital and provide free medical up to 8 years to survivors.

[Thriftville]

The impact from nuclear disaster is much bigger than the gas leak. Radioactive material already flow underground.
To clean up and decom the power plants, it'll cost Tepco more than US$4b. Plus compensation to victim exceeding US$10b.

Tepco's survival is part of national security. Hence, gov will help to pay for the expenses. US$20b was given free of charge so far. Recently, Tepco sold US$10b of preference share (with voting right) to gov.

[pianist]

sorry to hijack - but anyone knows the reason why for dual-listed counters in both tokyo and osaka, why is it that the asking price seems always lower in tokyo?

[pianist]

i wonder if any of our leaders dare to go so close to a troubled plant. thumb up for noda.

AFP
Sunday, Oct 07, 2012

TOKYO - Japan's Prime Minister Yoshihiko Noda toured the crippled Fukushima power station Sunday in a show of resolve over the nuclear disaster there, amid strong public scepticism about his energy policy.

Noda, who reshuffled his cabinet last week before a possible snap general election, encouraged the crews who worked to contain the plant's dangerous molten reactors after last year's earthquake and tsunami, TV footage showed.

"I believe that Japan has survived as we see it now thanks to your dedicated work," the premier told about a dozen people who carried on working inside the power station after the catastrophe struck on March 11, 2011.

"As a Japanese, I want to thank you for exerting yourself in a frightening and demanding environment," he said at an accommodation facility for workers just outside the 20-kilometre (12.5 mile) no-go zone surrounding the plant.

The quake and tsunami knocked out the Fukushima Daiichi power station's cooling systems, sparking the world's worst nuclear accident since the 1986 Chernobyl disaster.

The plant, 220 kilometres northeast of Tokyo, has continued releasing radiation into the environment, forcing tens of thousands of residents to evacuate the region.

"I believe that your work in various places on the frontline has enabled us to embark on efforts to decommission the reactors," said the premier, clad in workman's clothing.

After changing into white protective gear, Noda travelled to the power station and inspected a reactor where workers were planning to remove spent nuclear fuel from a storage pool.

It was Noda's second visit to the plant - he went there immediately after taking office in September last year.

"Without Fukushima's revival, Japan's revival will never happen. I want you to make further efforts toward the decommissioning of the reactors," he told some 200 workers.

He also observed operations to decontaminate an elementary school inside the evacuation zone.

"Decontamination is the key to Fukushima's restoration and revival. We need to accelerate the speed of decontamination," Noda told reporters at the end of the day trip.

His government declared last month it was aiming to eliminate nuclear power from the country's energy mix by 2040.

But his trade minister said immediately afterwards that two partially-built reactors could be finished and put to work, leading doubts to be cast on the government's intentions.