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Power companies offsetting reactor closures by hiking electricity rates

Bloomberg

Power utilities, including Tokyo Electric Power Co., leaned on customer rate hikes to boost their financial performances in the first nine months of the business year as idled nuclear plants kept fuel costs high.

Tepco and the nation’s five other nuclear utilities that raised electricity rates returned to profit or narrowed losses in the nine months that ended Dec. 31. Utilities that didn’t raise rates, including the third-biggest, Chubu Electric Power Co., saw profits drop or remain unchanged.

The financial results, released last week, reveal rate hikes as one of the few options available to the utilities as they seek to counter spending on fossil fuels to make up for lost nuclear capacity. All of Japan’s 48 functioning reactors are idled for safety checks in light of the Fukushima crisis that started in 2011.

“The rate increases seem to be providing them with a lot of protection and cover on the revenue line,” said Tom O’Sullivan, founder of Tokyo-based energy consultant Mathyos. “This should fall away absent further rate increases. Obviously the pressure now is on nuclear and restarting the nuclear.”

With the loss of nuclear plants, which produced more than 25 percent of Japan’s electricity before the disaster, the companies have had to rely on oil, coal and gas-fired plants. The cost of importing those fuels has driven the country into a trade deficit for 18 straight months while the current-account shortfall widened to a record in November.

Tepco, working to contain the Fukushima No. 1 nuclear plant disaster, expects to pay a record ¥2.9 trillion for fuel in the current fiscal year, during which all of its nuclear reactors were offline, up from ¥2.7 trillion a year ago, Managing Executive Officer Katsuyuki Sumiyoshi said at a news conference Friday.

Tepco’s operating profit was ¥231.3 billion in the nine months that ended Dec. 31, compared with an operating loss of ¥114.5 billion a year earlier, the nation’s biggest utility said in a statement.

The return to profit was led by increased revenues after the utility, which serves 29 million customers in the Tokyo metropolitan area, raised electricity rates for households by 8.5 percent in September 2012. The increase boosted electricity sales by 9.9 percent to ¥4.3 trillion.

Net income was ¥772.9 billion after a government injection into the utility’s fund for payouts to people and companies affected by the Fukushima disaster.

Tepco’s operating profit target for the year ending in March is ¥134 billion, compared with an operating loss of ¥222 billion the previous year.

Kansai Electric, Japan’s second-biggest utility, forecast a net loss of ¥98 billion for the full year ending on March 31, compared with a loss of ¥243.4 billion the previous year. Kansai Electric Power Co. attributed the improved performance to a rate increase in May.

The utility’s net loss was ¥34.7 billion during the nine-month period, compared with a loss of ¥152 billion a year earlier.

Hokkaido Electric, Tohoku Electric Power Co., Shikoku Electric Power Co. and Kyushu Electric Power Co. also posted gains or narrowed losses after rate increases.

Chubu Electric, meanwhile, forecast a ¥75 billion net loss for the full year, compared with a loss of ¥32.2 billion the previous year. Chubu’s net loss was ¥31.6 billion for the nine months to Dec. 31, as opposed to a ¥2.29 billion loss the previous year.

Chubu Electric applied to the government in October for a 4.95 percent increase in household rates starting in April. The utility also plans to raise rates for companies by an average 8.44 percent.

Hokuriku Electric Power Co. and Chugoku Electric Power Co., which also haven’t raised rates to cope with the increased fuel costs, saw profits decline or remain unchanged.

Tepco also cut staff and deferred repair work to keep its expenses from ballooning due to the increased fossil fuel purchases from abroad amid a depreciating yen, the utility said. Ordinary expenses rose 1.9 percent to ¥4.67 trillion, compared with a 12.3 percent increase the previous year.

The company won support from the government and its biggest lenders on Jan. 15 for a business recovery plan after the nuclear disaster three years ago almost destroyed the company. The plan hinges on the restart of two reactors as soon as July at the Kashiwazaki-Kariwa plant in Niigata Prefecture, the world’s biggest, in an effort to reduce its dependence on fossil fuels.

“It’s difficult to provide precise forecasts about restarts at the Kashiwazaki-Kariwa plant,” Tepco’s Sumiyoshi said. “We don’t deny that there is an increasing risk to our earnings if restarts happen later than planned.”

The turnaround plan also includes more than ¥1 trillion in additional cost cuts.