Tokyo Electric Power Co. and Chubu Electric Power Co. will transfer operation of their thermal power plants to a new 50-50 joint venture, creating a huge thermal power company with a dominating market share, the two utilities said on Monday.
The transfer will take several years to complete.
The agreement is central to Tepco's rehabilitation plan, which was approved by the government in January last year.
In October, the two utilities reached a basic agreement on a tie-up, including joint procurement of liquefied natural gas and replacement of aging thermal power facilities, but continued discussing what to do with the existing plants.
In their talks, Tepco called on Chubu Electric to transfer its facilities to the new venture. Chubu Electric was concerned that spinning off its core thermal power business could affect its management autonomy, sources close to the matter said.
The two agreed to expand the operations of the new venture, as they are likely to face difficult operating conditions in the market when Japan's retail electricity market is fully liberalized in 2016.
The combined capacity of their thermal power plants was nearly 70 million kilowatts as of March 2014, accounting for more than a half of the total thermal generation capacity of Japan's 10 regional electric companies.
The joint operation will allow a significant cut in fuel and other costs, the sources said. The utilities are also expected to realize economies of scale in repair and maintenance work.
The timing of merging the existing thermal power operations could be delayed, depending on how smoothly the comprehensive tie-up proceeds.