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Disaster redress, market pressures, liberalization threaten Tepco’s survival

JIJI

After weathering a management crisis with state assistance, Tokyo Electric Power Co. faces the daunting challenge of paying for the lion’s share of an estimated ¥10 trillion in costs associated with the nuclear disaster that started in March 2011.

Five years after the nation’s worst atomic crisis erupted, the nationalized company still has a long way to go to recover. The utility needs to not only raise an enormous amount of cash, but also deal with the spike in competition that will occur when the retail electricity market is fully liberalized in April.

Under its business reconstruction program, Tepco estimates expenses related to the disaster at the defunct Fukushima No. 1 plant will reach ¥12 trillion. This includes ¥6.2 trillion in compensation for people and businesses and ¥2.5 trillion in decontamination costs. It also includes ¥1.1 trillion for building an interim storage facility for radiation-tainted soil and ¥2 trillion for costs related to decommissioning the six reactors and dealing with the tainted water accumulating at the plant.

The compensation and decontamination costs of the nation’s biggest utility are currently being paid for by the central government, without interest.

Tepco and other electric utilities will work together to repay the cost of compensation, while decontamination expenses are slated to be financed by proceeds from the sale of the government’s holdings of Tepco shares.

In principle, the utility must secure its own funds for reactor decommissioning and water treatment by setting aside reserves.

But taxpayer money will be tapped to offset the cost of building the interim waste-storage facility.

Tepco has repaid or secured just ¥1.6 trillion of the total.

The company’s stock price has hovered between ¥500 and ¥700 since the beginning of the year — far below the ¥1,050 minimum needed to prevent the government from taking losses when selling its shares.

In addition to taxes, electricity bills have been padded to help fund the power industry’s share of the disaster costs. But to prevent the public’s burden from climbing, Tepco must boost earnings without hiking prices while simultaneously pushing up its stock price several times past current levels.

Tepco’s plan will face its next test during the government’s management evaluation in March 2017, when fiscal 2016 ends.

The examination is expected to focus on the utility’s ability to boost earnings to sustainable levels that will allow it to survive liberalization. At the same time, it must meet its compensation obligations and decommissioning goals without fail.

If Tepco is judged able to satisfy the assessment criteria, the government’s voting rights in the utility will be lowered to less than 50 percent, a milestone that would bring it closer to climbing out of state control.

But an interim report last July by the government-backed Nuclear Damage Compensation and Decommissioning Facilitation Corp. gave Tepco’s management team low marks for progress, saying it had little prospect of reaching sustainable earnings levels anytime soon.

The inability to rebound stems primarily from delays in restarting the massive Kashiwazaki-Kariwa nuclear plant in Niigata Prefecture.

Tepco revealed in February that it failed to disclose the Fukushima meltdowns in a timely manner because of confusion over the meaning of the term, even though it had internal manuals defining such events. The failure to use the manuals resulted in a two-month delay in confirming meltdowns had taken place, and it had previously claimed it had no guidelines regarding the definition of a meltdown.

This revelation has probably further eroded local confidence in the utility.

Niigata Gov. Hirohiko Izumida slammed Tepco for failing to both promptly disclose important information and for not acting in good faith. The utility set up an independent panel last week to look into the disclosure problem.

In a surprise last week, the Otsu District Court in Shiga Prefecture issued a provisional injunction ordering Kansai Electric Power Co. to suspend recently restarted reactors 3 and 4 at its Takahama nuclear plant in Fukui Prefecture. The ruling said efforts to discover the cause of the Fukushima No. 1 debacle are “still underway.”

Tepco President Naomi Hirose has repeatedly said the company’s determination to fulfill its responsibilities over the disaster “has not wavered,” and that it needs to survive April’s market liberalization to do that.

The company will come under high public scrutiny on whether it will be able to execute the dual tasks of carrying out its compensation responsibilities and surviving the upcoming competition.