Utilities lose $46 billion as nuclear era nears end

Shareholders at risk amid efforts to break up power monopolies


The nuclear power industry has lost a record $46 billion since the earthquake and tsunami disasters led to three meltdowns at the Fukushima No. 1 power plant last year, wiping out seven years of profit.

Then came the bad news.

Under a July 13 announcement that helped cut ¥1.3 trillion in market value in three weeks at the nine utility companies — from Tohoku Electric Power Co. to Kansai Electric Power Co. — the government is preparing to force regional monopolies to spin off transmission assets from generation. The overhaul, designed to spur competition, is the industry’s biggest in postwar Japan.

Breaking the electricity model that powers the world’s third-biggest economy, an experiment tried with some success by nations, including Germany and Spain, puts shareholder value at risk.

The utilities will lose guaranteed access to distribution grids just as they struggle to replace idled nuclear reactors, a scenario threatening dividend payments that were 46 percent above the average of the Nikkei 225 stock average companies in the five fiscal years to 2010.

“The big assumption about the electricity business was the utilities were guaranteed to generate a certain level of dividends,” Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., said. “It was expected that the utilities would resume dividends once reactors are restarted, but that prospect has dimmed.”

Chugoku Electric Power Co. was the only nuclear plant operator that provided a dividend payout forecast for this fiscal year in its latest earnings. Tokyo Electric Power Co., which lost reactors in meltdowns and was effectively nationalized on July 31, expects to pay no dividend, while the others left their payout forecasts “undecided.”

The average annual dividend yield of the nation’s nine nuclear power plant operators in the year ended March 31, 2011, was 2.62 percent, compared with 1.5 percent of the Nikkei 225 Average, according to data compiled by Bloomberg.

Dividend yield is a percentage that shows how much a company pays out in dividends relative to its share price.

Kansai Electric has a 9.1 percent dividend yield at the current share price, should it pay its ¥30 semiannual dividend this year.

Shikoku Electric share prices declined 29 percent to Aug. 10 since July 13, the fourth-worst performer among 1,672 members of the Tokyo Stock Price Index, whose drop was led by Sharp Corp.

Kansai Electric lost 26 percent. The benchmark dropped 0.1 percent over the period, with four utilities among the 10 worst performers.

“Long-term investors are walking out on utilities because the dividend payouts will not be maintained” if the government splits up generation and transmission, Hidetoshi Shioda, a Tokyo-based energy analyst at SMBC Nikko Securities Inc., said.

The utilities have lost a combined ¥3.6 trillion since Fukushima, about equal to the aggregate profit from the year ended March 31, 2004, to the year ended March 31, 2010, according to Bloomberg data.

The government is considering three options for the ratio that nuclear energy should provide by 2030 — zero percent, 15 percent, or 20 percent to 25 percent. At hearings held by the government to gauge opinion on future energy policy, about 70 percent supported the zero option, the daily Asahi Shimbun reported.

National Policy Minister Motohisa Furukawa indicated Monday that the government may delay drafting the energy policy until after September. The government originally planned to outline it by the end of August.

Another concern for investors is months of antinuclear rallies, marches and street protests that have attracted tens of thousands of people in Tokyo.

A regular Friday rally has besieged the residence of Prime Minister Yoshihiko Noda. Noda and his government have become a target after he approved the restart of two reactors closed for safety checks following the Fukushima disaster.

Kansai Electric, the nation’s second-largest power company by generating capacity, fell 6 percent to ¥553, the lowest at least since September 1974, on Aug. 1 on the Tokyo Stock Exchange. Similarly, shares of seven other regional utilities sank to the lowest levels in decades during the week to July 29.

Electric power generated about 86 percent of revenue last year for Osaka-based Kepco, though the business group lost money at the operating level, according to data compiled by Bloomberg.

“The only way left for the utilities is to regain lost ground in the detailed design process” of the reform framework led by the Ministry of Economy, Trade and Industry, SMBC’s Shioda said. “METI is not their enemy. Ministry officials wouldn’t draw up a policy to trample down the power industry.”

Japan should spin off power generation from transmission and distribution operations or form an independent operator to take over the networks, an advisory committee under the trade and industry ministry said July 13.

The panel also proposed abolishing the nation’s electricity pricing system, under which utilities may pass on to households the costs to supply power and a certain level of business returns, which is used to pay dividends and interest expenses.

All but two of Japan’s 50 reactors remain shut after the magnitude-9 temblor and tsunami crippled the Fukushima No. 1 nuclear station, causing meltdowns and radiation leaks that have left areas around the plant uninhabitable for decades.

Following government approval, Kansai Electric restarted the No. 3 reactor on July 1 and the No. 4 unit on July 18 at its Oi nuclear plant, northeast of Osaka.

Another factor that drove down the power companies’ share prices was rising concerns about the safety of nuclear power, said Shioda.

Quake and tsunami experts at a July 17 hearing held by the government’s Nuclear and Industrial Safety Agency suggested fractured zones under sites of Kansai Electric’s Oi plant and Hokuriku Electric Power Co.’s Shika station may be active fault lines. If an active fault is confirmed, the plant operators may be forced to decommission reactors that are standing on the zone.