Business / Corporate

Tepco, Chubu Electric to merge existing thermal power plants

Kyodo

Tokyo Electric Power Co. and Chubu Electric Power Co. will transfer operations of their existing thermal power plants to a new joint venture, creating a huge thermal power company with a dominating market share.

Under their agreement, to be finalized Monday, their thermal power generation operations will be transferred in several years to the fifty-fifty joint venture to be established in April, sources close to the matter said Saturday.

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 generation facilities, but they had continued to discuss what to do with their existing plants.

In their talks, Tepco called on Chubu Electric to transfer its existing facilities to the new venture, while Chubu Electric was concerned that spinning off its core thermal power business could impair its management autonomy, the sources said.

But Chubu Electric apparently agreed to Tepco’s proposal of expanding the operation of the new venture, as the utility is likely to face a severe business environment with the full liberalization of Japan’s retail electricity market in 2016.

The combined output capacity of their existing thermal power plants was nearly 70 million kilowatts as of March 2014 — more than half of the total thermal power 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 their comprehensive tie-up proceeds.

The tie-up agreement is the pillar of Tepco’s rehabilitation plan approved by the government in January last year following the 2011 Fukushima No. 1 nuclear power plant disaster.