Tokyo, June 18, 2012 -- Moody's Japan K.K. says that the decision by the Japanese
government to restart two nuclear reactors owned by Kansai Electric Power
Company, Incorporated (KEPCO, A3 negative) is supportive of
the financial profile of the utilities sector in Japan, but many
uncertainties remain.
Moody's considers the decision indicates that the authorities are
beginning to develop a new long-term -- although still emerging
-- approach to regulating the power industry in Japan, following
the problems encountered after the 11 March 2011 earthquake.
Moody's recent ratings action on seven nuclear dependent Japanese
electric utilities was partially driven by the uncertainties in the regulatory
environment. The decision to restart the two reactors, although
very limited in itself, is an indication of an emerging consensus,
at least for the short term.
The restart of the country's nuclear power stations is important
to returning the industry to profitability.
The shutdown of all nuclear plants in Japan after the accident at the
Fukushima Daiichi nuclear power station owned by Tokyo Electric Power
Company Inc. resulted in financial losses at almost all nuclear-dependent
utilities in FYE 3/2012.
On June 16, 2012, Prime Minister Yoshihiko Noda decided the
restart of the Oi No.3 and No.4 nuclear reactors owned by
KEPCO. The decision reflects the government's recognition
that without nuclear power generation, KEPCO's customer area,
including Central Osaka -- the second largest business district in
Japan -- would suffer energy shortages equal to about 15%
of demand during the peak summer season.
Such shortages could lead to significant social and economic difficulties.
Moody's believes that the most significant reason for the continued
low profitability of the utilities is the delay in the decision regarding
whether and how many nuclear plants should be restarted or not.
Without the government's clear direction on which nuclear plants
will be restarted, utilities still do not have a clear view of their
future energy mix and cost structure. Consequently they are delaying
their applications for new tariffs.
However, Moody's does not view this recent decision as sufficient
to restore KEPCO's profitability, or leading to changes in
the rating outlook for KEPCO or other utilities now assigned negative
outlooks.
First, it is unclear how long Oi No. 3 and No. 4 will
be allowed to operate. If the reactors are taken offline after
the peak season, their contribution to KEPCO's overall profitability
would be limited.
Second, the restart of the Oi reactors could be an exception as
shortages in KEPCO's region are seen as the largest in Japan.
Other utilities are not able to claim such exceptions.
Third, the overall costs for operating nuclear plants in the environment
after the March 11 earthquake while unclear is expected to increase substantially.
New regulations, as yet only emerging, are expected to result
in additional and expensive safety-related changes. These
may include new safety equipment and longer shut-downs for maintenance.
Such changes could substantially erode or even eliminate the economic
benefits of nuclear power.
Moody's will continue monitoring the political decisions on restarting
other nuclear plants, and on new regulatory framework.
Kazusada Hirose
VP - Senior Credit Officer
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
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Richard Bittenbender
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's: Restart of two nuclear reports in Japan encouraging