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Rating Action:

Moody's affirms ratings of four Japanese utilities; changes outlook to stable from negative

 The document has been translated in other languages

26 Aug 2014

Tokyo, August 26, 2014 -- Moody's Japan K.K. has affirmed its ratings on four Japanese electric power utilities.

At the same time, Moody's has changed the ratings outlook to stable from negative for all four issuers.

Of the four affected utilities, three are regional integrated power utilities that own nuclear facilities, and one is a nationwide wholesale power utility whose only customers are regional integrated utilities.

Details of the rating affirmations are as follows:

Chubu Electric Power Company, Inc. (Chubu): Senior secured and issuer ratings A3; Senior secured shelf registration (P)A3

Chugoku Electric Power Company, Inc. (Chugoku): Senior secured and issuer ratings A3

Hokuriku Electric Power Company (Hokuriku): Senior secured rating A3; short-term rating Prime-2

Electric Power Development Co., Ltd. (J-Power): Senior unsecured and issuer ratings A1; Senior unsecured shelf registration (P)A1

RATINGS RATIONALE

The affirmation of the ratings and change in outlook from negative to stable, principally reflects a number of positive developments for Japan's electric utility sector over recent months. The stable outlooks reflect Moody's expectation that the positive developments should lead to stabilization of profitability for the three integrated utilities and lead to enhanced stability in J-Power's profit levels.

Positive developments since the last rating actions are as follows (we last affirmed all ratings with negative outlook in November 2013) :

[1] The government clarified nuclear power's position as "an important base-load power source" and reiterated its intention to restart those nuclear facilities deemed safe, on the "Strategic Energy Plan", approved by the Cabinet in April 2014.

[2] Progress on safety assessment for restarting nuclear power generation. In July 2014, the Nuclear Regulation Authority (NRA) approved a safety assessment of Sendai plant, the first such approval since the accident at Fukushima in March 2011.

[3] Seven utilities have applied for and received approval for higher tariffs since the disaster at Fukushima. In addition, in July 2014, a second tariff increase was applied by a utility, based on the newly introduced approval process for subsequent rate increases, for the first time.

Moody's believes that these events indicate the government's supportiveness for the nuclear-exposed utilities, and that Japan's regulatory framework designed to allow utilities to fully recover operational costs -- through the application of a regulated tariff framework -- remains intact.

Moody's also notes that support of the utilities by major Japanese financial institutions, as well as the smooth access of the utilities to the bond market, remain ongoing and these are underpinning factors for the company's ratings.

The three regional integrated utilities -- Chubu, Chugoku and Hokuriku -- have demonstrated relatively favorable profitability compared with their peers, even without nuclear power generation, because of their historically low dependency on nuclear generation.

Chugoku and Hokuriku in particular, have posted more stable and consistent operating profit levels, throughout the three fiscal years after the Fukushima accident. These utilities also recorded 7.7% and 10.3% of operating profit margins, respectively, in April-June 2014.

Chubu recorded a JPY24.2 billion operating profit in April-June 2014, despite posting JPY60.6 billion of operating loss in FYE3/2014. The profit has been achieved mainly through its newly approved higher electricity tariff, implemented in May 2014.

Moody's notes that Chubu's new tariff assumes only a limited dependence on nuclear generation, and takes into greater consideration the higher costs of replacement thermal generation. It is therefore far more realistic in its cost assumptions than the tariffs of other utilities who still have heavy dependency on nuclear generation and recovery.

Chubu is the only nuclear exposed utility with a full-year operating profit forecast -- JPY 75 billion -- for FYE3/2015. Moody's further believes Chubu can achieve this target.

Further supporting the trend in profitability is the capacity for ongoing cost reductions by the three utilities.

As a non-nuclear-dependent wholesaler of electric power, J-Power is far less affected by the stresses in the industry. J-Power sells electricity on a wholesale basis under long-term contracts to 10 regional utilities throughout Japan. It is among the lowest-cost producers of electricity in Japan and its contracts allow for price increases to cover its costs. The company has consistently reported profits even after the Fukushima accident.

Moody's previous main concern was J-Power's customer base exposed to the nuclear dependant utilities, and the potential for these to impact the company's own operating performance. The further improvement of the sector's operational environment and the enhanced credit quality of its customer base have -- in turn -- driven the stabilization of J-Power's A1 rating outlook.

Moody's also notes J-Power has one nuclear power plant currently under construction.

Moody's does not see positive rating pressure in the near future, considering the prolonged uncertainties for nuclear power generation in the country and in the absence of further balance sheet repair of the major nuclear utilities, as well as improved transparency over tariff arrangements.

Looking further ahead, a steady business environment, solid cash flows, and significantly improved balance sheet structures as well as clearer tariff arrangements, could have positive implications for the ratings.

On the other hand, Moody's would see negative rating implications if there is a significant change in the regulatory and business environment, which may cause more intensive competition and may lead to lower profitability for the utilities.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities (Japanese) published in February 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The rated utility companies are integrated and dominant suppliers of electricity in their respective service areas and J-Power is a nationwide wholesale power company.

Chubu Electric Power Company, Inc. (headquarters in Aichi), Chugoku Electric Power Company, Inc. (headquarters in Hiroshima), Hokuriku Electric Power Company (headquarters in Toyama), and Electric Power Development Co., Ltd. (headquarters in Tokyo).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's Japan K.K. is a credit rating agency registered with the Japan Financial Services Agency and its registration number is FSA Commissioner (Ratings) No. 2. The Financial Services Agency has not imposed any supervisory measures on Moody's Japan K.K. in the past year.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Moody's affirms ratings of four Japanese utilities; changes outlook to stable from negative
No Related Data.
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