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Rating Action:

Moody's affirms ratings of seven Japanese electric utilities; maintains negative outlook

 The document has been translated in other languages

27 Nov 2013

Tokyo, November 27, 2013 -- Moody's Japan K.K. has affirmed its ratings on seven Japanese electric power utilities.

The ratings outlooks remain negative for all seven companies.

Of the seven, six 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: Senior secured and issuer rating A3; short-term rating Prime-2

Chugoku Electric Power Company, Inc: Senior secured and issuer rating A3

Hokkaido Electric Power Company, Inc: Senior secured rating A3; short-term rating Prime-2

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

Kansai Electric Power Company, Inc: Senior secured and issuer rating A3

Kyushu Electric Power Company, Inc: Senior secured rating A3

Electric Power Development Co., Ltd. (J-Power): Senior unsecured and issuer rating A1

RATINGS RATIONALE

The affirmation of the ratings reflects various positive developments for Japan's electricity sector. However, the negative outlook reflects the continuing uncertainty surrounding the timing of a return of profitability to the sector.

Positive developments include: [1] regulatory approvals of tariff hikes for several utilities; [2] the government's simplification of the approval process for subsequent rate increases; [3] establishment of a new accounting method for enabling nuclear decommissioning costs to be included in costs used to calculate tariff increases; [4] increasing clarity on the position of regulators on nuclear safety; and [5] the improved access of the utilities to the capital markets.

Also, Moody's notes that the support of Japanese financial institutions for the utilities remains ongoing.

As a result, several utilities reported profits in 1H FYE/2014 (April -- September 2013). However, in part these profits were supported by deferral of maintenance expenses and a one-time revenue increase due to an extraordinarily hot summer. Sustainable and stable profitability will require a more normalized operating environment.

The continued uncertainty driving the negative outlook can be narrowed down to two issues;

First, there is uncertainty over when the Nuclear Regulatory Authority (NRA), a newly established regulatory institution on industry safety, will decide the issue of restarting nuclear generation. In some cases agreements with local governments may also be needed.

Even if restarts are approved, timing of approvals and the time it will take to prepare the facilities to return to operation remains uncertain. Since July 2013, five utilities have applied to restart 14 reactors in total. The general consensus is that the NRA will take about six months to carry out its inspections of these reactors. Moody's estimates the earliest NRA approvals will be in the first quarter of 2014. If requirements for local approvals and/or new safety equipment are imposed, restarts are not likely until the second quarter of the year at the earliest.

The second uncertainty is the issue of Electricity System Reform. Moody's notes that the Partial Revision of the Electricity Business Act has been passed by the Diet in November 2013. The further steps of the reform involve fully liberalizing the retail market, further securing the neutrality of the power transmission/distribution sector, and fully liberalizing electricity rates by around 2020.

These steps, when realized, would negatively affect utilities' profits. However, the success of the second and third phases is uncertain. Moody's sees significant challenges in achieving true competition sufficient to lead to cheaper rates. Past deregulation efforts have not led to significant reductions in electric rates, but, Moody's notes the separation of transmission from power generation could provide a basis for greater competition.

As a non-nuclear-dependent wholesaler of electric power, J-Power is less affected by the stresses in the industry. J-Power's 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 and its negative rating outlook reflects the concerns regarding its customer base rather than its own operations. Moody's notes the company has one nuclear power plant currently under construction.

Given the negative outlook associated with all of the affected issuers, upgrades are unlikely in the near term.

However, the ratings outlook could return to stable if the utilities return to a sustainable level of operating profits as a result of a more stable regulatory and operating environment.

However, a delay beyond the second calendar quarter of 2014 in achieving sustained profitability could lead to negative rating actions. Such a delay would indicate continued difficulties and delays in regulatory authorities ability to resolve the underlying structural challenges facing the industry in a timely manner.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in August 2009. 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), Hokkaido Electric Power Company, Inc. (headquarters in Hokkaido), Hokuriku Electric Power Company (headquarters in Toyama), Kansai Electric Power Company, Inc. (headquarters in Osaka), Kyushu Electric Power Company, Inc. (headquarters in Fukuoka), 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: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

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 affirms ratings of seven Japanese electric utilities; maintains negative outlook
No Related Data.
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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​

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