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Rating Action:

Moody's downgrades seven Japanese electric companies

 The document has been translated in other languages

Global Credit Research - 10 May 2012

Tokyo, May 10, 2012 -- Moody's Japan K.K. has downgraded the ratings for seven Japanese electric power companies.

The ratings outlook is negative for all seven companies.

These actions conclude the review initiated on March 28, 2011.

Long-term ratings downgraded by two notches include:

(1) Chubu Electric Power Company, Inc: senior secured and Issuer Rating to A3 from A1; short-term rating to Prime-2 from Prime-1;

(2) Chugoku Electric Power Company, Inc: senior secured and Issuer Rating to A3 from A1;

(3) Hokkaido Electric Power Company, Inc: senior secured to A3 from A1; short-term rating to Prime-2 from Prime-1;

(4) Hokuriku Electric Power Company: senior secured to A3 from A1; short-term rating to Prime-2 from Prime-1;

(5) Kansai Electric Power Company, Inc: senior secured and Issuer Rating to A3 from A1; and

(6) Kyushu Electric Power Company, Inc: senior secured to A3 from A1.

Long-term ratings downgraded by one notch:

(1) Electric Power Development Co., Ltd (J-Power): senior unsecured and Issuer Rating to A1 from Aa3.

RATINGS RATIONALE

The two-notch downgrades of the six utilities with substantial nuclear power-generation capacity reflect Moody's expectation that they will experience an extended period of greater regulatory uncertainty, lower profitability and cash flows, higher capital spending, and capital structures generally weaker than evident before the accident triggered by the March 11, 2011 earthquake at the Fukushima Daiichi Nuclear Power Station.

The one-notch downgrade of J-Power reflects its direct and indirect exposures to increased regulatory uncertainty. While the company has no nuclear-generating capacity, it is directly exposed through its investment in a partially completed nuclear power plant, and indirectly because almost all of its customers are utilities with exposures to nuclear generation.

The negative rating outlooks are based on Moody's view that uncertainties regarding Japan's nuclear-generation policy and those related decisions that must be made by the relevant authorities will significantly affect both the profitability and long-term financial profiles of these entities.

While the Japanese regulatory framework remains supportive, most of Japan's electric power utilities are experiencing deterioration in their profitability, cash flows and balance sheet strength.

This situation is due to the time it is taking to conclude deliberations on the industry issues that emerged from the accident at Fukushima Daiichi. Moody's expects that the outcome of these deliberations, while providing much needed clarity, will also continue or perhaps increase that financial stress.

Prolonged shut-downs of nuclear plants nationwide and the resulting reliance on fossil fuel have led to significantly higher operating costs for these utilities. As a result of the time taken to arrive at a clear regulatory response, the six rated nuclear-generating utilities have not applied to the central government for tariff changes and almost all companies experienced losses in FYE03/2012. Depending on the timing and nature of the regulatory response, all six companies may record losses in FYE3/2013.

In addition to such losses, they have been forced to raise capital spending due to new regulations and the need to construct new thermal-generating capacity. Reduced cash flows and increased capital spending demands will raise borrowings and leverage. Balance-sheet leverage will further rise if the utilities are required to write off some of their investments in their nuclear facilities.

A combination of these factors will lead to an elevation of financial leverage that will extend for at least several years.

As indicated, these utilities have already experienced a protracted period of regulatory uncertainty. We think that the regulators will balance their broad objective of reducing dependence on nuclear power against the resulting costs for alternative fuels, new energy generation facilities, and the write-off of existing investments. In addition, it may take a considerably longer time to reach and implement a consensus solution that appropriately balances political considerations and customer interests.

While the utilities are expected to ultimately be able to pass most of these cost increases onto customers, we think that there will be a substantial delay in the timing of cost recoveries and that all utilities with nuclear exposures may be expected to absorb certain costs.

Moody's believes that these decisions will be less favorable to their financial profiles than was the case in the past. For these nuclear-dependent utilities, Moody's has lowered its assessment of the rating methodology factors for the regulatory framework and the ability to recover costs and earn returns. Moody's updated view considers Japan's evolving policy on nuclear-power generation.

We have not made a blanket reassessment of regulatory support for all companies in the industry. Instead, our reassessment is focused on utilities that have nuclear-generation capacity and, as such, does not affect our current assessments of Okinawa Electric Power Company, Incorporated (Aa3, stable) and J-Power.

From a long-term perspective, Moody's also believes that the regulatory framework is fundamentally supportive for the industry.

As a non-nuclear-dependent wholesaler of electric power, J-Power is less affected by the stresses in the industry and its higher rating reflects factors that differentiate the company's credit quality from those of the six utilities with more substantial nuclear exposures. J-Power's rating is supported by that it recorded a positive operating profit for FYE3/21012, its diversified customer base through long-term contracts with 10 regional utilities, and its favorable competitive position as one of the lowest-cost producers of electricity in Japan.

J-Power's downgrade to A1 reflects the generally weaker financial state of its customer base and uncertainty regarding its ability to pass through all the costs of its investment in its partially completed nuclear power plant in Ohma.

For these utilities, the bond market is unavailable as a funding source under the favorable conditions enjoyed before. Instead, they have re-financed almost all their matured bonds with bank loans. The availability of financing from banks is viewed as a major supporting factor for the ratings at their new levels. However, Moody's also believes that the availability of bank lending will not continue indefinitely without more clarity on the timeliness and magnitude of cost recovery. Moody's will continue to monitor closely the behavior of the banks toward the utilities.

Given the negative outlook associated with all of the affected issuers, an upgrade is unlikely in the near term. The ratings outlook could return to stable if the utilities successfully return to profitability in FYE 3/2013 by re-starting their nuclear operations, or by implementing tariff changes and cost reductions.

The ratings could face further downward pressure if Moody's believes that a loss is likely for FYE 3/2013, and without clear indications that regulatory support will allow a return to profitability in FYE 3/2014.

The ratings also may be downgraded if the banks show signs of reducing their supportive. Critical to the full recovery of this utilities sector is a return to unfettered access to the bond market. Indications of significant negative changes in the regulatory environment would also lead to downward pressure on their ratings.

The principal methodology used in rating these electricity issuers was Moody's Regulated Electric and Gas Utilities, published on September 30, 2010 and available on www.moodys.co.jp.

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).

By the definition of Japan regulation, those ratings below are not requested by the issuer or the rating-related entities.

Hokkaido Electric Power Company, Inc.'s long term ratings as below:

Series252, JPY 15 billion, due 2014

Series254, JPY 20 billion, due 2015

Series256, JPY 20 billion, due 2016

Series257, JPY 20 billion, due 2016

Series258, JPY 20 billion, due 2016

Series261, JPY 30 billion, due 2017

Series263, JPY 15 billion, due 2018

Series264, JPY 20 billion, due 2018

Series265, JPY 30 billion, due 2018

Series271, JPY 15 billion, due 2020

Series277, JPY 20 billion, due 2013

Series280, JPY 20 billion, due 2012

Hokuriku Electric Power Company's long term ratings as below:

Series245, JPY 30 billion, due 2015

Series248, JPY 30 billion, due 2016

Series250, JPY 30 billion, due 2017

Series260, JPY 20 billion, due 2020

Series269, JPY 15 billion, due 2012

Series270, JPY 20 billion, due 2015

Series272, JPY 20 billion, due 2018

Moody's will host a teleconference (for Investors only) in Japanese language beginning at 16:00 Tokyo Time on Friday, May 11. To register and for additional information please visit http://www.moodys.com/eventslist.aspx.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's information.

Measures taken to ensure the quality of this information include use of public information, reviews by a third party and verification by the lead analyst.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Credit ratings are Moody's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. Moody's defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by Moody's in any form or manner whatsoever. The credit risk of an issuer or its obligations is assessed based on information received from the issuer or from public sources. Moody's may change the rating when it deems necessary. Moody's may also withdraw the rating due to insufficient information, or for other reasons.

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 ratings tab on the issuer/entity page on the Moody's website for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on the Moody's website for further information.

Please see the Credit Policy page on the Moody's website for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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 downgrades seven Japanese electric companies
No Related Data.

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