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Tepco's rejuvenation plan ignores thorny realities

Bold numerical targets will be out of reach without significant help

Tepco President Naomi Hirose, left, presenting the utility's latest turnaround plan.

TOKYO -- Tokyo Electric Power Co. Holdings' latest plan to achieve a significant earnings surge to cover massive nuclear cleanup costs deals more in wishful thinking than in sober reality, betting its own turnaround on unlikely cooperation from leery peers and municipalities.

Tepco now estimates costs related to the March 2011 meltdowns at the Fukushima Dai-ichi nuclear power plant totaling around 22 trillion yen ($193 billion) -- twice the figure cited in its previous recovery plan three years ago. The utility will take on 16 trillion yen of that sum, toward which Tepco intends to put 500 billion yen annually.

As things stand, Tepco can lock down only 300 billion yen a year for such costs -- hence the utility's long-term goal of 450 billion yen in annual profit. By achieving such ambitious earnings targets, Tepco sees its market capitalization reaching 7.5 trillion yen, which in turn will enable the government to raise money for the Fukushima cleanup by selling off shares in the utility, Tepco calculates.

This mathematical sleight of hand holds only as long as Tepco's actual earnings capacity is left out of the equation. The utility asserts that teaming with its peers to revamp operations such as power transmission and nuclear power generation will help boost earning power enough to close the gap. But while the new plan aims to bring such efforts to fruition within a decade, it acknowledges that at least 10 years are necessary before these operations will contribute to profit.

No help

This is because "there isn't enough certainty over" restructuring plans to "factor in specific contributions to earnings," said Keita Nishiyama, a Tepco director who also serves as a manager at the utility's majority shareholder, the government-backed Nuclear Damage Compensation and Decommissioning Facilitation Corp.

Few utilities are eager to team up with Tepco, which is on the hook for hefty reactor decommissioning costs at Fukushima Dai-ichi and damage payments linked to the disaster. A senior official at Tohoku Electric Power, which has been floated as a potential partner for nuclear power plant operations, said the company "is not in any position to get involved" with Tepco.

"We would like to focus on restarting our own Onagawa and Higashidori nuclear plants for now," the person said.

Meanwhile, even as Japan's total power demand falls, the cost of keeping up power infrastructure is climbing. While Tepco's earnings appear fairly strong for the time being, this is due in large part to a decline in fuel costs spurred by strengthening in the yen and a drop in oil prices. Some 11% of the utility's customers have jumped ship since Japan opened up its power market to a broader range of players, leaving the former regional monopolist in a financial bind.

"Tepco will pursue discussions going forward, including potential partners," said Nishiyama. But an increasingly severe operational environment could easily cause the utility's costs to balloon -- hardly an enticing prospect to a would-be collaborator.

Major gap

Chances of restarting nuclear power plants, the largest piece of Tepco's earnings recovery puzzle, are similarly slim. The utility calculates that bringing the seven reactors at the Kashiwazaki-Kariwa plant in Niigata Prefecture back online would put average pretax profit over the next 10 years between 160 billion and 215 billion yen. But Niigata Gov. Ryuichi Yoneyama remains opposed to the idea, saying Thursday that "a restart cannot be approved unless a thorough inspection is conducted."

Tepco aims to take on new businesses such as retailing gas and enhance new and existing operations with cutting-edge technologies. But these efforts are small change compared to core power operations, and "face uncertainty," President Naomi Hirose told a news conference.

"The costs of responding to the [Fukushima] disaster are likely to climb -- incoming managers have their work cut out," said Takeo Kitsukawa, a business professor at the Tokyo University of Science. Former Hitachi Chairman Takashi Kawamura will become Tepco chairman following a shareholders' meeting at the end of June, and Tomoaki Kobayakawa, head of the utility's retail electricity business, will replace Hirose as president. Of the 13 directors appointed, 10 will be new faces, left to negotiate with wary realignment partners and convince municipalities that nuclear restarts will be in their best interest.


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