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Business

Deregulation hurting Tepco's earnings

TOKYO -- Japan's retail energy market was liberalized at the beginning of the month. As of April 8, 622,700 Japanese households had switched electricity providers, with more than 60% of the total affecting Tokyo Electric Power Company Holdings, better known as Tepco.

     According to the Ministry of Economy, Trade and Industry, Greater Tokyo's retail energy market will amount to about 2.8 trillion yen ($25.3 billion). If new entrants gain market share, they could hold down Tepco's bottom line.

     Tepco is the capital's main electricity provider. It also continues to struggle with the three meltdowns suffered at one of its nuclear plants in Fukushima Prefecture in 2011.

     Shusaku Nishikawa, an analyst at Daiwa Securities, predicts more than 1 million households will switch providers by the end of the year. If switching continues at the current pace, more than 600,000 Greater Tokyo households will cut wires with Tepco.

     The utility supplies electricity to some 20 million Greater Tokyo households. The number of customers who switched providers as of April 8 includes Tepco ratepayers who simply changed their price plans, but Tepco could lose at least 3% of its market share. That would pull down pretax profit by more than 10 billion yen in the year through next March.

     As of April 11, about 260,000 households had contracted with Tokyo Gas, one of the market newcomers, for electricity. Tokyo Gas hopes to win 400,000 new customers by the end of the fiscal year. Some market watchers say the company's target is low, but President Michiaki Hirose said it takes time to hook up new households because winning new contracts means first holding face-to-face explanations with customers.

     In February, Tokyo Gas started operating a new liquefied natural gas-fired power plant in partnership with Showa Shell Sekiyu. With the plant, as well as existing plants, Tokyo Gas is now capable of supplying electricity to 1.6 million households in Yokohama. TonenGeneral Sekiyu and others are also ramping up their power generation capacities.

     Railway companies are also riding the tide. In Greater Tokyo, Tokyu is trying to win contracts via its Tokyu Power Supply unit by setting up special booths at Shibuya, Yokohama and other major stations along its train lines. By the end of March, it had signed up more than 30,000 households.

     The railway operator wants 100,000 contracts this fiscal year. It aims to win 550,000 customers, which would account for more than 20% of all households along Tokyu Lines, over the next decade.

     Tokyu's electricity business is expected to post an operating loss in the current fiscal year, but the company expects it to be good for hundreds of millions of yen in profit in the year through March 2019.

     Telecom companies and retailers are also edging into electricity. Among cell phone service providers, KDDI is offering electricity in all prefectures except Okinawa, while the SoftBank Group is providing service in Greater Tokyo as well as two other main regions on Japan's main island.

     Both companies buy their electricity from electric power companies and are less competitive on price than utilities that generate their own power. Thus, contributions to earnings are also limited.

     Their business plan is to bundle electricity with cell phone service. "The key focus," Nishikawa said, "will be on how beneficial they can make these bundles appear."

(Nikkei)

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