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TEPCO makes arrangements with Chubu

September 18, 2014

TEPCO to tie up with Chubu Electric on thermal power, fuel procurement


Tokyo Electric Power Co. (TEPCO) has decided to grant Chubu Electric Power Co. preferential negotiation rights to form a joint venture aimed at thermal power generation and fuel procurement, it has been learned.

The potential alliance transcends service areas, thereby hinting at a possible realignment of the power industry.

TEPCO made the decision due to its belief that an alliance with Chubu Electric -- which has strengths in operating thermal power plants and procuring liquefied natural gas (LNG) -- would be the best choice for fleshing out its growth strategy in order to cope with the 2016 liberalization of the country's retail electricity market.

TEPCO, the operator of the incapacitated Fukushima No. 1 Nuclear Power Plant, is aiming to form a joint venture with Chubu Electric by the end of the current business year to integrally handle fuel procurement and thermal power generation. An agreement to start negotiations may be signed as early as the end of this month.

The combined total volume of LNG procured annually by the two utilities stands at slightly less than 40 million tons. This is one of the highest levels globally, which is likely to give the joint venture a competitive edge in price negotiations with oil-producing countries and other suppliers. Through the new joint venture, the two utility companies will also aim to replace most of TEPCO's aging thermal power generation facilities around Tokyo Bay -- whose total output is 10 million kilowatts -- with new facilities.

TEPCO incorporated a scheme to form a comprehensive partnership on thermal power generation into its "New Comprehensive Special Business Plan," which was approved by the government in January. TEPCO has been negotiating with Chubu Electric, Tokyo Gas Co., Kansai Electric Power Co., and JX Holdings Inc. since June -- sounding them out about jointly rebuilding its aging thermal power stations at three locations in Chiba Prefecture, as well as jointly procuring LNG.

TEPCO and Chubu Electric are in the final stage of the negotiations, which outlines the establishment of a fifty-fifty joint venture. Because TEPCO is facing huge compensation claims stemming from the Fukushima nuclear disaster, Chubu Electric was concerned about the possibility of the new joint venture's profits being partially used for compensation payouts, to an extent exceeding its capital contribution ratio. Chubu Electric also fears that the government, which holds a majority stake in TEPCO, could intervene in the management of the new joint venture. Consequently, the two companies are moving in the direction of stating in their final agreement that the new joint venture will not be held responsible for compensations over the Fukushima nuclear disaster.

TEPCO is eyeing the integration of the two firms' thermal power sections, and is therefore calling on Chubu Electric to transfer its existing thermal power generation facilities and LNG procurement contracts to the new joint venture. As a result, attention will be focused on how much of their assets the two companies will transfer to the new alliance.

Chubu Electric has been importing U.S. shale gas jointly with Osaka Gas, which is enthusiastic about taking part in thermal power generation projects in the Tokyo metropolitan area -- thereby also hinting at a possible three-way partnership between TEPCO, Chubu Electric and Osaka Gas.

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