Missed rate hikes to stick Japanese utilities with revenue shortfall

Chugoku Electric Power Co

28/03/2023 09:22

* 
      Japanese utilities sought rate hikes from April, June 
    

        * 
      Govt request for review has caused delays, may mean
smaller
hikes 
    

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      Delays, lower increases to pressure loss-making utilities
further 
    

  
    By Katya Golubkova and Yuka Obayashi
       TOKYO, March 28 (Reuters) - Several Japanese power
utilities will miss out on rate hikes they asked to start on
April 1 after the government delayed the approval process of
their requests, leaving them with potential revenue shortfalls
amid higher energy prices. 
    Japan's government is taking time to approve the requests
from utilities such as Tokyo Electric Power Co (TEPCO)  9501.T 
to ease the historically high inflation burden on consumers. But
pushing the increases back further squeezes the loss-making
sector between higher global fuel prices and Tokyo's green
goals. 
    Seven utilities - Tohoku Electric Power Co  9506.T ,
Hokuriku Electric Power Co  9505.T , Chugoku Electric Power
 9504.T , Okinawa Electric Power  9511.T , Shikoku Electric
Power  9507.T , Hokkaido Electric Power Company  9509.T  and
TEPCO - have requested rate hikes ranging from 28% to 46% mainly
from April and some from June.
    But Prime Minister Fumio Kishida ordered the industry
ministry on Feb. 24 to conduct "rigorous" checks of the
applications so the ministry asked the utilities this month to
reassess their costs based on more recent data, such as energy
prices and foreign exchange rate.
    The seven utilities forecast combined losses of nearly 1
trillion yen ($7.64 billion) in the fiscal year ending on March
31, with only Shikoku Electric managing to post a marginal
profit for the nine months through December.
    Hokuriku Electric said it would see a hit to its revenue of
around 1.5 billion yen each month without the rate hikes. 
    Delays in price hikes are not expected to cause disruptions
in power supply, according to Toshinori Ito, president of Ito
Research & Advisory which specializes in energy markets.
    "But delays may force the utilities to seek financing to
boost their capital to restore financial soundness," he said.
    Japan's utilities are looking to raise prices as they come
under pressure both from high global commodity prices fuelled by
Russia's invasion of Ukraine and the need to align with Tokyo's
zero-emissions goal of 2050.
    Japan's average import price of liquefied natural gas (LNG) 
in January was up 56% from a year earlier while thermal coal,
mainly used for power generation, has spiked by 131% from the
start of 2022 to 49,045 yen per tonne, finance ministry data
shows.
    Takuro Ikeda, director of the market surveillance division
of the industry ministry's Electricity and Gas Market
Surveillance Commission, said it was difficult to predict how
long the review of the rate hike requests will take.
    Hokkaido Electric said a delay in the price increases would
have a "considerable" impact. Shikoku Electric told Reuters it
was hard to predict when the price increase may happen and what
the financial impact might be. 
    TEPCO, Chugoku Electric, Tohoku Electric and Okinawa
Electric all said that the price hike request was under review,
declining to comment on a possible impact on its finances from
the delay.  
    Raising prices "is the necessary cost when managing as
efficiently as possible and I think it will be very painful for
the utilities if approval is postponed", Kazuhiro Ikebe, the
chairman of Japan's federation of electric utilities, told a
briefing earlier this month.
    
    LOCAL ELECTIONS
    Government efforts to keep prices down is occurring ahead of
nationwide local elections next month.
    Stefan Angrick, senior economist at Moody's Analytics,
forecasts the utility rate hikes could raise the inflation rate
by 0.5 percentage points or more.
    Without the hikes, inflation should slow to 2.5% in 2023
because of household subsidies and falling commodity prices but
"might prove stickier than expected".
    Kishida faces an improving but still not strong approval
rating of about 40% ahead of local elections as well as
by-elections for five parliamentary seats, said David Boling,
director, Japan & Asian Trade at Eurasia Group.
    "Household electricity price hikes - especially ones taking
effect in April - would be bad political timing for Kishida," he
said.
    
($1 = 130.9200 yen)

 (Reporting by Katya Golubkova and Yuka Obayashi; Editing by
Tony Munroe and Christian Schmollinger)
 ((ekaterina.golubkova@thomsonreuters.com;))