JCR's Rating Review of Electric Power Companies

Transcription

1 Japan Credit Rating Agency, Ltd. (JCR) announces the following credit rating. JCR's Rating Review of Electric Power Companies 15-D-0374 August 25, 2015 Tokyo Electric Power Chubu Electric Power Issuer Code Long-Term Issuer Rating Outlook The Kansai Electric Power The Chugoku Electric Power Hokuriku Electric Power Company Tohoku Electric Power Shikoku Electric Power Kyushu Electric Power Hokkaido Electric Power Electric Power Development Co., Ltd. The Japan Atomic Power Company 9501 A Negative 9502 <Outlook Change> AA from Negative to Stable 9503 AA- Negative 9504 AA Negative 9505 AAp Negative 9506 <Outlook Change> AA- from Negative to Stable 9507 AAp Negative 9508 AA- Negative 9509 AA-p Negative 9513 <Outlook Change> AA+ - <Credit Monitor Maintenance> from Negative to Stable #A-/Negative - Issuer Code CP Tokyo Electric Power Chubu Electric Power The Kansai Electric Power The Chugoku Electric Power Kyushu Electric Power The Japan Atomic Power Company 9501 J J J J J-1+ - <Credit Monitor Maintenance> #J-1/Negative (See beyond page 9 for details about ratings on individual bonds, etc.) 1 / 16

2 Rating Viewpoints (1) JCR reviewed ratings of 9 general electricity utilities and 2 wholesale electricity utilities, assessing impacts from the changes in the risk of nuclear power generation that have become apparent by the occurrence of accidents at Tokyo Electric Power ( TEPCO ) s Fukushima Daiichi Nuclear Power Station as well as in the developments of the electricity system reform. While various kinds of risks in the nuclear power generation are placing downward pressure on these electric power companies, the restart of selected nuclear power plants or additional increase in the electricity rates are beginning to stop the worsening of their profitability. Discussions about structural issues such as improvement in the nuclear power business environment in the era of full liberalization of electricity are beginning. Meanwhile, regulations that have been protecting the electric power companies will be reduced along with the progress in the electricity system reform. Although there will possibly be changes in the fundamentals of creditworthiness of the electric power companies, such changes are not large risks that require rating changes at the moment, and JCR decided to affirm them, based on the increased signs that their credit risks in general have bottomed out. JCR revised the rating outlook from Negative to Stable for the companies who face smaller risks from nuclear power generation and fast to improve the earnings and financial conditions, but unchanged it for other companies. JCR continues placing its ratings under Credit Monitor for The Japan Atomic Power Company to continue on examining decisions by the Nuclear Regulation Authority ( NRA ) on the shattered zone in the site of the Tsuruga Nuclear Power Station. (2) Challenges concerning the nuclear power policy issues, including (i) compensation for the nuclear inflicted damages, (ii) assurance of investment recovery after full liberalization, and (iii) establishment of nuclear fuel cycle, have not been resolved yet. The government of Japan, however, made clear its intention to continue placing the nuclear power generation as an important baseload power source. The regulatory authorities prepared an accounting system for facilitation of decommissioning and have already started considering long-term improvement in the business environment. The Sendai Nuclear Power Station of Kyushu Electric Power started its operation under these conditions. The restart of the nuclear power station is not only the realization of such government policy, but can accelerate the prolonged reviewing process by the NRA. Despite differences among the individual nuclear power plants in their roads to restart, JCR considers the risk of continued worsening of performances of electric power companies over a medium term began to diminish through the two-time success in the electricity rate raise. While the rate raising can swiftly improve the earnings and financial conditions, it should be noted that this could lead to lower price competitiveness in the future as a side effect. Although the business environment surrounding the power companies remains tough, it is now easier to forecast. JCR has been reviewing ratings for the electric power companies since the occurrence of nuclear power accidents, with emphasis placed on nuclear risks of various kinds, and considers that there are now signs of the risks being reduced finally. (3) The market structure will change along with the progress in the electricity system reform. It is difficult at the moment to determine whether the progress can have a significant impact on the ratings for the electric power companies. There are many business enterprises who expressed their intention of new entry into the power generation and retail markets in anticipation of the full liberalization of entry to electricity retail business and the abolishment of wholesale regulation which are scheduled for 2016 as the 2nd stage of the 3-stage reform. A part of the electric power companies have announced they would enter into service areas outside their existing ones. Along with the gas system reform, the framework to introduce the principle of competition to this long monopolistic energy supply market is being steadily in place. However, the electric power companies business bases in the power generation and retail businesses are strong and would not be impaired immediately by the legislations for such direction. Being a process business of highly public nature, the electricity and gas industries can benefit from economies of scale and are subject to regulatory changes for the business process. The number of companies who can finally survive the market might be reduced because the prospect of future electricity demand is not of an expansion.. TEPCO and Chubu Electric Power have already began to cooperate with each other for the fuel procurement and power generation. There are also other moves for alliances, which have not been considered before. Given these moves, JCR will examine the trend in the activation of Japan s wholesale electricity exchange as well as the impact of changes in the competitive environment on the earnings of power companies. The expected abolishment of wholesale regulation will cause changes to the business operations of Electric Power Development Co., Ltd. ("J-Power"). However, the impact is deemed not large enough to necessitate an immediate change of the rating in light of J-Power s price competitiveness backed by the coal-fired thermal power generation and hydroelectric power generation. 2 / 16

3 (4) The electricity system reform will enter into the 3rd stage in The legal unbundling of the transmission/ distribution sector will promote the separation of this sector from other operations. While the full cost plus pricing method will continue to be applied to this sector, the power generation and retail businesses will be fully liberalized. The easing regulations that have so far been supporting the electric power companies ratings will lower the certainty of investment recovery, causing a negative impact to the ratings. JCR has been reviewing the ratings due to surfaced nuclear risks and to the uncertainties after the Great East Japan Earthquake. Even if these risks are reduced, which improves a rating prospect of electric power companies, it is unlikely that their ratings will return to the level they enjoyed before the quake. TEPCO will shift into a holding company structure in April 2016, using a special scheme as measures for the nuclear accidents. Other electric power companies will not necessarily take similar measures, but JCR considers it necessary to watch carefully the flexibility of their business strategies and methods of fundraising. (5) The financial bases of electric power companies have significantly worsened since the fiscal year ended March 2011 (FY2010), The income to be earned from restarted nuclear power stations will be used for cutting electricity rates at the companies who raised the rates before, and at all power companies for the purposes of regulatory cost for the new requirements on the nuclear power plants, normalization of the deferred repair costs, investments in the new power facilities, etc. JCR therefore expects that the improvement in the financial structure will be slow. JCR considers that pace and effectiveness of their measures for those common challenges, which include the restart of nuclear power plants and the preparation for full liberalization, at the same time while making efforts for the thorough management efficiency, will differ from company to company, depending on the strength of their financial bases. JCR will pay attention to the following to be reflected in the ratings for them as necessary: (i) Future trend in the nuclear power policies and designs of the electricity system; (ii) Nuclear power plants that will restart their operations after the Sendai Nuclear Power Station of Kyushu Electric Power; (iii) Strategies of the power companies and new entrants in anticipation of full liberalization; and (iv) Measures taken to strengthen the financial bases. Rationale Issuer: Tokyo Electric Power Long-term Issuer Rating: A Negative Bonds: A CP: J-1 (1) Tokyo Electric Power ("TEPCO") is continuing the payment of compensation to the afflicted for the nuclear power plant accidents and providing power under the control of public agency since it received capital injection totaling 1 trillion yen from the Nuclear Damage Compensation and Decommissioning Facilitation Corporation ( NDF ) in July It strived to make management much more efficient and raised electricity rates under the Comprehensive Special Business Plan (CSBP), which was approved by the government. TEPCO is now addressing the reviews on conformity to the new regulatory requirements by the NRA for the restart of the Kashiwazaki-Kariwa Nuclear Power Station (NPS) while engaging step-by-step in reactor decommissioning of the Fukushima Daiichi NPS including treatment of contaminated water. (2) The CSBP was revised many times, but the fundamental concept has not changed. From the rating point of view JCR places the greatest importance on the stability of scheme formed between the government/ NDF and TEPCO. In light of the TEPCO's CSBP revised in July 2015, JCR sees no change in the government s stance, in that it directly and indirectly supports TEPCO s sustainability. JCR decided to affirm its ratings for TEPCO because its earnings and financial conditions also have improved. However, there is still uncertainty about restoring operation of the Kashiwazaki- Kariwa NPS that is essential for a full-fledged recovery of those conditions. The rating outlook remains Negative, because JCR is concerned about the fact that the plans were far from the CSBP-assumed scenarios and that they were modified many times. (3) TEPCO increased the ordinary income for 3 years in a row till FY2014, and thereby improved the financial structure. Under the circumstances where the electric power sold has been declining, the factors for raised income are mainly an increased revenue on the fuel cost adjustment system and thorough cost reductions. With its price competitiveness being currently low, the existing customers have been increasingly shifting from TEPCO to other companies. Despite these challenges, it is 3 / 16

4 difficult for TEPCO to raise the electricity rates because it is awaiting a full liberalization. The emergency measures for cost reductions such as deferral of repair cost is limited in terms of effectiveness, and it will take time for the comprehensive alliance with Chubu Electric Power for thermal power generation and fuel procurement to generate good effects. JCR expects that TEPCO s cash flow generation capacity will remain unstable, with the Kashiwazaki-Kariwa NPS being unable to restart operation. (4) TEPCO will shift into a holding company structure on April 1, JCR will have to watch closely which body acts for funding and how in the future as well as the trend in the detailed design of the Japan s electricity system reforms. After the organizational shift, JCR will assess the TEPCO s ratings based on the Group s creditworthiness, placing value on the cash flow to be generated from the highly correlated power businesses. TEPCO s bondholders of the domestic publicly issued bonds, a type of the outstanding interest-bearing debt, can be protected up to the same level as before through a scheme, where TEPCO as a holding company will hold bonds with general security to be issued by PGC, which ranks the highest in terms of debt recovery among TEPCO s companies, and will also use a trust bank for more protection of the bondholders. Issuer: Chubu Electric Power <Outlook Change> Long-term Issuer Rating: AA from Negative to Stable Bonds: AA Shelf Registration: Preliminary AA CP: J-1+ (1) Chubu Electric Power (the "Company") supplies electricity to Aichi, Nagano, Gifu and Mie prefectures as well as the areas west of the Fujikawa River in Shizuoka Prefecture. Its electricity sales volume is the third largest in the industry. The industrial power demand is relatively high in its service areas, where many production bases of automobile, iron & steel, chemicals, electronics and other major domestic manufacturers are located. Meanwhile, thermal power centering on LNG accounts for around 70% of the total capacity of its power generation facilities and its reliance on nuclear power is low. Its raise in the electricity rates for the regulated sectors was approved in April (2) While it is still uncertain about the restart of the Hamaoka Nuclear Power Station (NPS), the revision of the electricity rates reduced its burden of fuel costs for thermal power facilities that are operated as substitutes for the nuclear power stations. As a result, the Company posted a net income for FY2014 for the first time in 4 years and can expect both the revenue and income to increase for FY2015. The long-term risk of nuclear power generation in the entire power industry was not eliminated, but there are signs of the risk gradually being reduced. With the low reliance on the nuclear power, the Company faces relatively smaller risk of nuclear power and has an adequate financial base. Taking these into consideration, JCR affirmed its ratings for the Company and revised the rating outlook from Negative to Stable. It has already taken measures for strategic investments and alliances with other companies to prepare itself for the electricity system reform. Its comprehensive alliance with TEPCO for fuel procurement and power generation will be materialized. JCR will examine the changes to be made to the existing power generation business in the process of the future alliances and impact of the efforts for the restart of the Hamaoka NPS on the earnings and financial structure. Issuer: The Kansai Electric Power Long-term Issuer Rating: AA- Negative Bonds: AA- Shelf Registration: Preliminary AA- CP: J-1+ (1) The Kansai Electric Power (the "Company"), the second largest power company in terms of electricity sales volume, supplies electricity mainly to the six prefectures in 4 / 16

5 the Kinki region. Receiving relatively large volume of electricity from other companies, the Company can adjust the long-term supply/ demand balance rather easily, but at the same time its supply/ demand and earnings are susceptible to these other companies' operational status. Meanwhile, partly because the Company has focused on the nuclear power business from early on, there are a relatively a large number of aging nuclear power stations. It decided in March 2015 to decommission Units 1 and 2 at the Mihama Nuclear Power Station (NPS) in view of additional investment required not only to secure generation capacity but also to conform to the new regulatory requirements, economic cost throughout an operable period, and the decommissionfavorable revision of electricity rates and accounting system. (2) Restart of operations at the Takahama and Ohi NPS is delaying longer than expected. The Company posted the 4th straight net loss for FY2014 due in part to higher fuel costs for thermal power facilities operated as substitutes for Ohi NPS, which continued operation until the middle of the previous year. However, as the Company raised electricity rates additionally for regulated sectors in June 2015, its earnings and financial positions are less likely to deteriorate much for the time being. Taking these into consideration, JCR affirmed its ratings for the Company. Although it already has permission from the NRA to make changes to the reactor installations of the Takahama NPS' Units 3 and 4, the prospect of restart is unclear as the Fukui District Court has accepted a petition for a provisional disposition order seeking an injunction against their operations. Given this incident, the rating outlook remains Negative. (3) JCR considers that the risks from nuclear power generation are beginning to become smaller because of the improvement in the nuclear power business environment. However, JCR will need to place more importance on the earnings and financial conditions for the Company than other companies, because of the higher reliance on nuclear power. It has already raised the electricity rates twice. In cases where it is determined that there would be no restarts of NPS including the Takahama NPS, it is uncertain whether the Company can really raise further the electricity rates. JCR will watch carefully the future developments. Issuer: The Chugoku Electric Power Long-term Issuer Rating: AA Negative Bonds: AA Shelf Registration: Preliminary AA CP: J-1+ (1) The Chugoku Electric Power (the "Company") supplies electricity primarily to the Chugoku region and to its other service areas. The Company's facility formation tended to center on cost-competitive coal-fired thermal power stations because of fierce competition with large-scale private power generation capacities held by many materials manufacturers in its service areas. Therefore, nuclear power accounts for a relatively small portion of the total power generation. On the other hand, the Company has been working on the development of nuclear power generation with an aim to secure stable electricity supply into the future and to achieve wellbalanced power sources. However, it decided in March 2015 to decommission Unit 1 at Shimane Nuclear Power Station (NPS) in view of additional investment required not only to secure generation capacity but also to conform to the new regulatory requirements, economic cost throughout an operable period, and the decommission-favorable revision of electricity rates and accounting system. (2) At Shimane NPS, the restart of Unit 2 remains uncertain, and the start of the new Unit 3, which is almost completed, has also yet to be decided. However, given that the Company is less dependent on nuclear power than other power companies, it has relatively large financial margin. The Company posted an ordinary income for FY2014 for the first time in 3 years. There are still some means to improve earnings such as increasing management efficiency and raising electricity rates. Taking these into consideration, JCR affirmed its ratings for the Company. While the medium- and long-term risks of nuclear power generation are becoming smaller, they have not been completely eliminated. The rating outlook remains Negative, because of the fuel costs for thermal power facilities that are operated as substitutes for nuclear power stations and expected increase in the repair and other costs due to the measures to be taken for the aging facilities. JCR will pay attention to the Company's efforts towards earnings improvement and actions to be taken by the government and relevant authorities concerning the Shimane NPS' Units 2 and 3, while closely 5 / 16

6 monitoring progress in the reviews on their conformity to the new regulatory requirements by the NRA. Issuer: Hokuriku Electric Power Company Long-term Issuer Rating: AAp Negative (1) Hokuriku Electric Power Company (the "Company") supplies electricity to the three prefectures in the Hokuriku region and a part of Gifu Prefecture. It has the largest hydroelectric power generation using the ample water resources in the region as measured by the power composition among the electric power companies. With the hydroelectric power generation and the Shika Nuclear Power Station (NPS) combined, the Company boasts a high zero-emission power source ratio. The Company can offer the lowest electricity rates in the industry, which is a competitive advantage in anticipation of the electricity liberalization. (2) Being supported by the power source composition that is not affected by changes in the fuel prices such as hydroelectric power and coal-fired thermal power, the Company has been limiting the worsening of the earnings and financial conditions without operation of the Shika NPS. JCR affirmed its rating for the Company, taking into consideration that it has been ensuring a profit with relatively large financial margin and that it can improve earnings by raising the electricity rates. The Company applied for confirmation of conformity to the new regulatory requirements for the Shika NPS Unit 2 with NRA. A panel of experts of NRA in May 2015 announced its opinion that the activity cannot be denied for the shattered zone in the Shika NPS site. While the conclusion at the panel is currently treated as a reference for the reviews on conformity to the new regulatory requirements, operation of the Unit 1, where there is an active fault line just below the reactor, might be denied, depending on decisions by the NRA. In addition, the Company may have to renovate the Unit 2 on a massive scale. While the risks from nuclear power generation are becoming smaller as seen for the entire industry, it is increasingly likely that they become more apparent for the Company. Taking the above into consideration, JCR did not change the Negative rating outlook for the Company. JCR will watch the Company s measures to be taken to improve earnings, focusing on trend in the reviews on conformity to the new regulatory requirements for the Shika NPS. Issuer: Tohoku Electric Power <Outlook Change> Long-term Issuer Rating: AA- from Negative to Stable Bonds: AA- Shelf Registration: Preliminary AA- (1) Tohoku Electric Power (the "Company") supplies electricity to six prefectures in Tohoku region and Niigata Prefecture. Its main Haramachi Thermal Power Station, which was damaged by the Great East Japan Earthquake, and hydroelectric power facilities, which were affected by heavy rains, and other facilities were restored, and highly efficient gas thermal power restarted its operation, resulting in larger power sources with competitive strength. (2) It is still unknown when Higashidori and Onagawa Nuclear Power Stations (NPS) will restart, and construction works for the safety measure were delayed. The Company also needs to address the shattered zone issue in the Higashidori NPS site. The electricity rate raise implemented in FY2013 and improvement in the management efficiency steadily began to improve the earnings, enabling the Company to expect a stable recording of income. The significantly impaired financial bases, due to many disasters and the increased burden of fuel costs for thermal power facilities that are operated as substitutes for the nuclear power stations, are beginning to improve. The risks from nuclear power generation remain large, but there are currently signs of the risks gradually being reduced. Taking these into consideration, JCR affirmed its ratings for the Company and revised the rating outlook from Negative to Stable. Investments in the thermal power plants and repair costs, which have been deferred, as well as additional renovation works for the nuclear power plants are awaiting. Given these awaiting investments and costs, JCR will pay attention to the pace of improvement in the financial structure and trend in the alliance with TOKYO GAS CO., LTD. for 6 / 16

7 power sales to large users in Kanto area, focusing on the developments concerning the NRA s reviews on conformity to the new regulatory requirements for the two NPSs above, which will be reflected on the ratings appropriately. Issuer: Shikoku Electric Power Long-term Issuer Rating: AAp Negative (1) Shikoku Electric Power (the "Company") supplies electricity to the entire Shikoku region. Its nuclear power generation accounts for a large ratio in the power source composition and its power transmission to other electric power companies accounts for a relatively larger portion in the total electricity generation/ purchase volume under a usual condition. (2) The Company posted an ordinary income for FY2014 for the first time in 4 years, supported by the electricity rate raise implemented in the previous fiscal year and reduced costs via improved management efficiency. With the reduced concerns about a significant worsening of the earnings, impairment of the financial base is relatively small among the electric power companies who raised the electricity rates. Taking these into consideration, JCR affirmed its ratings for the Company. The rating outlook remains Negative, because of the remaining risk of burden of fuel costs for thermal power facilities that are operated as substitutes for the nuclear power stations due to suspension of operations at all 3 units of the Ikata Nuclear Power Station (NPS), which makes it difficult for the Company to draw a road map to a stable recording of profits. The NRA permitted in July 2015 the Company to make changes to the reactor installations of the Ikata NPS Unit 3. JCR will pay attention to the future developments towards restart of the Unit 3. In the medium run, JCR will also watch the Company s decision on lifetime extension of the Unit 1, which will be operated for 38 years after start of the operation. Issuer: Kyushu Electric Power Long-term Issuer Rating: AA- Negative Bonds: AA- Shelf Registration: Preliminary AA- CP: J-1+ (1) Kyushu Electric Power (the "Company") ranks fourth in terms of electricity sales volume after TEPCO, The Kansai Electric Power and Chubu Electric Power. Highly integrated industry clusters are seen in its service area, where automotive and semiconductor manufacturers as well as steel and chemicals companies have built plants recently. With many isolated islands in the service area, however, the Company constantly carries a burden to maintain the universal service. Having 5 units of nuclear power, 2 at the Sendai Nuclear Power Station (NPS) in Kagoshima Prefecture and 3 at the Genkai NPS in Saga Prefecture, its nuclear power generation accounts for a large ratio in the power source composition. It decided in March 2015 to decommission Unit 1 at the Genkai NPS in view of additional investment required not only to secure generation capacity but also to conform to the new regulatory requirements, economic cost throughout an operable period, and the decommission-favorable revision of electricity rates and accounting system. (2) The Company applied in July 2013 for the confirmation of conformity to the new regulatory requirements with the NRA. The Unit 1 at the Sendai NPS restarted its operation at last in August The Unit 2 will be restarted in fall of The improved earnings by the electricity rate raise implemented in FY2013 were offset by the significant delays in the restart of both the Sendai and Genkai NPS. As a result, it recorded the 4th straight net loss for FY2014, significantly impairing the financial base. Facing the impairment, the Company issued preferred shares to the Development Bank of Japan Inc. Given the restart of the Sendai NPS, JCR affirmed its ratings for the Company, considering the lowered creditworthiness could bottom out. However, restart of the Units 3 and 4 at the Genkai NPS is desired for the financial base to recover in a full-fledged manner. JCR will examine the NRA s reviews on conformity to the new regulatory requirements of the Genkai NPS 7 / 16

8 and moves towards additional electricity rate raise to be reflected on the ratings and rating outlook for the Company. Issuer: Hokkaido Electric Power Long-term Issuer Rating: AA-p Negative (1) Hokkaido Electric Power (the "Company") supplies electricity to the entire Hokkaido region. While its density of electricity demand is the lowest among the 10 general electricity utilities, its yearly load factor is high due partly to the climate in a cold snowfall area, which enables efficient operations of the power generation and other facilities during a normal period of time. However, suspension of operations of all 3 units of the Tomari Nuclear Power Station (NPS) as well as the limited capacity of the Hokkaido-Honshu HVDC Link has a significant impact on the Company, causing the stability in its power supply to remain low. (2) With the NRA s reviews on the conformity to the new regulatory requirements for the 3 units at the Tomari NPS taking longer time than expected, the Company cannot forecast the time of restart of the operation. The significant delay of the restart of the operation from the Company s assumed time, based on which it calculated the costs to raise the electricity rates in September 2013, caused its financial base to significantly worsen. It subsequently issued preferred shares to the Development Bank of Japan Inc. in July 2014 and the application for the additional electricity rates was approved in November 2014, which reduced the concern about a significant worsening of the earnings and financial conditions. As the Company became able to secure a certain income and improve the financial structure, JCR affirmed the rating for the Company. There are positive factors for the rating such as moves for restart of the NPS and improvement in the nuclear power business environment. The rating outlook, however, remains Negative, because JCR considers it is necessary to place more importance on the earnings and financial conditions for the Company than other companies because of the large reliance on the nuclear power. Noticing the Company has raised the electricity rates twice, reducing the margin for taking measures to improve earnings, JCR will pay attention to the future developments on the restart of the Tomari NPS. Issuer: Electric Power Development Co., Ltd. <Outlook Change> Long-term Issuer Rating: AA+ from Negative to Stable Bonds: AA+ Shelf Registration: Preliminary AA+ (1) Electric Power Development Co., Ltd. ("J-Power") is a wholesale electricity utility, engaging primarily in power wholesale to Japan's 10 general electricity utilities and power transmission business. It has highly efficient large-scale coal-fired thermal power plants and hydroelectric power plants nationwide. It plays a critical role in the nation's wide-area power operations with its frequency converter station and power interconnecting lines that connect power companies. J- Power also plays a critical role in the nation's wide-area power operations with its frequency converter station and power interconnecting lines that connect electric power companies. While the wholesale regulation will be abolished, it is guaranteed by agreements that the entire volume of J-Power s electricity is wholesaled to the receiving electric power companies throughout the power sources' lifetime. Having highly price competitive power facilities, J-Power will take a leading position after the full liberalization. (2) Despite a falling accident of a low-pressure turbine rotor at the No.2 Unit of the Matsuura Thermal Power Plant, J-power increased both the revenue and profits for FY2014, supported by improved profitability of the overseas business. Thanks to elimination of the negative effects from the accident and good performance of the overseas business, it can expect an increase in the profits continually in FY2015. J-Power has also reduced the financial risk by the capital reinforcement in consideration of the many awaiting investment projects for new power generation in Japan. As for the Ohma Nuclear Power Plant, which is under construction, JCR will need to examine progress in the NRA s review and improvement in the nuclear power business environment. Given the 8 / 16

9 decreasing risks from nuclear power generation in the entire power industry, however, JCR affirmed its ratings for J-Power and revised the rating outlook from Negative to Stable. Issuer: The Japan Atomic Power Company <Credit Monitor Maintenance> Long-term Issuer Rating: #A-/Negative Bonds: #A-/Negative CP: #J-1/Negative (1) The Japan Atomic Power Company ("JAPC") was established in 1957 by 9 general electricity utilities, J-POWER, and nuclear plant manufacturers. JAPC has close relations with the power companies in terms of capital and human resources as indicated by the fact that persons related to those companies account for half of the executives. Its fixed expenses including back-end expenses are reflected in its charge based on a full cost plus pricing basis for each unit, and it is guaranteed by basic agreements that the entire volume of JAPC s electricity is received by receiving electric power companies throughout the power sources' lifetime. There have been no changes in support for JAPC from power industry including the receiving electric power companies and financial institutions. It has been performing well, while promoting the management efficiency. It decided in March 2015 to decommission Unit 1 at the Tsuruga Nuclear Power Station (NPS) in view of additional investment required not only to secure generation capacity but also to conform to the new regulatory requirements, economic cost throughout an operable period, and the decommission-favorable revision of electricity rates and accounting system. (2) A panel of experts of the NRA on the survey of shattered zones in the site of the Tsuruga NPS, in May 2013, compiled a draft report stating that the D-1 shattered zone directly below JAPC's Unit 2 of the Tsuruga NPS is viewed as an active fault line that should be taken into account in seismic design, and the NRA approved the report. Although JAPC conducted additional survey on the shattered zones and submitted new reports on them, assessment at the panels have not changed. While the conclusion at the panel is currently treated as a reference for the reviews on conformity to the new regulatory requirements, operation of the Unit 2, where there is an active fault just below the reactor, might be denied, depending on decisions by the NRA. It is uncertain about restart of the Tokai No. 2 Power Station, for which JAPC applied for confirmation of conformity to the new regulatory requirements with NRA. JCR will keep on watching the NRA s reassessment on the Unit 2 of the Tsuruga NPS, JAPC s actions after the reassessment, the government nuclear power policy, the designing of the electricity system, etc. to determine removal of the Credit Monitor on JPAC s ratings. Shozo Matsumura, Shigenobu Tonomura Rating Issuer: Tokyo Electric Power Long-term Issuer Rating: A Negative Issue Amount (Y mn) Issue Date Due Date Coupon Rating yyyy.mm.dd yyyy.mm.dd % bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A 9 / 16

10 bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A bonds no , A (All bonds are attached with general security.) CP: J-1 Maximum: Y800 billion Issuer: Chubu Electric Power <Outlook Change> Long-term Issuer Rating: AA Stable Issue Amount (Y mn) Issue Date Due Date Coupon Rating yyyy.mm.dd yyyy.mm.dd % bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA reverse dual currency bonds no , AA reverse dual currency bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA 10 / 16

11 bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA (All bonds are attached with general security.) Shelf Registration: preliminary AA Maximum: Y500 billion Valid: two years effective from October 2, 2014 CP: J-1+ Maximum: Y400 billion Issuer: The Kansai Electric Power Long-term Issuer Rating: AA- Negative Issue Amount (Y mn) Issue Date Due Date Coupon Rating yyyy.mm.dd yyyy.mm.dd % bonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AA- 11 / 16

12 bonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AA- (All bonds are attached with general security.) Shelf Registration: preliminary AA- Maximum: Y800 billion Valid: two years effective from August 8, 2014 CP: J-1+ Maximum: Y500 billion Issuer: The Chugoku Electric Power Long-term Issuer Rating: AA Negative Issue Amount (Y mn) Issue Date Due Date Coupon Rating yyyy.mm.dd yyyy.mm.dd % bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA 12 / 16

13 bonds no , AA bonds no , AA bonds no , AA bonds no , AA bonds no , AA (All bonds are attached with general security.) Shelf Registration: preliminary AA Maximum: Y400 billion Valid: two years effective from August 19, 2014 CP: J-1+ Maximum: Y180 billion Issuer: Hokuriku Electric Power Company Long-term Issuer Rating: AAp Negative Issuer: Tohoku Electric Power (security code: 9506) <Outlook Change> Long-term Issuer Rating: AA- Stable Issue Amount (Y mn) Issue Date Due Date Coupon Rating (yyyy.mm.dd) (yyyy.mm.dd) % bonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AA- 13 / 16

14 bonds.no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no AAbonds no , AA- (All bonds are attached with general security.) Shelf Registration: preliminary AA- Maximum: Y500 billion Valid: two years effective from October 3, 2014 Issuer: Shikoku Electric Power Long-term Issuer Rating: AAp Negative Issuer: Kyushu Electric Power Long-term Issuer Rating: AA- Negative Issue Amount (Y mn) Issue Date Due Date Coupon Rating yyyy.mm.dd yyyy.mm.dd % bonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AA- 14 / 16

15 bonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AAbonds no , AA- (All bonds are attached with general security.) Shelf Registration: preliminary AA- Maximum: Y500 billion Valid: two years effective from June 26, 2014 CP: J-1+ Maximum: Y250 billion Issuer: Hokkaido Electric Power Long-term Issuer Rating: AA-p Negative Issuer: Electric Power Development Co., Ltd. <Outlook Change> Long-term Issuer Rating: AA+ Stable Issue Amount (Y mn) Issue Date Due Date Coupon Rating yyyy.mm.dd yyyy.mm.dd % bonds no.3 10, AA+ bonds no.5 10, AA+ bonds no.8 20, AA+ bonds no.11 20, AA+ bonds no.13 20, AA+ bonds no.14 30, AA+ bonds no.15 20, AA+ bonds no.16 30, AA+ bonds no.17 30, AA+ bonds no.18 30, AA+ bonds no.19 30, AA+ bonds no.20 30, AA+ bonds no.21 30, AA+ bonds no.22 30, AA+ bonds no.23 30, AA+ bonds no.25 20, AA+ bonds no.26 15, AA+ bonds no.27 20, AA+ bonds no.28 20, AA+ bonds no.29 20, AA+ bonds no.30 20, AA+ bonds no.31 20, AA+ bonds no.32 20, AA+ bonds no.33 20, AA+ bonds no.34 20, AA+ bonds no.35 20, AA+ bonds no.36 20, AA+ bonds no.37 20, AA+ bonds no.38 20, AA+ bonds no.39 20, AA+ bonds no.40 20, AA+ bonds no.41 20, AA+ Shelf Registration: preliminary AA+ Maximum: Y300 billion 15 / 16

16 Valid: two years effective from July 7, 2015 Issuer: The Japan Atomic Power Company <Credit Monitor Maintenance> Long-term Issuer Rating: #A-/Negative Issue Amount (Y mn) Issue Date Due Date Coupon Rating yyyy.mm.dd yyyy.mm.dd % bonds no.2 10, #A-/Negative bonds no.3 20, #A-/Negative bonds no.4 10, #A-/Negative CP: #J-1/Negative Maximum: Y30 billion Rating Assignment Date: August 20, 2015 The criteria used for identifying matters which serve as assumptions for the assessment of the credit status, and the criteria used for setting of grades indicating the results of the assessments of the credit status are published as "Types of Credit Ratings and Definitions of Rating Symbols" (January 6, 2014) in Rating Policies on JCR's website (/english/). Outline of methodology for determination of the credit rating is shown as "JCR's Rating Methodology" (November 7, 2014) and "Electric Power" (April 23, 2015) in Rating Policies on JCR's website (/english/). The aforementioned credit ratings are unsolicited. Except in cases of a credit rating for a sovereign, JCR indicates affix "p" after a rating symbol to distinguish it from a rating with solicitation. The undisclosed information, which has material influence on the credit rating, was obtained from the rating stakeholder. Glossary: A preliminary rating is a credit rating assigned as a preliminary evaluation while material terms for issue to be rated are not yet finalized. When the issuing terms are finalized, JCR will confirm them and will assign a credit rating anew. The rating level of the final rating may be different from that of the preliminary rating, depending on the final content of the terms, etc. Japan Credit Rating Agency, Ltd. Jiji Press Building, Ginza, Chuo-ku, Tokyo , Japan Tel , Fax Information herein has been obtained by JCR from the issuers and other sources believed to be accurate and reliable. However, because of the possibility of human or mechanical error as well as other factors, JCR makes no representation or warranty, express or implied, as to accuracy, results, adequacy, timeliness, completeness or merchantability, or fitness for any particular purpose, with respect to any such information, and is not responsible for any errors or omissions, or for results obtained from the use of such information. Under no circumstances will JCR be liable for any special, indirect, incidental or consequential damages of any kind caused by the use of any such information, including but not limited to, lost opportunity or lost money, whether in contract, tort, strict liability or otherwise, and whether such damages are foreseeable or unforeseeable. JCR s ratings and credit assessments are statements of JCR s current and comprehensive opinion regarding redemption possibility, etc. of financial obligations assumed by the issuers or financial products, and not statements of opinion regarding any risk other than credit risk, such as market liquidity risk or price fluctuation risk. JCR s ratings and credit assessments are statements of opinion, and not statements of fact as to credit risk decisions or recommendations regarding decisions to purchase, sell or hold any securities such as individual bonds or commercial paper. The ratings and credit assessments may be changed, suspended or withdrawn as a result of changes in or unavailability of information as well as other factors. JCR retains all rights pertaining to this document, including JCR s rating data. Any reproduction, adaptation, alteration, etc. of this document, including such rating data, is prohibited, whether or not wholly or partly, without prior consent of JCR. JCR is registered as a "Nationally Recognized Statistical Rating Organization" with the U.S. Securities and Exchange Commission with respect to the following four classes. (1) Financial institutions, brokers and dealers, (2) Insurance Companies, (3) Corporate Issuers, (4) Issuers of government securities, municipal securities and foreign government securities. Copyright Japan Credit Rating Agency, Ltd. All rights reserved. 16 / 16