Apr 08, 2013 R&I Reviews Ratings for Electricity Companies R&I Downgrades to A+, Retains on the Rating Monitor With View to Downgrading: Hokkaido Electric Power Co., Inc. Rating and Investment Information, Inc. (R&I) has announced the following: SEC. COMPANY NAME CODE 9501 The Tokyo Electric Power Co., Inc. 9502 Chubu Electric Power Co., Inc. 9503 The Kansai Electric Power Co., Inc. 9504 The Chugoku Electric Power Co., Inc. 9505 Hokuriku Electric Power Co. 9506 Tohoku Electric Power Co., Inc. 9507 Shikoku Electric Power Co., Inc. 9508 Kyushu Electric Power Co., Inc. 9509 Hokkaido Electric Power Co., Inc. 9511 The Okinawa Electric Power Co., Inc. 9513 Electric Power Development Co., Ltd. ---- The Japan Atomic Power Co. * Please refer below for rated bonds, etc. RATIONALE: R&I has commenced a rating review for all electricity companies because the government's protection and regulatory frameworks, which have so far underpinned the basis of their ratings, will change following the Cabinet decision on a drastic reform of Japan's electricity system. In the ratings for nuclear plant operators, R&I has already incorporated to a considerable extent their financial deteriorations resulting from delays in the resumption of nuclear reactor operations. Under new nuclear power regulations, however, R&I needs to take into account the growing financial burdens that stem from various factors such as active fault issues. At the April 2 Cabinet meeting, the government approved the Policy on Electricity System Reform, which is largely in line with the report compiled in February by the Economy, Trade and Industry Ministry's Expert Committee on the Electricity Systems Reform. Under this Policy, the government will carry out a reform in phases, including fully liberalizing the retail market and ensuring neutrality of the power transmission/distribution sector. Changes in the protection and regulatory frameworks will likely make the future business environment uncertain. As regards nuclear power regulations, the Nuclear Regulation Authority (NRA), which was established in September 2012, is formulating tougher safety regulations than R&I expected. Due to a "back-fit system" that applies new regulatory standards even to existing nuclear reactors, capital expenditures will tend to mount. It also appears that restarting nuclear reactors will require approvals under several laws and regulations. Even so, the electricity industry will remain essential as the key energy supplier. When having approved the Policy on Electricity System Reform at the Cabinet meeting, the government expressed its intention of giving due consideration to electricity companies' funding environment in light of their severe financial conditions. Flexible actions are also expected with respect to the form and timing of ensuring neutrality of the power transmission/distribution sector, so as not to cause confusion to the industry.
Moreover, the Abe administration expressly stated that it will approve the restart of nuclear reactors whose safety has been confirmed. Given the NRA's limited human resources, it is anticipated to take some time before restarted nuclear reactors contribute to earnings. As it is unclear how nuclear capacity factors will trend, R&I does not expect financial bases to recover in earnest in the immediate future. It is therefore unlikely that the creditworthiness of nuclear plant operators will begin to stabilize after this rating review. In view of factors such as the importance of the electricity industry, the current uncertainty over the progress of the electricity system reform, particularly of the legal structural separation of the power transmission/distribution sector, and the possibility of revenue/expenditure improvement expected from nuclear reactor resumption, however, R&I believes that rating downgrades, if any, will most likely be only one notch for all companies including Hokkaido Electric Power Co., Inc., which has been downgraded to A+ this time. If extremely important events occur in relation to, for example, active fault issues, such developments will be separately incorporated into ratings for individual companies. Among the General Electricity Utilities (regional power companies) that have nuclear reactors, R&I has placed the ratings for Chubu Electric Power Co., Inc., The Kansai Electric Power Co., Inc., The Chugoku Electric Power Co., Inc., Hokuriku Electric Power Co., Tohoku Electric Power Co., Inc. and Kyushu Electric Power Co., Inc. on the Rating Monitor with a view to downgrading; however, the CP ratings for Kansai Electric Power, Tohoku Electric Power and Kyushu Electric Power have not been placed on the Rating Monitor. When updating the ratings for Hokuriku Electric Power, R&I will factor in developments in the issue of seams running under the premises of the Shika Nuclear Power Station in Ishikawa Prefecture. The ratings for Shikoku Electric Power Co., Inc. and Hokkaido Electric Power had been on the Rating Monitor. R&I has downgraded the ratings for Hokkaido Electric Power by one notch and retained them, except the CP rating, on the Rating Monitor, based on its view that the erosion of equity capital due to a delay in the resumption of nuclear reactor operations is too significant to overlook. The ratings for Shikoku Electric Power have been unchanged and been retained on the Rating Monitor, because the degree of financial deterioration is within an acceptable range. As stated in the "Management Policy towards Restoration" announced in November 2012, The Tokyo Electric Power Co., Inc. (TEPCO) is experiencing changes in the business environment that were not assumed in the "Comprehensive Special Business Plan", such as the electricity system reform, while its financial burden may swell considerably due to compensation payouts and decontamination. In addition, the restart of the Kashiwazaki Kariwa Nuclear Power Station is not progressing as planned. R&I has retained TEPCO on the Rating Monitor and will consider incorporating such factors into its ratings. The Okinawa Electric Power Co., Inc., which is not a nuclear plant operator, should also be examined for the impact of the electricity system reform. R&I has thus placed the ratings other than the CP rating on the Rating Monitor. Partly because new institutional frameworks will seem to be designed with special consideration to Okinawa Prefecture's regional characteristics as in the past, it is probable that the company will maintain very high creditworthiness even after a possible downgrade and that the Rating Outlook will return to Stable. Electric Power Development Co., Ltd. (EPDC), a Wholesale Electricity Utility, has no nuclear reactors that are currently on line and is not saddled with an issue of their resumption. Still, the impact of electricity system reform should be considered. In addition, eyes must be on the company's business relationships with customer electricity companies whose revenues/expenditures and financial profiles are worsening, as well as on the progress of the Ohma Nuclear Power Plant in Aomori Prefecture, which is under construction. Accordingly, R&I has placed the ratings for EPDC on the Rating Monitor. Thanks to the high cost competitiveness of its power sources, however, EPDC's revenue/expenditure and financial profile are comparatively stable. Even if its ratings are downgraded, R&I will highly likely assign a Stable Rating Outlook. The creditworthiness of The Japan Atomic Power Co. (JAPC), a Wholesale Electricity Utility specializing in nuclear power, is under strong stress due to an active fault issue at its key Tsuruga Power Station in Fukui Prefecture. It appears that the companies to which JAPC supplies electricity will assist JAPC in ensuring liquidity by continuing to provide debt guarantees for JAPC's loans. Even so, medium
to long-term prospects for its business operations are uncertain. Declines in the creditworthiness of these customer companies are a drag on JAPC's ratings. JAPC could fail to remain in the BBB rating category if the NRA believes increasingly firmly that the fault line running directly under the Tsuruga Power Station Unit 2 is likely to be an active fault. When an is lowered to A or below, R&I considers notching up (i.e., give a rating that is higher than an ) the bonds for which the so-called in-substance defeasance arrangement is made, where high-quality financial assets are entrusted to repay principal and interest of bonds and the bonds will be removed from the balance sheet. In considering this notching-up, R&I examines what assets are entrusted under a trust agreement and the ratio of the amount of such assets to the remaining principal and interest of the bonds, among other factors. R&I will update ratings based on the progress of revision of the Electricity Business Act and formulation of new regulatory standards, as well as developments in company-specific problems such as active fault issues, and revenues/expenditures and financial profiles. The primary rating methodologies applied to this rating are provided at "Basic Methodologies for R&I's Credit Rating" and "Electricity". The methodologies are available at the web site listed below, together with other rating methodologies that are taken into consideration when assigning the rating. http://www.r-i.co.jp/eng/cfp/about/methodology/index.html R&I RATINGS: ISSUER: The Tokyo Electric Power Co., Inc. (Sec. Code: 9501) Long-term Issue Rating: 73 Issues ISSUE LIMIT (mn): JPY 800,000 (a-2), With View to Downgrading, Previously (a-2) ISSUER: Chubu Electric Power Co., Inc. (Sec. Code: 9502) ISSUE AMOUNT (mn): JPY 500,000 ISSUE PERIOD: From Oct 02, 2012 to Oct 01, 2014 (Preliminary) Long-term Issue Rating: 58 Issues ISSUE LIMIT (mn): JPY 400,000
Euro MTN Prog. ISSUE LIMIT (mn): USD 5,000 Secured by general assets ISSUER: The Kansai Electric Power Co., Inc. (Sec. Code: 9503) (A+), With View to Downgrading, Previously A+ ISSUE AMOUNT (mn): JPY 900,000 ISSUE PERIOD: From Aug 08, 2012 to Aug 07, 2014 (A+), With View to Downgrading, Previously A+ (Preliminary) Long-term Issue Rating: 58 Issues (A+), With View to Downgrading, Previously A+ ISSUER: The Chugoku Electric Power Co., Inc. (Sec. Code: 9504) ISSUE AMOUNT (mn): JPY 300,000 ISSUE PERIOD: From Aug 18, 2012 to Aug 17, 2014 (Preliminary) Long-term Issue Rating: 43 Issues ISSUE LIMIT (mn): JPY 180,000 ISSUER: Energia Business Service Co., Inc. ISSUE LIMIT (mn): JPY 15,000 Guarantee by parent or subsidiary company SUPPORTED BY: The Chugoku Electric Power Co., Inc.
ISSUER: Hokuriku Electric Power Co. (Sec. Code: 9505) ISSUE AMOUNT (mn): JPY 100,000 ISSUE PERIOD: From Sep 30, 2011 to Sep 29, 2013 (Preliminary) Long-term Issue Rating: 28 Issues ISSUE LIMIT (mn): JPY 80,000 ISSUER: Tohoku Electric Power Co., Inc. (Sec. Code: 9506) (A+), With View to Downgrading, Previously A+ ISSUE AMOUNT (mn): JPY 500,000 ISSUE PERIOD: From Oct 03, 2012 to Oct 02, 2014 (A+), With View to Downgrading, Previously A+ (Preliminary) Long-term Issue Rating: 47 Issues (A+), With View to Downgrading, Previously A+ ISSUER: Shikoku Electric Power Co., Inc. (Sec. Code: 9507) (AA-), With View to Downgrading, Previously (AA-) ISSUE AMOUNT (mn): JPY 130,000 ISSUE PERIOD: From Aug 18, 2011 to Aug 17, 2013 (AA-), With View to Downgrading, Previously (AA-) (Preliminary) Long-term Issue Rating: 22 Issues (AA-), With View to Downgrading, Previously (AA-) ISSUE LIMIT (mn): JPY 120,000 (a-1+), With View to Downgrading, Previously (a-1+)
ISSUER: Kyushu Electric Power Co., Inc. (Sec. Code: 9508) (A+), With View to Downgrading, Previously A+ ISSUE AMOUNT (mn): JPY 450,000 ISSUE PERIOD: From Jul 20, 2012 to Jul 19, 2014 (A+), With View to Downgrading, Previously A+ (Preliminary) Long-term Issue Rating: 48 Issues (A+), With View to Downgrading, Previously A+ ISSUER: Hokkaido Electric Power Co., Inc. (Sec. Code: 9509) (A+), With View to Downgrading, Previously (AA-) ISSUE AMOUNT (mn): JPY 180,000 ISSUE PERIOD: From Aug 17, 2012 to Aug 16, 2014 (A+), With View to Downgrading, Previously (AA-) (Preliminary) Long-term Issue Rating: 36 Issues (A+), With View to Downgrading, Previously (AA-) ISSUE LIMIT (mn): JPY 100,000 a-1, Previously (a-1+) ISSUER: The Okinawa Electric Power Co., Inc. (Sec. Code: 9511) (AA+), With View to Downgrading, Previously AA+ ISSUE AMOUNT (mn): JPY 50,000 ISSUE PERIOD: From Mar 09, 2012 to Mar 08, 2014 (AA+), With View to Downgrading, Previously AA+ (Preliminary) Long-term Issue Rating: 9 Issues (AA+), With View to Downgrading, Previously AA+
ISSUER: Electric Power Development Co., Ltd. (Sec. Code: 9513) ISSUE AMOUNT (mn): JPY 400,000 ISSUE PERIOD: From Jul 07, 2011 to Jul 06, 2013 (Preliminary) Long-term Issue Rating: 33 Issues ISSUE LIMIT (mn): JPY 300,000 ISSUER: The Japan Atomic Power Co. ISSUE AMOUNT (mn): JPY 150,000 ISSUE PERIOD: From Sep 30, 2011 to Sep 29, 2013 (Preliminary) Long-term Issue Rating: 3 Issues ISSUE LIMIT (mn): JPY 30,000 (a-2), With View to Downgrading, Previously (a-2) A preliminary rating is assigned when a provisional credit rating is needed for an individual obligation on which final terms have not been determined. A credit rating finally assigned may differ from the preliminary rating depending on, among others, the details of the actual contract of the individual obligation. A credit rating for a medium-term note (MTN) program is assigned to the program and not to individual notes issued under the program. The credit rating of individual notes is generally the same as that of the program. As regards credit-linked notes, index-linked notes or other notes, however, there are some cases where the rating on each note will not be on par with the program or no rating will be assigned, depending on the details of the individual note contract. Upon the issuer's request, R&I may assign a credit rating to individual notes issued under the program.