Missed Rate Hikes To Stick Japanese Utilities With Revenue Shortfall

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) 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, Hokuriku Electric Power Co, Chugoku Electric Power, Okinawa Electric Power, Shikoku Electric Power, Hokkaido Electric Power Company 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)