Will Energy Partner’s fiscal 2019 be deficit?
It seems that serious financial issues have been raised at TEPCO. Energy Partner’s budget for fiscal 2019 was initially expected to be surplus of around 5 billion yen, but now it is likely to be deficit of around 50 billion yen.
This was already the case in the first quarter as a result of the easy market prospects in the metropolitan area where customers were being lost, and forced discounts on corporate sales from the beginning of the fiscal year. President Nobuhide Akimoto seems to be notifying the parent company, Tokyo Electric Power Holdings, and requesting relief measures.
Financial covenants and risk of loan withdrawal
In the case of the TEPCO Group, the deficit of subsidiaries such as Energy Partner cause extremely serious situations.
When a financial institution lends to TEPCO, there is a provision that can cancel the loan if the financial institution suffers a disadvantage. This is especially provided for TEPCO, whose creditworthiness had been significantly reduced due to the Great East Japan Earthquake, and of course, it is a severe content to maintain financial soundness. This clause includes all subsidiaries maintaining a surplus, and if Energy Partner is in the red, it may not be able to comply with the clause and may be forced to repay the funds before the loan deadline.
The reaction of the brutal discount
Even so, why is this something like this? As is well known in the utility industry, TEPCO Energy Partners has made use of its wholly owned subsidiary TCS since the second half of 2015 to launch major price cuts in the area of other former general electric utilities. However, TEPCO, which has the decommissioning of Fukushima Daiichi Nuclear Power and compensation liabilities, can not have the strength to continue such price reductions. In addition, TEPCO’s competitiveness has been immediately reduced as nuclear power plants re-operated in Kansai, Shikoku and Kyushu Electric Power. Furthermore, total liberalization was launched in fiscal 2016, and demand in the metropolitan area has been taken away by Tokyo Gas, JXTG, and other former general electric utilities. To recover the lost demand, TEPCO has fallen into a vicious circle that will further reduce its already-deficit tariff.
Remuneration to TEPCO Holdings
It is well known that Mr. Takeshi Yamazaki, who was the predecessor of the TEPCO Energy Partner, took control of the actual business situation and was unwilling to sell at lower price. However, as the former president of the sales department Tomoaki Kobayakawa (currently president of the TEPCO Holdings) developed a business that does not reflect costs and forced price destruction, it can not be ruled out that such a situation has been caused by his unwise decision. If you give priority to immediate customer acquisition and carry out excessive discounts, and it raises the risk of raising the loan for the entire TEPCO Group, that result is quite ironic. With the General Meeting of Shareholders on June 26, TEPCO Holdings is approaching its peak situation in the current fiscal year.