[Last updated: June 28, 2018]
Major risks that could affect the HEPCO Group's financial performance are outlined below. The forward-looking statements provided here speculate on possible scenarios as of June 28, 2018. The HEPCO Group recognizes these risks and seeks to avoid them or deal with them if they occur.
(1) Nuclear power generation
The HEPCO Group has positioned to ensure the safety of the Tomari Nuclear Power Plant as its top management priority. Under its president's leadership, the group is working to further improve the plant's safety based on a Safety Enhancement Plan. Specifically, the group has also worked to further enhance safety and reliability of the plant while conforming to new governmental regulatory requirements.
It implements a variety of safety measures, including construction works to secure safety, nuclear emergency drills for major accidents and other emergencies, and seeks to reinforce and improve the system put in place for such contingencies. In response to the July 2013 enforcement of new regulatory requirements, the group has been working to pass reviews on related conformity by submitting applications for permission regarding nuclear reactor establishment/changes and other necessary documentation.
However, future developments relating to the review and other considerations could further prolong the suspension of the Tomari Nuclear Power Plant's operations. This, along with ongoing higher fuel expenses, may affect HEPCO Group's financial performance.
(2) Facility faults
The HEPCO Group works to maintain the reliability of power-generation/transmission and distribution facilities through steady implementation of inspections/maintenance and other considerations. However, the group may incur costs in relation to the restoration of such facilities in the event of faults caused by natural disasters, mechanical failure or other influences.
(3) Fluctuation in electricity sales
A decrease in electricity sales attributable to such factors as the development of competition with other utilities, a decline in economic activity or production activities due to the effect of business conditions, advances in energy conservation or the impact of temperatures could affect the HEPCO Group's financial performance.
(4) Institutional changes surrounding electricity business and other considerations
The HEPCO Group's financial performance could be affected by institutional changes surrounding the group's business, such as the development of markets and rules for intensifying competition in electricity system reforms, detailed systems design for the separation of power generation and transmission, as well as the introduction of measures for realizing the best energy mix, and environmental regulations concerning global warming.
Other factors that could influence financial performance include institutional reviews and cost fluctuations relating to nuclear power generations and the backend costs associated with nuclear power generation.
(5) Fluctuation in precipitation and snowfall
Annual precipitation and snowfall could also affect the HEPCO Group's financial performance because an excess or shortage of water could reduce or increase fuel costs.
(6) Fuel cost fluctuations
Fuel expenses are influenced by fuel-price and exchange-rate fluctuations. Accordingly, the HEPCO Group seeks to achieve a balanced mix of power sources and diversify price fluctuation risk by using different contracting methods for fuel purchases. In addition, the group also operates a rate adjustment system by which fuel cost fluctuations are automatically reflected in electricity rates. However, significant fuel cost fluctuations and other factors could affect the group's financial performance.
(7) Interest-rate fluctuations
The HEPCO Group had an interest-bearing debt of ¥1,426.8 billion at the end of fiscal 2018. This could influence the group's financial performance depending on changes in market interest rates.
However, such influence is expected to be limited because most of the HEPCO Group's interest-bearing debt has fixed interest rates.
(8) Business other than electricity
The HEPCO Group engages in business activities outside the field of electric power based on prior evaluation and appropriate management.
Any deterioration of business environments and other factors could make it difficult for the group to engage in commerce as expected.
(9) Information management
The HEPCO Group seeks to ensure appropriate management of information relating to its customers and other stakeholders by improving internal rules and providing employee training. However, unforeseen problems involving information leakage could affect the group's financial performance.