Tokyo Electric to Cut January-March Price Increase by 50%

By Megumi Yamanaka

Oct. 30 (Bloomberg) -- Tokyo Electric Power Co., Japan's biggest power company, is set to cut a planned retail rate increase by 50 percent for the first quarter of 2009 to meet a government request that it ease pressure on consumers.

The reduction means rates will rise by 6 percent, a record increase, amounting to about 400 yen a month for an average household, said company officials who spoke on condition of anonymity because the plan isn't public yet. The move, to be announced with earnings on Oct. 31, will mean about 40 billion yen ($410 million) less revenue than expected under the old plan, one of the officials said.

Tokyo Electric is acceding to a request by Trade Minister Toshihiro Nikai, who this month asked utilities to reconsider planned price increases in the first quarter to reduce the burden on households. The company will offset the cost by reducing planned rate cuts in the year ending March 2010.

``The impact should be neutral as they can make up the reductions by topping up power prices from April,'' said Hiroyuki Sakaida, an analyst at Goldman Sachs Japan Co. ``There are many concerned voices saying this is negative for utilities, but it's not affecting their shares and business fundamentals.''

Tokyo Electric planned an increase of 12 percent to pass on the cost of buying oil and other fossil fuels when prices were at a peak. The company has had to recommission mothballed gas- and oil-fired generators to make up for the closure of Kashiwazaki Kariwa nuclear plant, the world's biggest, which was damaged by an earthquake on July 16, 2007. Tokyo Electric expected to make about 200 billion yen from the rate increase, which was to apply to both wholesale and retails customers.

Government Approval

Under Japan's power-pricing regulations, utilities are required to change their rates quarterly to reflect fossil fuel costs. The January-March power rates are based on prices of fuel imported between July and September this year. Tokyo Electric requires formal government approval for the reduced increase, since it deviates from the standard pricing formula, according to the trade ministry.

The average cost of imported oil in that period climbed to a record $129.40 a barrel, according to preliminary data from the finance ministry. Prices of liquefied natural gas averaged $692.50 a metric ton, also a record.

The impact of reduced price increases on full-year earnings will be offset by the recent declines in oil and a stronger yen, said Satoshi Abe, an analyst at Daiwa Institute of Research. Crude oil in New York has declined by more than half since touching a record $147.27 on July 11, and the yen has climbed 12 percent against the dollar this year.

Abe estimated Tokyo Electric may have profit of 5 billion yen for the year ending March 31, up from the 280 billion yen net loss the utility predicted in July. The July figures are based on assumptions that crude prices would average $125 a barrel and the yen would be 105 against the U.S. dollar. Crude oil in New York traded at $69.10 a barrel at 10:45 a.m. Tokyo time. The yen was at 98.51 against the dollar.

``Tokyo Electric will likely revise up its full-year earnings forecast'' on Oct 31, Abe said. ``Plunges in crude prices and a stronger yen are much bigger factors for earnings than lowering the rate increases.''

To contact the reporter responsible for this story. Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net.