TEPCO Integrated Report 2018 TEPCO INTEGRATED REPORT 2018
TEPCO Fuel & Power # Sodegaura Thermal Power Station [Sodegaura City, Chiba Prefecture]
TEPCO Integrated Report 2018 1 TEPCO INTEGRATED REPORT 2018
Tokyo Electric Power Company Holdings # Midono Dam [Matsumoto City, Nagano pref.]
TEPCO Integrated Report 2018 2 TEPCO INTEGRATED REPORT 2018
Tokyo Electric Power Company Holdings The song of “Memories of Summer” # Oze National Park [Katashina Village, Gumma pref.] photo by Genta covered by Miyuu (Oze Music Ambassador, avex management Inc.)
TEPCO Integrated Report 2018 3 TEPCO INTEGRATED REPORT 2018
Tokyo Electric Power Company Holdings # Fukushima Daiichi Nuclear Power Station [Okuma Town & Futaba Town, Fukushima Pref.]
TEPCO Integrated Report 2018 4 Introduction Since the accident that occurred at the Fukushima Daiichi Nuclear Power Station in March 2011, the TEPCO Group has been developing a new business model in order to fulfill our responsibilities to Fukushima and also to remain successful in the energy market, which has become increasingly more competitive. In recent years, society has come to hold companies more accountable for their actions and interest in ESG investment and the United Nation’s Sustainable Development Goals (SDGs) have increased. The TEPCO Group has used integrated reports as a tool for promoting communication with stakeholders, such as investors and financial institutions, to convey to them how the Group plans to increase corporate value and contribute to the creation of social value over the long term. In light of opinions and requests from those who read the previous integrated report released in 2017, this second report contains more detailed financial information based upon changes in the management environment as well as more developed content, such as our outlook for the energy industry in the year 2050. This report was edited with full cooperation across the board from all TEPCO Group departments involved and we declare Director and Chairman Representative Executive Officer and President the content of it, as well as the editing Tokyo Electric Power Company Holdings, Inc. Tokyo Electric Power Company Holdings, Inc. process, to be fair and accurate.
September 2018
TEPCO Integrated Report 2018 5 TEPCO Integrated Report 2018 Forward-Looking Statements This report contains forward-looking statements regarding the Company’s plans, outlook, strategies, Reporting : Fiscal year 2017 (April 2017 to March 2018) and results for the future. All forward-looking statements are based on judgments derived from the period (The report also includes some important information information available to the Company at the time of publication. that falls outside the reporting period.) Certain risks and uncertainties could cause the Company’s actual results to differ materially from any projections presented in this report. These risks and uncertainties include, but are not limited to, the Scope : 83 TEPCO Group companies economic circumstances surrounding the Company’s businesses; competitive pressures; related laws and (including Tokyo Electric Power Company Holdings) regulations; product development programs; and changes in exchange rates. Publish : September 2018 Next publish : September 2019
Contact : Corporate Communication Office Referenced guidelines: Tokyo Electric Power Company Holdings, Inc. International Integrated Reporting Framework, International Integrated Reporting Council (IIRC) 1-3 Uchisaiwai-cho 1-chome, Chiyoda-ku, Tokyo 100-8560, Japan "GRI Standard 2016” Global Sustainability Standards Board (GSSB) Tel: +81-3-6373-1111 Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Website: www.tepco.co.jp/en/index-e.html Collaborative Value Creation, Ministry of Economy, Trade and Industry
TEPCO Integrated Report 2018 6 CONTENTS
Things to convey Sections
● Message from President Kobayakawa TEPCO’s Responsibilities, Mission and Mid/Long- ……………………………………… Term Business Strategy • Message from President 9 8 Top Message • Message from CFO…………………………………………… 13 ● Message from CFO Moriya Executing our Mid/Long-Term Business Strategy
● Message from Chairman Kawamura Key issues managed by the Board of Directors, • Message from Chairman ……………………………………… 17 16 Corporate Governance long-term business issues and the company’s • Directors Responsible for Governance……………………… 20 contribution to achieving SDGs
● Status of recovery efforts in Fukushima • Revitalization …………………………………………………… 25 22 Fukushima ● Progress of decommissioning of the Fukushima • Decommissioning……………………………………………… 31 Daiichi Nuclear Power Station
● Future outlook of the energy industry in 2050 (Utility • The energy industry in the year 2050………………………… 41 3.0) and TEPCO Group's efforts aimed at making • TEPCO Fuel & Power…………………………………………… 49 that future a reality • TEPCO Power Grid…………………………………………… 55 ………………………………………… 40 Energy Service ● Business strategies and initiatives for the three core companies • TEPCO Energy Partner 61 (fuel/thermal power, power transmission/distribution and retail) • Nuclear Power Business……………………………………… 67 and for the nuclear power and renewable energy business • Renewable Energy Business…………………………………… 71
• Brand, Transparency, Human Resources, Six business foundations needed to enhance earning ● Intellectual Capital, Business Efficiency and Business Foundation power and to realize business strategy 74 Consideration for the Environment…………………………… 76
• Oze and TEPCO ……………………………………………… 85 • Aim of this report ……………………………………………… 87 ● Detailed information on environmental conservation • Financial Highlights, ESG Highlights………………………… 88 End of Report activities in Oze, financial situation and ESG 85 • Group Companies, Stock Information, Equipment Overview, Corporate Profile………………………101
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Tokyo Electric Power Company Holdings, Inc. Headquarters TEPCO Power Grid, Inc. Headquarters (Chiyoda-ku, Tokyo)
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Message from President TEPCO’s Responsibility and Mission
It has been one year since I became why TEPCO exists and during the Representative Executive Officer and President president of Tokyo Electric Power last year I have spent almost 50 days Tokyo Electric Power Company Holdings, Inc. Company Holdings, Inc. During this year, visiting the local communities and the TEPCO Group has come together to directly speaking with residents. We engage in initiatives to improve earning will continue listening to the opinions power in order to fulfill our responsibilities of stakeholders through direct dialogue to Fukushima whilst remembering the and take a leading and responsible role three core pillars of our new business in helping Fukushima to recover, such ■ Biography philosophy put forth upon reorganization: as by engaging in initiatives to eliminate Apr. 1988 : Joined the Tokyo Electric Power Company, Inc. Open, Create, Fulfill. These initiatives damage caused by harmful rumors. Dec. 2011 : General Manager, Marketing & Customer Relations Dept., have helped lay a strong foundation to As an energy provider, TEPCO Kanagawa Branch Office achieve the objectives of our Revised will also continue to fulfill our mission Jul. 2013 : General Manager, Commercial Customer Energy Dept., Comprehensive Special Business Plan to provide an inexpensive and stable Corporate Marketing & Sales Dept. (the Third Plan). supply of electricity while also striving to Jun. 2014 : General Manager, Corporate Marketing & Sales Dept., Fulfilling our responsibilities to create new value to improve customer Customer Service Company Fukushima, in particular, is the reason satisfaction. Jun. 2015 : Promoted to Managing Executive Officer and President of the Customer Service Company * Revised Comprehensive Special Business Plan (the Third Plan): The result of a complete revision made in May 2017 of the Comprehensive Special Apr. 2016 : Representative Director and President of TEPCO Energy Partner, Inc. Business Plan (May 2012) which was written after Fukushima Nuclear Accident by the Nuclear Damage Compensation and Decommissioning Jun. 2017 : Representative Executive Officer and President, Facilitation Corporation and the Tokyo Electric Power Company, Inc. to serve as the core of TEPCO’s operations and business. Tokyo Electric Power Company Holdings, Incorporated lnc. TEPCO Integrated Report 2018 9 Top Message Message from President » to CONTENTS
Securing required funds Fukushima, help the area to recover, and energy mixes. Our retail business has move forward with decommissioning, proceeded with initiatives to supply new According to the TEPCO reform proposal but also leverage the capacity of every value through cooperation with different made by the TEPCO Reform and 1F department in the TEPCO Group to stably industries and other companies and to Problem Committee, which is a committee increase revenue and secure the funds establish sales platforms. Also the entire of experts formed by the Ministry of that are required even if it takes decades. TEPCO Group has been making efforts to Economy, Trade and Industry, a total During FY2017, we moved forward with engage in Toyota-style Kaizen activities. of approximately ¥22 trillion in funds is fuel and thermal power initiatives that These resulted in fifth consecutive year of needed to address the Fukushima Nuclear aim to complete a value chain through ordinary income and increased revenues Accident. And, of this amount TEPCO is the merger of existing thermal power and income for the first time in three years responsible for securing approximately ¥16 businesses in April 2019 (JERA) and the and we predict that we will see increases trillion. In order to fulfill our responsibilities commercialization of O&M* services, and in revenue and income in FY2018 as well. to Fukushima, we must not only provide implemented power transmission and compensation to the residents of distribution demonstrations that simulate * Operation & Maintenance
Funds required for Fukushima initiatives as put forth in the TEPCO Reform Proposal
Total: ¥8 trillion ¥300 billion/year (about 30 years) Securing ¥500 billion in of Decommissioning: ¥8 trillion funds per year Leveraging of the managed reserve fund system Creating sustainable profits through Total: ¥4 trillion ¥200 billion/year (about 30 years) economic ventures and discontinuous business reforms General burden + special burden Compensation: ¥8 trillion Corporate value target: Other power companies ¥7.5 trillion Total of ¥4 trillion (New entrants burden caused by general burden + leveraging of the transmission system) TEPCO estimates that it must secure approximately Profit on sales: ¥4 trillion (based on ¥1,500/stock) ¥16 trillion from among the Sale of the Tokyo Electric Power Company Holdings, Inc. by the Nuclear Decontamination/ total approximate ¥22 trillion Damage Compensation and Decommissioning Facilitation Corporation interim storage: required ¥6 trillion National government Total: ¥2 trillion (Donations from energy special accounting)
Created based upon the TEPCO Reform Proposal (from TEPCO Committee under the government)
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profits after 10 years which will correspond common issues faced by all parties * Another example is the project that leverages Mid/long term business the total power of the Group to redevelop, or for strategy to a corporate value of ¥7.5 trillion. The involved, and developing our renewable urban development in, areas in which the TEPCO initiatives mentioned above are necessary energy business. Furthermore, we have Group owns real estate. In October 2018, TEPCO HD created its CRE (Corporate Real Estate) Even though we saw the fifth consecutive for achieving this goal, and we will promote been able to more accurately ascertain Promotion Office. year of income last fiscal year, in order the further expansion of our business* capital costs, which are said to suitably to fulfill our responsibilities to Fukushima both domestically and abroad, such as by reflect corporate business risks, and are we must increase our earning power in engaging in reorganization and mergers running the business while remaining order to improve corporate value and in nuclear power and transmission and continually aware of capital costs as we sustainable profitability. In order to secure distribution businesses that aim to solve aim for sustainable growth. approximately ¥16 trillion funds, the Initiatives that aim to Revised Comprehensive Special Business earn profits upwards of Plan calls for us to secure ¥500 billion per ¥450 billion. year as funds required for compensation Restructure, integration, etc. Balance proposed and decommissioning, and improve • Cooperative partnerships corporate value 10 years from now to Unit: ¥1 billion (reorganization/mergers) • Promotion of renewable energy and approximately ¥7.5 trillion in order to overseas projects achieve profits of approximately ¥450 • New businesses JERA Co., Inc. • Leading initiatives in preparation for billion per year. In order to do this, we Utility 3.0 need to create approximately ¥300 billion Four main companies Over ¥300 billion Over Profit at the level of of ordinary income on a consolidated basis 160 ¥450 billion within 10 years (FY2017 results: ¥254.8 Ordinary income 300 〜 Equivalent to corporate billion) upon securing ¥500 billion per year 541.5 215 for compensation and decommissioning. value of ¥7.5 trillion At current time, in addition to productivity Efforts in the reforms, such as internalizing and Revised Ordinary advancing Toyota-style Kaizen activities Comprehensive income 254.8 Special to propel initiatives, we anticipate the (consolidated) Business Plan Approx. planned recommencement of operation 300 of the Kashiwazaki-Kariwa Nuclear Power • Improvement in profitability through Compensation/ Station and an increase in profits from productivity reform (rationalization Approx. Decommissioning: of network business) Approx. ¥500 billion Decommissioning 500 subsidiaries and affiliates, such as JERA, • Restart of Kashiwazaki-Kariwa NPS securing costs 160 • Increase in profits at subsidiaries and are moving forward with initiatives to and affiliated companies carry out these plans. General Approx. We have also set for ourselves burden 56.7 the challenging goal of achieving 200 Special burden approximately ¥450 billion per year in 70 2017 results 10 year average After 10 years (Fiscal 2017–2026) (Fiscal 2027–)
* Multiple revenue/expenditure estimates have been calculated for the time when the Kashiwazaki-Kariwa NPS recommences operation and there are large differences in profit/expense forecasts for each case.
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Key strategies for the times, such as decarbonization, and the such as by providing services that offer demands of society. decarbonization value. future In light of these environmental We will also extend our reach Even though we are keeping up with changes, TEPCO positions renewable beyond our coverage area to other fields, changes and seeing results at current time, energy, such as offshore wind power, other industries and countries abroad to over the mid to long-term we will need as prime sources of energy for the develop and provide new services that to handle such issues as the shrinking future, and will proactively engage in the always consider the customer and society, domestic energy market, increased development of this technology both and construct value chains. Through these competition, energy independency and the domestically and abroad while solving endeavors, we aim to become a world- world trend towards decarbonization. In cost and technical issues. Furthermore, leading global utility that can offer great light of these circumstances, TEPCO must we will also move forward with the convenience at low cost while merging look from two perspectives, initiatives by development of technology that can infrastructure, such as water infrastructure, power suppliers, and global utility at the contribute to improving the heat efficiency with accompanying services. point of contact with customers. As an and decarbonization of coal and LNG electric operator in Japan, which lacks thermal, which are our current primary natural resources, our basic mission is to sources of power, and also strive to provide electricity in a stable manner to relentlessly improve the safety of nuclear supply economic activity and the lives of power as the party responsible for the the people. Furthermore, TEPCO’s basic Fukushima Daiichi Nuclear Power Station approach to initiatives by power suppliers, Accident. One of the biggest steps in is to deliberate and construct a power mix becoming a global utility company is to that considers economic feasibility and prepare for the world of Utility 3.0, which environmental friendliness. At the same is highly likely to become a reality by the time, it is also extremely important that year 2050, and evolve into a business that we flexibly deliberate future power mixes leverages our strengths in the areas of in order to respond to changes in the power generation, distribution and retail
* A “utility” refers to those companies responsible for public utilities such as electricity, gas and water. 1.0: Era in which utilities supported economic growth with institutional backing in the form of Rate-of-return systems and regional monopolies. 2.0: Era in which efficiency through electricity system reforms is demanded 3.0: Era in which utilities are comprehensively responsible for social infrastructure
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Message from CFO Complying with our Mid/Long Term Management Strategy
Representative Executive Officer, Executive Vice President With forecasted decreases in domestic acquire to complete Fukushima initiatives and Chief Financial Officer (CFO) energy demand and the deregulation of as was declared in “TEPCO Reform Tokyo Electric Power Company Holdings, Inc. entry into the gas retail market in April Proposal.” 2016, which followed deregulation of the In order to achieve this financial electricity retail market, the management goal, we periodically monitor the revenue environment in which the TEPCO Group and expenditure of group companies and exists continues to be harsh with fierce implement additional countermeasures competition that transcends industrial if required. In addition, we are striving to Biography fields and geographic regions. optimally allocate management resources, ■ Apr. 1986 : Joined Tokyo Electric Power Company Furthermore, we are engaged such as by revising our investment Jun. 2013 : Head of Administrative Office, Audit Committee in initiatives aimed at strengthening portfolio in order to quickly detect changes Apr. 2016 : Managing Director of TEPCO Fuel & Power, Inc. earning power based upon the Revised in the business environment over the Jun. 2017 : Director of Tokyo Electric Power Company Holdings, Inc. Comprehensive Special Business Plan so short, mid and long terms, and contribute President of TEPCO Fuel & Power, Inc. that we can secure the approximate ¥16 to the future increase in the corporate Sep. 2018 : Executive Vice President and trillion that TEPCO must find a means to value of the TEPCO Group. CFO of Tokyo Electric Power Company Holdings, Inc.
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FY2017 financial results and FY2018 forecasts Electricity sales (consolidated) for the ¥5,644.7 billion as a result of increasing to improve. of reserve funds for future fuel debris TEPCO Group during FY2017 decreased in fuel costs and purchased electricity, During FY2018, we forecast that removal) of expenditure is planned. Year-on-Year (YoY) by 1.4% to 240.3 ordinary income increased to ¥254.8 operating revenues will increase 4.2% Additionally, the ¥126.7 billion TWh due to the impact of the across- billion (YoY increase of ¥27.2 billion) YoY to around ¥6,990 billion, and that appropriated as cost expenditure in the-board liberalization of the electricity thereby remaining in the black for the fifth ordinary income will increase 11.9% FY2017 will be used to pay compensation retail market. In regards to consolidated consecutive year along with net income YoY to around ¥285 billion as a result of expenses (special burden: ¥70 billion, revenue for this consolidated financial for this term. Since costs increased, we increased sales and reductions in costs, general burden: ¥56.7 billion). So, in year, operating revenues increased YoY believe this to be the result of continued such as those associated with repairs, FY2018, we forecast approximately ¥520 by 9.2% to ¥5,850.9 billion as a result of cost reductions made by all group despite increasing in fuel expenses and billion of expenditure (cash out) from the increase in the unit price of electricity companies and the increase in electricity purchased electricity. compensation and decommissioning charge revenue caused by the fuel cost charge revenue. Furthermore, although a new funds will be needed, which is almost adjustment system, and the total of Equity ratio increased from 19.1% decommissioning reserve fund system equal to the ¥500 billion noted in the ordinary revenues increased 8.8% to to 21.1% YoY and debt-to-equity ratio was introduced in FY2018, a total Revised Comprehensive Special Business ¥5,899.5 billion. However, while total decreased from 2.56 to 2.27 YoY thereby of ¥391.3 billion (¥191.3 billion for Plan as being required for compensation operating costs increased 8.7% YoY to showing that financial strength continues decommissioning, and ¥200 billion and decommissioning.
Consolidated results of the current term
E e tr t a e Operat ng re en e Ord nar n o e 240.3 TWh/YoY 1.4% 5,850.9 billion/YoY .2% 254.8billion/YoY 12.0% 0 0 0 2 2 2 8 2 2 28 0 22
2015 2016 2017 2018 2015 2016 2017 2018 2015 2016 2017 2018 forecast forecast forecast
E t rat o e t to e t rat o 21.1%/YoY 2.0point 2.27times/YoY 0.2 point