TEPCO, the utility that serves 29 million households and businesses in the Tokyo metropolitan area, and that owns the Fukushima nuclear power plant where three melted-down reactors are contaminating air, soil, groundwater, and seawater, an outfit famous for its lackadaisical handling of the fiasco and the parsimoniousness with which it doles out information – the most despised and ridiculed company in Japan reported earnings today. It was a doozie.
Instead of sending it into bankruptcy court to make bondholders and stockholders pay their share, the government has bailed it (and them) out lock, stock, and barrel. And it’s still on taxpayer-funded life support. So it was good news that revenues jumped 11.8% to ¥3.2 trillion during the fiscal first half ending September 30 – blistering hot growth for a utility with 49,000 employees in a slow-or-no-growth market!
But that was about it with the good news. It wasn’t even good news. It was based exclusively on electricity rate hikes that regulators had approved to compensate the company for the costs of running fossil-fuel power plants instead of its nuclear power plants, which remain shut down. It then inflicted those higher rates on already struggling businesses and squeezed consumers.
Sign of a booming Abenomics economy? Nope. Electricity sales volume fell by 1.7% in the first half. Among the reasons, ominously: a “decrease in production activities.” Commercial use fell 1.7% and industrial use 0.5% from the already depressed levels last year. Among large-scale industrial customers, electricity sales to ferrous metals companies suffered the most, down 6.7%, followed by sales to machinery producers, down 3.8%.
Net profit for the first half soared to ¥616.2 billion ($6.2 billion), up from a steep loss last year. But the rate hikes alone, big as they’ve been, couldn’t accomplish that. So cost cuts?
TEPCO is certainly trying to cut costs in dealing with the Fukushima fiasco, mostly by cutting corners. Efforts that produce curious results. A few days ago, for example, when it didn’t put enough pumps in place to deal with the rains from the typhoon, water contaminated with highly radioactive and toxic Strontium-90 leaked once again into the ocean. Despite all these valiant efforts at cutting corners, its “ordinary expenses” rose 1.2%.
So where did that big fat profit of ¥616.2 billion come from? Turns out, “ordinary income” was only ¥141.6 billion, up from a loss last year. Those were the rate increases. The difference? “Extraordinary Income.”
A lot of it! So TEPCO sold some fixed assets for a gain of ¥74.2 billion, fine. But then there was an interesting, and huge entry: ¥666.2 billion ($6.7 billion). It was the amount of taxpayer bailout money TEPCO had received during the first half. Booked as income!
After some extraordinary loss items – ¥22 billion for “extraordinary loss on natural disaster” and ¥230.5 billion for “nuclear damage compensation” – net disaster-related extraordinary income amounted to ¥413.7 billion ($4.2 billion), every yen of it from taxpayers. It became part of its net profit. What a way to make money!
These kinds of shenanigans have impact. TEPCO’s stock, which traded above ¥4,000 in 2007, skittered down during the financial crisis to land at ¥2,000 by the end of 2010. After the disaster in March 2011, the stock collapsed entirely and a few months later approached ¥100 yen – a technically bankrupt company with 49,000 employees. But since the bailout funds started pouring into TEPCO’s pocket, the stock has quintupled to ¥523.
Today, the government offered a view into the future. A panel composed of lawmakers from the ruling Liberal Democratic Party issued a draft report that recommended that the government, and therefore the taxpayer, step in and take control of the Fukushima cleanup and decommissioning efforts. It will be expensive and take four decades – unless the spent fuel rods in their destroyed pools ignite when the next big earthquake hits or when TEPCO screws up again, which would alter the hemisphere and eliminate any need to worry about the site.
The panel said that TEPCO must implement major internal improvements, including cost controls, and it suggested that the company may have to be broken up, partially or fully – with the good part likely going to bondholders and stockholders, and the bad part, that is Fukushima Daiichi and all associated costs and liabilities, being hung around the neck of the taxpayer.
There was urgency, the panel said. TEPCO could not manage the large amounts of groundwater that were getting contaminated daily by the reactors, and at the same time manage their decommissioning. The government would also have to figure out what to do with the nuclear waste from the site – and then pay for it as well.
The true costs of nuclear power are thus getting shuffled from the industry to the taxpayer – while bondholders and stockholders benefit.
Not a coincidence. Earlier this year, it was leaked that TEPCO had paid ¥1.8 billion ($189 million) in annual membership fees to a nuclear lobbying group in 2011, weeks after the melt-downs. The Federation of Electric Power Companies of Japan, which lobbies for Japan’s ten mega-utilities, keeps its budget secret. This was the first time the fees seeped out, offering an idea of its annual lobbying budget – whose magnitude explains in part the overwhelming power the nuclear industry has over its regulators and governments.
That power is now being exerted on the Abe administration and the legislature – not only to slough off the costs of dealing with Fukushima but also to restart the 50 surviving reactors, against strong local and national opposition.
It's not like Japan doesn't have enough problems. Buried in the Bank of Japan’s Financial System Report is a gorgeous whitewash: if interest rates rise by 1 percentage point, it would cause ¥8 trillion ($82 billion) in losses across the banking system. Banks would be able to digest it. The system is safe. But then the report tallied up the losses of a 3 percentage-point rise. Read.... What Will It Take To Blow Up The Entire Japanese Banking System? (Not Much, According To The Bank of Japan).