TEPCO, Chubu form strategic energy alliance

Source:TEPCO

Tokyo Electric Power Company, Incorporated ("TEPCO"; President: Naomi Hirose) and Chubu Electric Power Co., Inc. ("Chubu Electric"; President: Akihisa Mizuno) today entered into a memorandum of understanding on the formation of a comprehensive alliance covering the entire energy supply chain, from upstream investments and fuel procurement through power generation (the "Alliance").

The companies will now begin negotiating the details of the Alliance, in accordance with the memorandum of understanding entered into today, aiming to conclude a final agreement concerning the Alliance and to establish a legal entity for the purpose of realizing the Alliance (the "Joint Venture") within the second half of the fiscal year ending March 2015.

In taking responsibility for the nuclear disaster at its Fukushima Daiichi Nuclear Power Station, TEPCO made the decision to transform its business to maintain a balance of "responsibility and competitiveness" in its new Comprehensive Special Business Plan authorized in January this year. As part of this transformation, TEPCO intends to form the Alliance and thereby increase the enterprise value of the TEPCO Group as a whole. To realize the Alliance, TEPCO called for proposals in order to select a preferred negotiation party to become its Alliance partner.

Chubu Electric determined that the Alliance will be effective not only from the perspective of securing national interests through obtaining internationally competitive energy supplies, but also for realizing the growth strategy Chubu Electric has adopted.

Since then, as a result of discussions between the two companies as part of the selection process conducted by TEPCO, Chubu Electric was chosen as the preferred negotiation party to become an Alliance partner, leading to the conclusion of this memorandum of understanding.

1.Content and purpose of comprehensive alliance

It is the mission of Japan's energy companies to ensure the stable supply of energy on an internationally competitive basis. It is indispensable for Japanese energy companies to become global energy companies competing worldwide in order to fulfill this mission amid increasing competition for natural resources.

Against this background, Chubu Electric and TEPCO will proceed with discussions on the Alliance with the aim of realizing the following three fundamental principles.

•Providing customers with a stable supply of energy on an internationally competitive basis, by establishing a global energy company with a strong competitive position in international energy markets; and increasing the enterprise value of both of TEPCO and Chubu Electric through a relationship that is equal and complementary

•Establishment of a new energy company business model combining the highest level of management resources; ensuring that the Joint Venture has a self-sufficient business culture, as well as vibrant management and financial strength that are trusted in the global market; and providing the Joint Venture a corporate structure enabling independent business management and swift decision-making

•Optimizing the performance of the entire business by strengthening the supply chain as a whole, from upstream investment and fuel procurement through power generation

2. Implementation and effect of the comprehensive alliance

The Alliance will be implemented starting with areas that will have a high impact and are easier to undertake.

Areas to be given priority attention by the companies include fuel procurement and related business operations (including upstream investments, fuel transportation, and trading), as well as new thermal power plant construction and thermal power plant replacement, overseas power generation and energy infrastructure operations. Through these efforts, we will seek to secure the following benefits, while also giving ongoing consideration aimed at the realization of a more advanced and expansive alliance.

•Underpinned by the world's largest LNG procurement scale of 35 million to 40 million tons annually, establishing a fuel procurement portfolio that is outstanding in terms of economy, stability and flexibility

•Using the enlarged scale of fuel procurement as a springboard, jointly conducting on an expanded basis the upstream, transportation and trading businesses that the companies previously operated individually, thereby expanding earnings opportunities and further strengthening fuel procurement capabilities

•Applying combined management resources to replace old and energy-inefficient thermal power plants with the latest high-efficiency power generation facilities, yielding substantial thermal efficiency improvements and allowing the realization of low-cost power supplies

•While giving due consideration to environmental matters, expanding the coal-fired thermal power generation business using this relatively low-cost fuel

•Establishing a borderless power generation business model, and strengthening our power generation business by creating positive feedback between overseas power generation operations and domestic power generation operations, including replacement of obsolescent domestic facilities

•Realization in stages of further improvements in operational efficiency through the integration and optimization of joint management and operation of the entire supply chain, from upstream investment and fuel procurement to fuel terminal operations and power generation



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