Chubu Electric Power Company, Inc. - Company Profile, Information, Business Description, History, Background Information on Chubu Electric Power Company, Inc.

1 Higashi-shincho
Nagoya 461-8680

Company Perspectives:

Chubu Electric Power Company strives to maintain the foundations of our business through continuing dedication to our customers in creating a future together by further developing the environmental and international awareness of the local community, expanding cooperation and understanding through our activities as a corporate citizen, and creating fresh vitality for the future whilst focusing on flexibility as well as the importance of self-responsibility.

History of Chubu Electric Power Company, Inc.

Chubu Electric Power Company, Inc. ranks third among the ten major Japanese electric power companies in terms of generating capacity, energy sales, revenues, and total assets. The company serves over 16 million consumers in a 39,000-square-kilometer area in the center of Japan ("Chubu" means "central"). The Chubu region is located on the main island of Honshu, between Tokyo and Osaka, and consists of a prosperous coastal plain with excellent harbors and rich farmland. Inland are the mountain ranges known as the Japanese Alps which rise to 3,000 meters above sea level. The rivers cascading down these mountains provide an abundant and steady source of hydroelectric power. Today the Chubu region accounts for 20 percent of Japan's industrial output. Chubu Electric maintains headquarters in Nagoya, Japan's fourth-largest city, and also operates eight regional offices in Japan and representative offices in Washington, D.C., and London. During fiscal 2001, the company secured electric energy sales of 123 billion kilowatt-hours, while its total generating capacity was 31.7 million kW.

Company Origins: 1950s

Chubu Electric was established in May 1951, a few months before the Japanese Constitution was promulgated and the year before the U.S. occupation ended. It was one of nine companies formed at the same time as part of the restructuring of Japan's energy industry after World War II. In addition to these nine companies, Okinawa Electric Power acted as a regional supplier to Okinawa prefecture. Except for Okinawa, the power systems of these companies were interconnected to ensure stable and efficient service for the entire country. In recognition of the public nature of electric power utilities, rates and other important factors were under the supervision of the Ministry of International Trade and Industry (MITI), although the industry itself was private.

At the time of its formation, Chubu Electric was given responsibility for supplying electricity to Aichi, Gifu, Mie, and Nagano prefectures, as well as that portion of Shizuoka prefecture west of the Fuji River. Its shareholders' equity was ¥29.4 billion, and its generating capacity was 1.03 million kW. It soon emerged, however, that this capacity was inadequate. Because of the age of the company's equipment, which it had inherited from the restructuring, its actual generating capacity was in fact only 600,000-700,000 kW. To make matters worse, the Korean War created a sudden surge in demand for electric power as Japan became a rear-base for the U.S. Army. In order to tackle this problem the company adopted a dual approach by conducting a publicity campaign for energy savings and by constructing new power plants, both hydroelectric and coal-fired. Construction of the Hiraoka hydroelectric plant in 1952 was followed by the construction of the Oigawa hydroelectric plant and the Mie and Shin-Nagoya coal-fired plants. By the latter half of the 1950s, supply and demand finally balanced out. This expansion of Chubu Electric's generating power required spending ¥210 billion over ten years, which was mainly covered with financing from the Japan Development Bank and with foreign capital.

In September 1959, a typhoon struck Chubu Electric's operating region, badly damaging one of the company's plants and flooding another on the coast for several months. Using the slogan "Electric power is the generator of recovery," the company responded with an all-out restoration effort. The efforts of the company to cope with this disaster earned it an award from the Disaster Committee Headquarters--it was the only award of this kind given to a private-sector company--and formed the basis of its approach to future disasters.

Meeting Increased Demand: 1960s

The 1960s were a period of marked economic growth in Japan, highlighted by the 1964 Tokyo Olympics and the improvement of the country's infrastructure with the opening of the Tokaido bullet train and the Tomei and Meishin highways, which linked up major industrial areas in central Japan with Tokyo. Because it occupied part of the Pacific coast belt, the Chubu region attracted the heavy chemicals industry and demand for electric power increased by more than 10 percent per annum. For several years, the growth rate in this area was one of the highest in Japan.

To meet the increasing demand, the company introduced a large volume of new oil-fired generating capacity. In 1960, fossil-fuel-fired plants contributed more than half of the company's electricity output for the first time, and subsequently new coal-fired plants with capacities of over 4 million kW were built around the Ise Bay, in Yokkaichi, Owashi, Chita, Nishi Nagoya, and Atsumi. At the same time this base was supplemented with hydroelectric plants--Hatanagi Unit 1 and Takane Unit 1--to meet peak demand.

In addition to developing new electricity sources, the company expanded its grid, constructing a 270,000 volt (V) transmission line around Ise Bay and strengthening its links with other utilities. Because oil prices remained stable during this period of rapid economic growth, the company did not need to revise its rates between 1954 and 1964.

In the 1970s, problems stemming from the period of high economic growth began to emerge. Environmental pollution had been a growing problem in Japan since the late 1950s, when people began to suffer from mysterious and horrific diseases. Because the symptoms of those affected became so widespread, developing "Citizens' Movements" (Shimin-Undo) were able to coerce the government and industry into tackling the problem. In response to the pollution problem, Chubu Electric promoted dual measures--for fuel and plant--concerning atmospheric pollution, noise, and waste water. These included reducing the sulfur content of its fuel. As with the later oil crises, Japan managed to turn adversity to advantage with the pollution problem and was to become one of the worlds' leading nations in terms of pollution control.

Diversification Amid Oil Crises: 1970s-80s

The first oil crisis hit in October 1973, a product of the fourth Middle East War. The price of crude oil--oil-generated electricity accounts for about 30 percent of Chubu's generation--rose above $10 a barrel, and after the second oil crisis in 1979, above $30. Chubu Electric revised its rates three times--in 1974, 1976, and in 1980--and largely managed to overcome the difficult times. A three-tiered rate system was introduced for household use, and a special rate for industrial users was introduced as the company promoted the concept of energy saving.

The oil crises proved a major turning point in Japan's economic development. The industrial emphasis moved from heavy chemicals to manufacturing, assembly, and knowledge-intensive industries. The rate of growth in demand for electric power, which had been 10 percent per annum, steadily increased. In response, Chubu Electric adopted what was called a "positive management" policy aimed at restructuring its business. Subsequent stabilization and decline in oil prices and the appreciation of the yen, reducing fuel costs further, meant that with little pressure on its balance of revenues and expenditures the company was able to reduce its rates four times up until April 1989, following the recommendations of MITI's Electricity Utility Industry Council.

In the early 1970s, the company began promoting diversification of its energy sources, mainly into nuclear power and Liquefied Natural Gas (LNG). The promotion of these power generation methods was perceived by the company to reduce environmental pollution, especially carbon dioxide emissions. Its first nuclear power plant, Hamaoka Unit 1, started operation in March 1976, five years after construction began. Construction of Units 2, 3, and 4 followed. In December 1973, at the height of the oil crisis, Chubu Electric entered into a contract with Indonesia for long-term supplies of LNG, and in March 1978 it commenced operation of two exclusively LNG-fired plants, Chita Units 5 and 6. It also promoted switches to LNG at Chita Units 1 to 4, Yokkaichi and Kawagoe. As a result, LNG's share of power generation reached 33 percent in 1989.

During the 1970s and 1980s, customer needs grew more sophisticated. Chubu Electric met the demand with various measures to introduce new technology and reduce costs. Measures included construction of a second 500,000 kilovolt (kV) transmission line, the introduction of super-high voltage lines for urban areas, enhancement of protection against lightning, the introduction of optical communications, improvement of information capabilities, and automation of facilities. In addition, the thermal efficiency of Yokkaichi Unit 4 and Kawagoe Unit 1, which started in 1989 using the latest technology, was raised to over 40 percent, compared with an industry average for the nine companies of 38.8 percent, within a year.

To meet increasingly varying customer needs, Chubu Electric promoted equipment for late-night consumption of electricity, heat pumps, 200-volt household appliances, office building air conditioning, area heating and cooling--the leveling-off of demand over peak and trough times in a particular area--and electric heat for industrial use and institutional kitchens.

In conjunction with these measures, Chubu Electric inaugurated a Challenge program in 1984 aimed at rationing and quality control, supported by Action Challenge Circles--information- and finance-gathering organizations set up abroad to facilitate these two functions. It established offices in Washington, D.C., in 1982 and London in 1985, and diversified its activities, principally into telecommunications and heat supply. In 1988, the company embarked on a program to update its corporate image and prepare itself for the twenty-first century.

Focus on Environmental Protection and Diverse Power Sources: Early 1990s

Chubu Electric also continued to implement anti-pollution measures at its thermal power plants. Greater use of low-sulfur fuel oils, flue-gas de-sulfurizers, and LNG reduced sulfur-oxide pollution. Flue-gas de-nitrification, use of low-nitrogen fuels, and boiler modification greatly suppressed generation of nitrogen oxides. Also, all company power plants became equipped with electrostatic precipitators which remove soot from flue gases with a high collection efficiency of 90 percent or more. Measures being adopted to prevent water pollution by power plants included the purification of discharge water by such methods as coagulating sediment, neutralization, and filtration.

To deal with noise and vibration problems, consideration was given to the use of low noise apparatus and the installation of noise suppression devices. Also, where necessary, installation of machinery was confined to indoor or underground sites. In addition, the grounds of power plant sites were landscaped with greenery. The amount spent on thermal power protection in fiscal year 1990 came to ¥40.8 billion ($258.2 million). However, Chubu Electric's overall policy on environmental protection considered that a rational balance must be kept between environmental protection and the stable supply of energy necessary for sustained economic growth.

Chubu Electric also continued to diversify power sources, improve overall energy efficiency, and develop carbon dioxide removal techniques. Due to rising crude oil prices and the depreciation of the yen in the early 1990s, power generation costs were rising. To maintain the current level of rates charged to consumers, the company began to implement radical cost reduction measures by upgrading operations.

During this time period, Chubu set forth several strategic goals. Between the years 1991 and 2000, Chubu Electric planned to reach a capacity of 10.86 million kW. Of this, 10.3 million kW was to come from sources developed by Chubu Electric--2.24 million kW from nuclear power, 6.1 million kW from coal, 700,000 kW from LNG, and 1.26 million kW from hydroelectric sources. These numbers changed through the years however, as demand increased.

Chubu Electric also believed that nuclear power generation was needed to ensure adequate power supplies and a sufficient diversity of sources. In addition to the 1.137 million kW Unit 4 reactor under construction at Hamaoka, the Units 1 and 2 at Ashihama--each with a planned output capacity of 1.1 million kW--were expected to provide power for the early 21st century. Plans for the Ashihama nuclear power plant however, were later dropped due to residential protests.

Active development of thermal power, also considered necessary, centered primarily on coal. In addition to the Unit 1 to 3 generators under construction in the early 1990s at Hekinan, each with an output of 700,000 kW, plans for the Unit 1 and 2 generators at Shimizu, each with a capacity of one million kW, were also implemented.

With a view to fully exploiting indigenous Japanese energy resources, construction work on hydroelectric plants was proceeding at six sites with a combined total capacity of 1.095 million kW. As for existing hydroelectric plants, remodeling or improvement plans were also in operation.

Power supply was to be stabilized in relation to demand over the next ten years, with the prospect of maintaining an additional 8-9 percent of demand in reserve capacity. The proportion of power supplied by nuclear power plants was expected to increase from 18 percent recorded in 1990, to 22 percent by the year 2000, while oil-fired power was expected to decrease from 40 to 24 percent during the same period, in accordance with an accelerated trend toward reduced dependence on petroleum.

Chubu Electric also planned to make improvements to supply reliability. In 1990, the Chubu trunk transmission line system was composed primarily of 500 kV lines, and electricity was distributed around the load centers, or high-consumption areas, of Nagoya. Power transmission facilities began to be expanded to cope with factors such as increasing power demand, progress in development of new power sources, and growing urbanization.

In the early 1990s, developments included the installation of a second 500 kV outer loop line. In addition, the 275 kV system within the city of Nagoya was being expanded. Specific measures to improve reliability included further lightning protection for transmission lines and reinforcement of lines linking substations, as well as automation of troubleshooting and service restoration procedures. The funds required for the implementation of the above-mentioned projects were set to total ¥618 billion during the fiscal year 1991 and ¥649 billion in 1992.

While Chubu was focused on improving operations in the early 1990s, it was also gearing up for the partial deregulation of electric utilities in Japan. The company began to forge partnerships with international firms, including a 1992 joint venture with Italy's public electric utility Ente Nazionale per L'Energia Electricia. As part of the deal, both companies shared personnel as well as information about the electric power industry in each country.

Weakening demand from its industrial customers and a slowing of the Japanese economy during 1992, however, resulted in lackluster sales growth. In fact, in 1992 the company's growth levels were the lowest they had been since 1982. Sales and profits continued to fall in 1993 due to a cooler than usual summer, increased depreciation costs for its nuclear power plants, and the continuing economic slowdown. In 1994, however, a heat wave bolstered demand and despite continued rate cuts, Chubu's revenues surpassed ¥2 trillion for the first time in its history.

While sales continued to rise, the firm's profits did not fare as well because of increased facility repair costs. In 1995, the company reported a drop in profits of 6.7 percent to ¥89,290 million. Nevertheless, Chubu was determined to prepare for its future. In 1996, the company adopted a new set of business policies that were designed to ensure its arrival into the 21st century as a electric power enterprise. Included in the new strategy was a focus on Chubu's customer relationships and its environmental practices.

Partial Deregulation in Japan: Mid-1990s and Beyond

During this time, the electricity industry in Japan was undergoing major changes. In 1995, changes in the Electricity Utilities Industry Law allowed competition to enter into the electricity generation and supply market. Then, in 1996, a wholesale electric power bidding system enabled non-electric power companies to sell electricity to electric power companies. Finally, in March 2000, retail sales of electricity was partially deregulated, allowing large-lot customers--those demanding large amounts of electricity--to choose their power supplier.

The intent of deregulation was to foster competition, which in turn would lower the electricity costs in the country. The deregulation was slow to change the Japanese industry, however, and during 2001 Chubu and the nine other regional companies still controlled 99 percent of the market. In fact, only six Japanese-based companies--other than the original ten--supplied power to large customers, including retail stores and office buildings. This accounted for a .2 percent share of the overall market.

Amid the deregulation, Chubu continued to solidify its position in the Japanese market. In late 1999, the company announced plans to lay fiber optic cable that would connect over three million households in Nagoya and other cities in the Chubu region (the company was the first Japanese utility to install fiber optic cable for household use). Chubu then planned to lease these cables to telecommunications firms looking to use the lines for cable television and Internet applications. During 2000, the firm partnered with Iwatani International Corp. to form LNG Chubu Co. Ltd. The new venture was created to withstand increased competition expected from further deregulation in the industry.

Another strategic alliance was formed in 2001 with Toyota Tsusho Corp. Both companies, along with Tomen Corp., planned to build and operate a coal-fired facility in Thailand, which was slated to be the largest such facility operated by an independent power provider. The deal also marked the first time that Chubu become involved in a international power generation venture.

Meanwhile, demand began to falter once again due to the slowing of the Japanese economy along with many other international economies. As such, Chubu stopped operations at two of its thermal power plants and began to implement a cost cutting program that would shave off nearly 20 percent of its expenses related to power generation and distribution by 2005. Despite these challenges brought on by fluctuating economies and increased deregulation, Chubu management remained dedicated to increasing its sales and developing new business in the environmental and technology sectors.

Principal Subsidiaries: Chuden Kogyo Co. Ltd.; Eiraku Development Co. Ltd.; Eiraku Auto Service Co. Ltd.; Chuden Bldg. Co. Inc.; Chubu Plant Service Co. Ltd.; C-Tech Corp.; Techno Chubu Company Ltd.; Chita LNG Co. Ltd.; Chubu Telecommunications Company Inc.; CTI Co. Ltd.; Toenec Corp.; Aichi Electric Co. Ltd.

Principal Competitors: The Kansai Electric Power Company Inc.; The Tohoku Electric Power Company Inc.; The Tokyo Electric Power Company Inc.


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