The tight supply and demand situation caused by the ongoing closure of all of
our nuclear power plants as well as the deterioration of revenues and expens-
es and financial condition in fiscal 2013 created problems for our customers,
shareholders and investors, so it was not a year of which we can be proud.
We have been continuously asking our customers to conserve power
since the winter of 2011 to help deal with the power supply and demand
tightness, and even though there were no preparations or numerical targets
for planned blackouts in the winter or summer of fiscal 2013, this has none-
theless been a serious inconvenience for them. We took measures that some-
times appeared desperate, such as asking customers to conserve power,
borrowing from other power companies and buying power on the market, and
have persevered somehow by maintaining our ability to supply power.
We have responded to the rapid deterioration of revenues and expenses
and our financial condition by raising rates and implementing deep stream-
lining measures, but the cost of fuel for the thermal power that replaces
the power generated by the nuclear plants, which have been closed longer
than we expected, has risen. This has resulted not only in being in the red
for three consecutive fiscal years, but also in an inability to pay dividends for
two years in a row, for which I would like to offer my heartfelt apologies to
our shareholders.
The only way to resolve the tight supply and demand situation and fix
our financial condition is to restart the nuclear power plants. We applied in
July 2013 for an inspection of Sendai (Units 1 & 2) and Genkai (Units 3 & 4)
for compliance with the new regulatory standards, and have been handling
conferences and hearings with the Nuclear Regulation Authority, as well as
on-site inspections, with the utmost seriousness.
What are your general thoughts looking back on fiscal 2013?QIt was a difficult year for everyone, and not one to be proud of.AMichiaki Uriu
President
We are continuing this fiscal year to make a
concerted companywide effort to deal with
the serious matter of restarting our nuclear
reactors, to stabilize the supply and demand
of power as well as our finances.
Message from the Chairperson and the President Interview with the President
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 4
Management Base
Section 5
Financial Information
Section 3
Special Report
9/76 Kyushu Electric Power Company Annual Report 2014
Interest-Bearing Debt and Equity (Nonconsolidated) Equity and Equity Ratio (Nonconsolidated)
Billions of Yen Billions of Yen
3,000
2,500
2,000
1,500
1,0005000
1,200
1,00080060040020002013 (FY)2012201120102009
984.1
1,894.4
967.5
1,968.1
766.7
2,360.1
429.2
2,789.0
341.4
2,983.8
Interest-bearing debt (left) Equity (right)
Billions of Yen %
1,200
1,0008006004002000302520151050
2013 (FY)2012201120102009
Equity (left) Equity ratio (right)
984.1 967.5
766.7
429.2
341.4
984.1 967.5
766.7
429.2
341.426.124.918.710.28.1Benefits of equity ratio
improvement through the issuance
of preferred stock (100円 billion)
Approx. 2%
What is the background of the issuance of Class A preferred stock, and what is your stance concerning
returns to regular shareholders?QWe issued 100円 billion in preferred stock to underpin our finances. We are doing everything
possible to improve revenues and expenses during the period to resume dividend payments
as soon as we can.AOur company has experienced accelerating damage to shareholders’ equity
due to the posting of a net loss for the three consecutive years since fiscal
2011 as the shutdown of the nuclear plants has evolved into a long-term issue.
Taking this into account, in order to fulfill our obligations as a responsible
energy producer we determined that it is both necessary and appropriate to
seek to increase equity capital as we secure the funds necessary to the stable
supply of power by procuring funds that are capital in nature. Therefore, we
have issued preferred stock by way of third-party allotment to the Develop-
ment Bank of Japan.
The preferred stock in this instance cannot be transferred to common
stock, and because it is so-called "corporate bond"-type preferred stock,
which does not confer General Meeting of Shareholders voting rights, it does
not cause dilution of common stock.
In addition, our basic policy of maintaining stable dividends has not
changed, and we will make our determinations about future dividends based
on considerations of the proper balance among our stakeholders in addi-
tion to revenue forecasts and our financial condition. From our perspective,
after having gone two consecutive fiscal years without offering a dividend we
would like to return to offering dividends, even reduced dividends, as soon as
possible. Our ability to do so depends first of all on rationalizing our operations
and restarting our nuclear plants for better revenues and expenditures.
1. Issuance date August 1, 2014
2. Class and number of
new shares issued
1,000 shares of Class A preferred stock
3. Issue price 100円 million per share
4. Total amount of the
issue price
100円 billion
5. Preferred dividend 3円.5 million per share
6. Way of offering
Third-party allotment to the Development
Bank of Japan Inc.
7. Uses of proceeds
Proceeds planned to be used entirely
for construction to enhance the safety
of the Company’s nuclear power plants
Outline of Issuance of Preferred Stock
Message from the Chairperson and the President Interview with the President
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 4
Management Base
Section 5
Financial Information
Section 3
Special Report
10/76 Kyushu Electric Power Company Annual Report 2014
We have always been aware of the risks of nuclear power, and have worked
to assure its safety. Nevertheless, since the Fukushima incident even we
have found it necessary to make greater preparations for the highly unpre-
dictable occurrence of natural phenomena, and engage in nuclear power
risk management with even greater awareness of the importance of improv-
ing nuclear power safety. Based upon this awareness, I have instructed our
employees to proceed with efforts founded on the following four pillars of
our Quality Directive:
(1) Ongoing cultivation of a corporate culture in which nuclear power safety
is the top priority;
(2) Voluntary and continuous efforts to improve safety and reliability;
(3) Fulfill our duty to inform the public by taking the initiative in providing
information;
(4) Create an organizational climate conducive to openness within Kyushu
Electric Power and with our partners.
Everyone at Kyushu Electric Power, including myself, is aware that
nuclear power safety efforts constitute a never-ending process. Through the
accumulated effect of daily efforts to reduce risk engaged in autonomously
and continuously by Kyushu Electric Power together with our partners, we will
strive to earn the trust and ensure the ongoing peace of mind of our customers.
Kyushu Electric Power announced "Voluntary continuous nuclear power safety improvements"* in June of this
year. Please give us your thoughts as company president on renewed nuclear power safety improvements.QNuclear power risk is our top operational priority, and we aim at always maintaining the
world’s highest safety standards.A* For details, please refer to the Special Report on safety efforts at nuclear power plants on page 16.
Message from the Chairperson and the President Interview with the President
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 4
Management Base
Section 5
Financial Information
Section 3
Special Report
11/76 Kyushu Electric Power Company Annual Report 2014
When we raised rates in the spring of 2013, we also embarked on stream-
lining efforts aimed at cutting costs by 140円 billion.
Our nuclear plants remained shut in fiscal 2013, making our operations
more difficult than ever before, so in addition to our constant streamlining
efforts we are cutting costs on a limited short-term basis, for example by
temporarily deferring maintenance and miscellaneous costs, and selling
such assets as we can.
As a result, in addition to cuts, mainly those of a limited short-term
basis, amounting to 110円 billion, we have also cut other costs by 250円
billion, and sold assets of around 70円 billion.
[Examples of constant efforts]
Control maintenance and facility investment costs through careful exami-
nation of the actual state and operation of individual equipment
Review scope and details of subcontracting and cut miscellaneous costs
by streamlining work overall
Cut materials procurement costs by increasing competitive ordering and
reviewing specifications and work methods
[Examples of limited short-term basis efforts]
In principle, cease any items not immediately necessary to safety and legal
compliance or business continuity, reducing the scope of maintenance costs
and miscellaneous costs by reducing scope, halting, or postponing execution
In fiscal 2014, we will continue efforts to achieve the "three-year aver-
age of 140円 billion in cuts" announced in April of last year.
As in fiscal 2013, we plan to continue with our sales of assets, reex-
amining from various perspectives any assets for which sales gains can be
forecast.
Given that the prospects for restarting the nuclear power plants remain
unclear, we will continue to engage in thorough streamlining efforts.
(Billions of yen)ItemCost of Streamlining
Factored into the
Electricity rate costs
<Fiscal 2013–
2015 average>
Fiscal 2013
streamlining
initiative
results
Fiscal 2013 main initiatives
Maintenance costs -32.0 -108.0
Lengthening of inspection cycle
Temporarily suspend, defer and scale back repair work
Miscellaneous costs,etc.-22.0 -67.0
Review scope and details of subcontracting
Suspend, defer and reduce costs, including expansion and develop-
ment expenses, group fees, and research and development costs.
Introduce and expand competition for orders by materials and con-
struction vendors
Personnel costs -48.0 -48.0
Cut executive compensation and lower remuneration standards
Reduce base pay, and cut annual bonuses to zero
Review benefit packages
Curb recruitment
Demand–supply
related costs
(fuel costs, etc.)
-18.0 [-40.0]*
Reduce procurement costs for fuels such as LNG and coal
Actively purchase power on the power trading market
Depreciation
(capital expenditure)
-23.0 -22.0
Review of design standards and specifications
Temporarily suspend, defer and scale back construction
Introduce and expand competition for orders by materials and con-
struction vendors
Total
[Including demand–
supply related costs]
[-140.0]
-245.0
[-285.0]
* Calculated based on certain assumptions because no nuclear power was available in fiscal 2013, resulting in a supply and demand balance that varied greatly from projected
electricity rate costs.
Status of Operational Streamlining Initiatives
What is the status of your streamlining efforts?QWe are taking it to the limit as power professionals, narrowing operations down to the
necessary and essential.AMessage from the Chairperson and the President Interview with the President
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 4
Management Base
Section 5
Financial Information
Section 3
Special Report
12/76 Kyushu Electric Power Company Annual Report 2014
In addition to supply and demand trends, our power source development
plan is formulated comprehensively, taking into consideration items such
as energy security, global warming prevention, the state of existing facilities
and the national energy policy.
The Basic Energy Plan set by the Cabinet Office in April 2014 indicates
the importance of constructing a balanced supply system from the perspec-
tive of "S+3E" that does not depend excessively on any specific power or
fuel source.
At the same time, although the Basic Energy Plan does not address in
detail items such as the energy mix or the new construction/replacement of
nuclear power plants, it clearly states that "The government will commence
examination of the prompt creation of a system that addresses the details
indicated in the Basic Energy Plan," so we recognize that discussions
are ongoing.
We will take the direction of discussions about energy mix or the new
construction/replacement of nuclear power plants into consideration as we
move forward, and look into how to proceed with appropriate power source
development in light of factors such as the characteristics of each kind of
power source and trends in fuels, economic feasibility, etc.
Class Unit Generating unit name Output
Construction schedule
Commencement of
construction
Commencement of
commercial operation
Under
construction
Hydro power
Shin-Kosa 7,200kW May 2012 TBD
Ryugudaki 200kW May 2013 March 2015
Thermal power (LNG) Shin-Oita unit 3-4 480,000kW July 2013 July 2016
Thermal power (coal) Matsuura unit 2*1 1,000,000kW March 2001 June 2021*2
In preparation
for construction
Hydro power Shin-Naongawa 370kW September 2014 June 2016
Thermal power
(Internal- Combustion
engine power)
Toyotama unit 6*1 8,000kW June 2018*2
Nuclear Sendai unit 3 1,590,000kW TBD TBD
Geothermal Otake
14,500kW
[+2,000kW]
September 2017 December 2019
*1. Matsuura unit 2 and Toyotama unit 6 are candidates of biddings with Guideline of Thermal Power Plant Bids.
*2. For Matsuura unit 2 and Toyotama unit 6, supply commencement deadline in biddings is listed instead of actual commencement month of commercial operation.
Actual Electricity Sales and Forecast
Power Plant2012(Actual)2013(Actual)
2014 2015 2016 2017 2018 2023
Annual average
growth rate
2023/2012(%)Electric power sold
(100 million kWh)838(832)846(833)
837 844 847 854 861 8960.6(0.7)
Peak demand
(10,000 kW)
1,481
(1,487)
1,583
(1,489)
1,502 1,512 1,522 1,535 1,547 1,6100.8(0.7)
Note1: ( ) is after compensation for air temperature and a leap day.
Note2: Peak demand is maximum three days average peak demand at transmission end during summer.FYAlthough you have already announced the Fiscal 2014 Supply Plan, can you tell us more about your power
source development ideas?QWe are looking into appropriate power source development that takes the national energy
policy into consideration.AMessage from the Chairperson and the President Interview with the President
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 4
Management Base
Section 5
Financial Information
Section 3
Special Report
13/76 Kyushu Electric Power Company Annual Report 2014
Most of our thermal power plants are aging, particularly the roughly 3 million
kW Kyushu mainland oil-burning plant, which will have been operation for
40 years at the end of fiscal 2020, and Tsushima internal combustion Units
11 (55,700 kW) and Central 5 (10,100 kW), which will be 50 years old at
the end of fiscal 2018.
It will be necessary to proceed with the development of substitute power
sources in stages, so during this fiscal year we will hold bidding for thermal
power sources, as follows:
A total of 1 million kW at Kyushu mainland, with supply commencing by
the end of June 2021;
For plants located on isolated islands, a total of 8,000 kW at Tsushima in
Nagasaki Prefecture, to commence supplying power by the end of June
2018.
Currently, development of Matsuura Unit 2 of Kyushu mainland is
ahead of schedule, while we are bidding ourselves for new development of
Toyotama Unit 6 on the isolated island (Tsushima).
Thermal–oil (Year)
Start of
operations
Permitted
output
(10,000 kW)
March 31,2014March 31,2021Sendai
1 July 1974 50 39 46
2 September 1985 50 28 35
Buzen
1 December 1977 50 36 43
2 June 1980 50 33 40
Ainoura
1 April 1973 37.5 40 47
2 October 1976 50 37 44
KaritaNewUnit 2
April 1972 37.5 41 48
Thermal–LNG (Year)
Start of
operations
Permitted
output
(10,000 kW)
March 31,2014March 31,2021Shin
Kokura
3 September 1978 60 35 42
4 June 1979 60 34 41
5 July 1983 60 30 37ShinOita
1 June 1991 69 22 29
2 February 1995 87 19 26
3 July 1998 73.5 15 22
Thermal–coal (Year)
Start of
operations
Permitted
output
(10,000 kW)
March 31,2014March 31,2021Matsuura 1 June 1989 70 24 31
Reihoku
1 December 1995 70 18 25
2 June 2003 70 10 17
KaritaNewUnit 1
July 2001 36 12 19
Status of Aging Thermal Power Facilities
You are taking bids for thermal power sources in this fiscal year. What is the background and details of
this bidding?QWe are proceeding with renewal of our superannuated thermal plant to ensure the
competitiveness of that power source.ADistribution of Aging Thermal Power Facilities (As Of End of Fiscal 2013)
Distribution of Aging Thermal Power Facilities (As Of End of Fiscal 2020)
No. of units86420Years old40+20–29 30–39
10–19
0–9
Coal LNG Petroleum31.9023431112
No. of units
Years old8642040+
20–29 30–39
10–19
0–9
Coal LNG Petroleum31.90231111326Message from the Chairperson and the President Interview with the President
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 4
Management Base
Section 5
Financial Information
Section 3
Special Report
14/76 Kyushu Electric Power Company Annual Report 2014
Given that Japan is proceeding with reforms to the electric power system in a bid to become more
competitive, what is your management strategy henceforth?QOur goal is to be a strong and supple company that customers trust and continue to choose.AElectric power system reforms, including matters such as across-the-board
liberalization of the retail sector, is currently being debated in Japan. While a
detailed system design has yet to be determined, to put things succinctly there
is no possibly of the management environment in which we operate returning
to pre-Great East Japan Earthquake status. Faced with this situation, I would
like us to become "a strong and supple company" that can remain a strong
presence no matter what kind of management environment we are in.
"Enlighten Our Future," which is the slogan of "Kyushu Electric Power’s
Mission," will remain our guiding principle even in the coming era. We will
seek not only to supply stable electric power to our customers without fail, but
will also be sensitive to their diverse energy needs to create value together
with our customers, with the aim of being a trusted company that they con-
tinue to choose.
Therefore, the first important matter to address is to solidify our base in
Kyushu. We will put our all into taking nuclear power plant safety to a new
level, with the goal of restarting our nuclear plants as well as steadily reduc-
ing our cost structure by continuing to engage in streamlining. In addition, we
will use the relationships we have built with customers and regions, and our
strengths such as technical ability and know-how, to offer services spanning
the entire energy spectrum.
Moreover, we are drawing up new growth strategies from the perspec-
tive of increasing profitability. We are actively developing renewable energy
sources, such as geothermal, and building our power business overseas,
mainly in Asia. We examining the future shape of the Kyushu Electric Group
as an energy services provider as we go beyond our previous boundaries to
provide electrical power and other services to customers outside of Kyushu.
Message from the Chairperson and the President Interview with the President
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 4
Management Base
Section 5
Financial Information
Section 3
Special Report
15/76 Kyushu Electric Power Company Annual Report 2014