President
In our aim to become the corporate group that
provides Japan’s best energy services, we strive
to continuously enhance our corporate value.
Interview with the President
Interview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
17/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015
As the suspension of operations at our nuclear power stations lengthened, in
fiscal 2014 our supply–demand, revenue–expense and financial conditions
remained problematic.
Regarding supply–demand, since the Great East Japan Earthquake in
the winter of 2011, we have continued to ask for our customers’ cooperation
in efforts to save electricity. In fiscal 2014, as well, we continued to call for
efforts to conserve electricity wherever not essential to protect life and health,
as well as industrial and economic activity, seriously inconveniencing our cus-
tomers. Through their cooperation in conserving electricity, purchases from
other electric utilities, market procurement and a host of other supply efforts,
we succeeded in riding out the circumstances.
We responded to the difficult revenue–expense and financial conditions
by stabilizing management through an increase in equity capital. To this
end, in August 2014 we issued 100円 billion in Class A preferred shares to
the Development Bank of Japan through a third-party allotment. To improve
the revenue–expense situation, we temporarily deferred short-term repairs,
introduced efforts to enhance overall management efficiency and sought to
thoroughly reduce costs. Despite these efforts, the ballooning cost of fuel for
thermal power generation in the face of a complete suspension of nuclear
power operations led us to post a net loss for the fourth consecutive fiscal
year, and we forewent dividends for the third straight year. I would like to offer
my heartfelt apologies to our shareholders for this situation.
The only way to resolve the tight supply and demand situation and fix
our financial condition is to restart the nuclear power stations. We applied in
July 2013 for an inspection of Sendai Units 1 and 2 and Genkai Units 3 and
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.
In September 2015, we resumed commercial operations at Sendai Unit 1.
We are pouring all our energies into recommencing operations at Sendai Unit
2 and Genkai Units 3 and 4 to alleviate the tight supply and demand situation
and stabilize our financial conditions.
Could you provide an overall review of fiscal 2014?QWe put forth a groupwide effort amid difficult supply–demand and revenue–expense conditions.
Working one step at a time, we also made steady progress toward the resumption of operations
at our nuclear power stations.AInterview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
18/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015
Please share with us your feelings about recommencing commercial operations at Unit 1 of the Sendai Nu-
clear Power Plant.QThis is the first time in four years for the plant to be operational. All the people involved are mov-
ing forward earnestly and with a strong sense of urgency to get the station back on a commer-
cially operational footing.AIn August 2015, Sendai Unit 1 began the first plant in Japan since the Great
East Japan Earthquake to comply with the new regulatory standards, resum-
ing commercial operations in September.
The power system moves in parallel with the stations, so it was with a
profound sense of happiness that I witnessed the numerical results of the
power from the unit coming back on line.
It is still too early to relax, however. We were only able to overcome the
tight supply and demand situation by repeatedly imploring our customers to
save electricity, and the situation will only begin to normalize once we have
four units operational: Sendai Units 1 and 2 and Genkai Units 3 and 4.
The Basic Energy Plan set by the Cabinet Office in April 2014 sets the
Nuclear Regulation Authority the task of confirming that nuclear power sta-
tions meet some of the world’s most stringent regulatory standards in order
to recommence operations. Given resource-poor Japan’s low energy self-
sufficiency rate and global environmental conditions, I believe that nuclear
power generation will remain necessary.
We have resolved never to allow an accident such as that which occurred
at the Fukushima Daiichi plant. Accordingly, we are working on an ongoing
basis to improve safety and reliability and complying earnestly and meticu-
lously with national government inspections as we move toward the restart of
operations at other plants where operations have been suspended.
Please see the Special Feature (pages 25–31) for details.
Interview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
19/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015
Fiscal 2015 will be an extremely important year, as it will be the stage of
preparing for the full-scale liberalization of electricity retailing in fiscal 2016.
At this important juncture, we decided it was necessary to define our new
management direction, so we formulated the Kyushu Electric Group Medium-
Term Management Policy.
This policy outlines our objectives for working together as a Group on
business initiatives and achieving sustainable increases in corporate value.
It defines our "Vision for 2030" and our three strategic pillars for realizing
this vision.
Specifically, by 2030 we are aiming to become a corporate group that
provides Japan’s best energy services with the theme that "everyone eventu-
ally asks the Kyuden Group for energy."
Our first strategic pillar is to evolve as a "corporate group that provides
energy services" for Kyushu, including gas as well as electricity. Taking cus-
tomers’ energy needs into account, we will develop in tandem with the region
and society. As one aspect of these activities, we are considering specific
measures for a full-fledged entry into the gas business.
Second, we will develop in growth fields. We will push forward with
electric power development in the Tokyo metropolitan area and step up our
overseas business, centering on Asia. In the renewable energy business,
taking supply stability and environmental impact into consideration, we will
proactively develop our operations in Japan and overseas in the areas of
geothermal and hydro power.
Third, we will enhance the organizational strength required to implement
strategies for establishing a robust business foundation.
With regard to the electric utility operating environment, we understand
that we will not be able to turn back the clock to the days before the March
11 disaster even if our nuclear power plants restart. Reforms to the electric
power system are underway, and we recognize that further changes and
competition are certain to occur.
Rather than fear change and competition, the Kyushu Electric Power
Group views them as positive opportunities. We will set our sights on further
growth and development as we work to remain a reliable company of choice
for our stakeholders.
For details, please refer to the Medium-Term Management Policy section
(pages 7–14).
The Group announced its new Medium-Term Management Policy in April 2015. Please describe some of
your long-term management directions under this Medium-Term Management Policy.QWe will aim to become a corporate group that provides Japan’s best energy services and achieve
sustainable increases in corporate value.A[Reference: Current generating power, etc.]
Overseas power generation (equity ownership in power output): 1.5 million kW
Renewable energy: 1.5 million kW
Direction of Future Strategy
Kyushuisthe
basisforall
businesses
Expanding
business
activitiestocoverAsiaandtheworld
Robust
business
foundation
Energy service business in Kyushu
Business development in a growing market
Overseas energy business
(Goal) 5 million kW
Outside Kyushu energy business
(Goal) 2 million kW
Renewable energy business
(Goal) 4 million kW
Electricity, gas, distributed, energy-saving, etc.
Active use of
strengths, input of
management
resources
Organizational abilities for
reform and growth and new
sources of profit
Future
business
Always
pursuit
Favorable growth
cycle
Interview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
20/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015
The passing of the Electricity Business Act reform bill in June 2015 determined
the legal unbundling of the transmission/distribution sector from April 2020.
An inexpensive and stable supply of electricity is fundamental to the life of
Japan’s citizens and industrial activity. Accordingly, as in the past we will do
everything we can to maximize our cooperation with electricity system reforms
to benefit our customers.
We will respond appropriately to the changes in our operating environ-
ment resulting from future electricity system reforms as we develop our
business and strive to remain the reliable energy supplier of our choice to our
customers, as well as a "strong and supple company."
An Electricity Business Act reform measure has been passed, calling for the separation of the distribution
sector as part of the electricity system reforms. How should this be interpreted?QWe will do everything we can to ensure that this reform is to the benefit of our customers.AOverview of the Electric Power System
Submission of Reform Bills at Each Stage and the Periods of Reform Implementation
The reforms are divided into three stages: (1) the establishment of the Organization for Cross-Regional Coordination of Transmission Operators, (2) full retail competition and
(3) legal unbundling of the transmission/distribution sector. Due consideration is being given and the necessary measures implemented at each stage.
First
Stage
Reform bill passed
November 2013
April 2015
Summary of supply–demand and system plans, broad plans and
disclosure of cross-regional supply–demand and system information
Second
Stage
June 2014
Reform bill passed
April 2016
Full retail
competition
Allowing for the establishment of various rate menus
and selection of power utilities
Interim measures
on rate restrictions
Last-resort service
provision and
other measures
Abolition
of rate
restrictions
(Note)
Third
Stage
June 2015
Reform bill passed
April 2020
Introduction of a
competitive market
environment
Establishment of the
Organization for
Cross-Regional
Coordination of
Transmission Operators
Legal unbun-
dling of the
transmission/
distribution
sector
(Note) The timing for the abolition of rate restrictions is to be determined based on the electricity market, operating environment, competi-
tive conditions and other factors.
Interview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
21/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015
During fiscal 2014, we undertook constant and steady streamlining efforts,
including making deep cuts in material procurement costs, to alleviate the
difficult financial circumstances stemming from the closure of all our nuclear
power stations. While ensuring safety and legal compliance and preventing
supply stability from being affected, we did everything we could to reduce
short-term costs by temporarily delaying inspections and construction activities.
As a result, in addition to planned cuts of 135円.0 billion we had an-
nounced our intention of making by improving management efficiency, we
also achieved reductions of 179円.0 billion centered on short-term initiatives.
In all, we succeeded in slashing costs by 314円.0 billion.
We also sought to address the problematic revenue–expense and
financial condition by selling off assets where possible. These efforts led to
cumulative sales of 84円.3 billion for fiscal 2013 and fiscal 2014.
In April 2013, we announced a management efficiency enhancement
plan to achieve a "three-year average of 140円 billion in cuts." Our plans for
fiscal 2015 incorporate cost reductions of 153円.0 billion through efficiency
improvements. Although spending will need to increase to conduct the
repairs temporarily delayed from fiscal 2013 and 2014, we expect to achieve
this objective.
With regard to asset sales, we will continue working to sell off as many
assets as possible that are not directly related to the operation of our electric-
ity business, such as company housing sites.
Please describe the results of efforts to improve management efficiency in fiscal 2014 and your forecast for
fiscal 2015.QIn fiscal 2014, in addition to planned cuts of 135円.0 billion through efficiency improvements, we
achieved cuts of 179円.0 billion mainly on a short-term basis, for a total reduction of 314円.0 billion.
We plan to continue our efficiency improvement efforts in fiscal 2015.A(Billions of yen)ItemPlanned Efficiency
Improvements for
Fiscal 2015
Fiscal 2014
streamlining initiative
results [A] + [B]
Cost of streamlining
factored into
electricity rate costs
(2014 only) [A]
Streamlining efforts
(2014 only) [B]
Cost of streamlining
factored into
electricity rate costs
(2013–2015 average)
Maintenance costs -28.0 -98.0 -23.0 -75.0 -32.0
Miscellaneous costs, etc. -22.0 -71.0 -21.0 -50.0 -22.0
Personnel costs -51.0 -37.0 -44.0 7.0 -48.0
Fuel costs, cost of
electricity purchases
-22.0*1 -74.0*2 -25.0 -49.0 -18.0
Depreciation expenses
(capital expenditure)
-30.0 -34.0 -22.0 -12.0 -23.0
Total [Excluding fuel costs
and the cost of purchased
power]
-153.0
[-131.0]
-314.0
[-240.0]
-135.0
[-110.0]
-179.0
[-130.0]
Reduction of
around 14円.0
billion
*1 Reference values incorporate rate costs and assume a nuclear power utilization rate of 66%.
*2 Nuclear power was not operational in fiscal 2014, so the supply–demand balance is a preliminary calculation that differs substantially from rate costs.
(Billions of yen)
Item Sales results (2014)
Sales results*3
(total for 2013 and 2014)A+BSales plan upon receipt of
acceptance to raise the rate
cost (2013–2015) A
Streamlining effect B
Property 10.2 (9.8) 41.9 (36.9) 10.0 31.9
Available-for-sale
securities
0.3 (0.1) 42.4 (30.3) 4.0 38.4
Total 10.5 (9.9) 84.3 (67.2) 14.0 70.3
*3 Figures in parentheses indicate gains on sales.
Status of Operational Streamlining Initiatives
Results of Asset Sales
Interview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
22/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015
Solar, wind, biomass, hydro, geothermal and other forms of renewable
energy are examples of domestically produced energy. They are also excel-
lent sources of power for countering global warming. Accordingly, we remain
unchanged in our dedication to working together as a group to develop and
introduce renewable energy to the best of our capabilities.
However, since the introduction of the feed-in tariff power purchase and
sale system the environment surrounding renewable energy has changed due
to the rapid proliferation of solar generation. In line with this sharp expansion,
we recognized that ensuring a stable supply of electricity could potentially
become difficult. Accordingly, in September 2015 we held off on responding
to applications to connect renewable energy suppliers to the grid, needing to
consider our connection capacity in the aim of maximizing the introduction of
renewable energy. After considering our connection capacity, we were named
a designated electric utility. In line with the promulgation and enactment of
revised legislation, we are currently responding successively on applications
on which considerations have been completed, and we are responding to grid
connections in accordance with nationwide rules.
Based on the condition of ensuring a stable supply of electricity, in keep-
ing with the intent of the legislative reform concerning the revised operation of
the feed-in tariff power purchase and sale system and taking into account the
characteristics of different renewable energy sources we will work to maxi-
mize the balanced development of renewable energy.
In the renewable energy business, which is a growing global market, we
will leverage the technologies and expertise we have accumulated to date to
proactively develop this business both within and outside Japan, concentrating
on geothermal and hydro power.
The rapid proliferation of renewable energy was a hot topic in fiscal 2014. Could you describe your stance
on the future development and introduction of renewable energy?QAs a Group, we will develop and introduce renewable energy to the best of our capabilities.AStatus of Renewable Energy Applications on the Kyushu Mainland (Excluding Isolated Islands, Including for Kyushu Electric) (As of March 31, 2015)
Kyushu Electric’s (Excluding Isolated Islands, Including Group Companies) Renewable Energy Connection Status (As of March 31, 2015)
(Thousands of kW)
Solar Wind Biomass, etc.
Hydro (excluding from
pumped hydroelectric
storage)
Geothermal Total
Applications under ongoing consideration 4,790 160 90 50 30 5,130
Applications under ongoing agreements 4,910 200 10 60 3 5,180
Related approvals received 3,570 120 40 10 10 3,770
Connected 4,660 460 270 1,830 210 7,440
Total 17,930 950 410 1,950 260 21,500
Notes: Totals may not match exactly because figures have been rounded.
Cold energy is included in biomass.
Connectable volume: Solar 8,170,000 kW, wind 1,000,000 kW
(Thousands of kW)
Solar Wind Biomass, etc.
Hydro (excluding from
pumped hydroelectric
storage)
Geothermal Total
Connected 40 70 40 1,280 210 1,640
Solar Power Connection Volumes on the Kyushu Mainland (Excluding Isolated Islands)
(Thousands of kW)
5,000
4,000
3,000
2,000
1,0000(FY)20142013
2010 201220112009200831.9
330 41031,110
2,71056017404,660
As of March 31, 2015, the renewable energy application status for Kyushu
(excluding isolated islands) amounted to 21,500,000 kW (of which solar
was 17,930,000 kW). Of this figure, the already-connected portion totaled
7,440,000 kW (of which solar was 4,660,000 kW).
As the connection application volume exceeded the connectable volume
(8,170,000 kW) on December 22, 2014, the Company was named a
designated electric utility* for solar power.
As of December 31, 2014, the total output of connected plants and
plants for which connections have been approved had reached the con-
nectable volume.
* By being named a designated electric utility by the national government, Kyushu Electric is able
to request suspension of power output without compensation for up to 30 days per year for
applications received after the date on which the total of connected plants and plants for which
connections have been approved exceed the connectable volume.
Interview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
23/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015
We are working to reinforce corporate governance, which we recognize as an
important management issue. In the past, we have appointed highly indepen-
dent external directors to enhance the management supervisory function and
undertaken efforts to ensure the effectiveness of audits by corporate auditors
by enhancing coordination with the internal auditing body.
We understand the principal thrust of the recently enacted Corporate
Governance Code to hinge on enhancing the speed and effectiveness of
decision-making with the aim of ensuring sustainable growth and medium- to
long-term increases in corporate value, and we are undertaking proactive
initiatives in this regard. In June 2015, we appointed two external directors,
one more than previously.
We have set up an internal team to consider our response to the code,
and their efforts are focused on initiatives targeting all 73 items of the code,
including its general principles, principles and supplementary principles.
We plan to issue a corporate governance report in December 2015
outlining our initiatives in response to the code. However, this is an ongoing
medium- to long-term initiative that we will continue to consider even after
submitting this report.
Please see Corporate Governance (pages 33–34) and the Interview with
External Directors (pages 35–36) for details.
The Corporate Governance Code, outlining basic principles on corporate governance, went into effect on
June 1, 2015. What has been your response?QWe are making proactive efforts to reinforce corporate governance to achieve sustainable
growth and medium- to long-term increases in corporate value.APlease outline your stance on dividends.QIn order to resume dividends as soon as possible, we are undertaking thorough management stream-
lining and striving to recommence operations at our nuclear power stations as quickly as possible.AWe make dividend decisions by taking into overall account our medium- to
long-term forecasts of revenues/expenses and financial condition, as well as
the balance among all of our stakeholders.
Given that operations at our nuclear power stations were suspended in
fiscal 2014, thermal generation and other fuel costs ballooned, resulting in a
net loss for the year of 119円.0 billion for Kyushu Electric on a non-consolidat-
ed basis. As a result, we made the decision to forego dividends.
Because we expect severe financial conditions to persist in fiscal 2015,
we expect to pay no interim dividends on common stock or Class A preferred
shares. I offer my deepest apologies to our shareholders for this situation.
We aim to resume dividend payments as soon as possible. To allow this,
we are stepping up thorough management streamlining efforts and doing our
utmost to restart operations at our nuclear power stations as the earliest pos-
sible date.
Interview with the President
Message from the Chairperson and the President
The Kyushu Electric Group’s Medium-Term Management Policy
24/90
Section 1
Kyushu Electric Power Summary
Section 2
Management Message
Section 3
Special Feature
Section 4
Management Base
Section 5
Financial Information
Kyushu Electric Power Company Annual Report 2015