Message from Top Management

To Our Stockholders and Investors

 We would like to express our sincere gratitude to our stockholders and investors for your extremely generous support.
Greetings to everyone.
Mareshige Shimizu President and Director image Mareshige Shimizu
Representative Director
President & Chief Executive Officer

 Looking at the business environment surrounding our organization, following the full liberalization of the retail sale of electricity last April, moves to fully liberate the retail sale of gas were started this April and it is expected that cross-regional and cross-sector competition will intensify even more from now on. Moreover, with legal separation of the power transmission/distribution sector being required by April 2020, the electricity business is facing an era of great change.
 As for the Energia group, we are still in a severe situation, as there is still no prospect of restarting our Shimane Nuclear Power Station, which will be indispensable for radical recovery of the business base and stabilization of our business.

 In these circumstances, the Energia group will strive to improve the state of our revenue and expenditure and prevent our financial structure from deteriorating through thoroughly enhancing business efficiency, and we will work on developing and expanding growth businesses in which we can exploit our strengths.

 In response to the full liberalization of the retail sale of electricity, we will provide high value-added services to meet diverse energy-related needs ranging from home to commercial, so as to go on being chosen by the customers of the Chugoku Region, which is our operating base. In addition, with a view to establishing new revenue base, we will take steps to promote electricity business in areas outside the Chugoku Region and overseas power generation business.

 Regarding Shimane Nuclear Power Station, in addition to complying with the new regulatory requirements, we will continue to engage in improving of safety as we make maximal efforts toward operation restart and commissioning while obtaining the understanding of the local people.

 Concerning the year-end dividends of FY2017, the consolidated revenue and profits for the year decreased, however, in line with our basic policy of continuing with a stable dividend of 50 yen per share, we will pay 25 yen per share as was also the case in the interim dividends.

 As we stated in Energia Group Corporate Vision, we will be striving to be a “corporate group that people choose in the region and that grow beyond the region” in order to be able to meet our stockholders’ and investors’ expectations

 We request your continued cooperation and support into the future.

June 2017

An Interview with President Mareshige Shimizu

Q1. Currently in Japan, the Nuclear Regulation Authority (NRA) is proceeding with examinations of compliance with the new safety standards, which is a prerequisite for restarting operation at the nuclear power stations. How is the situation at Shimane Nuclear Power Station? What are the prospects for restart of operation over the near future?
A1. At our Shimane Nuclear Power Station, compliance examination of Unit 2 is in progress. I cannot forecast anything definite about when operation will restart. First of all we must get through the NRA’s examination, and we are making full efforts to accommodate it.

 We have to go on providing the inexpensive and stable supply of electricity that underpins socioeconomic activities, and we have to restore the soundness of our corporate performance in fulfillment of our investors’ and stockholders’ expectations. We are conscious that in order to achieve those tasks, it will be essential to work at improving safety at our nuclear power station and to restart it at an early date. In order to restart this facility, I believe three things will be of major importance: we must get through the NRA’s examination, we must complete the measures required by the regulatory requirements, and we must obtain the understanding of the local people.
 We applied for compliance verification of Unit 2 (commissioned 1989; 820 MW) in December 2013, and it is currently undergoing examination by the Nuclear Regulation Authority. We believe that the determination of the standard earthquake ground motion* will be an important aspect in the examination.
 I cannot say anything definite about specifically when operation will restart. But we are moving vigorously forward with measures for enhancing safety at the site, and I take it that we are making steady headway toward operation restart.
 The advanced boiling water reactor (ABWR) to be employed as Unit 3 at Shimane Nuclear Power Station is a plant with outstanding safety and reliability that was developed jointly by the government, manufacturers and power companies. It will be a mainspring of competitiveness for us as competition under liberalization of the electric power business unfolds. The equipment itself is already complete, and the pre-use inspections carried out ahead of fuel loading have all ended. Currently we are proceeding with safety enhancement measures, and also with preparations for applying for compliance verification.

*The earthquake-induced tremor size that is used as the reference value for antiseismic design of facilities and equipment.

 The local people’s understanding will also be essential in order to restart the nuclear power station and to make continuous use of it without any unscheduled stoppages. The following statements are made in the government’s Basic Energy Plan (approved by the Cabinet in April 2014).

(a) “When the Nuclear Regulation Authority deems that the regulatory requirements are complied with, nuclear power stations will move ahead with restart.”

(b) “The national government will proactively make efforts to obtain the understanding and cooperation of the local authorities and other concerned entities/persons where the power stations are sited.”

 At the same time that it is moving ahead with equipment-related efforts aimed at raising safety, Chugoku Electric is working to raise human-factor safety. It is doing this by, for example, effecting continual raising of employees’ awareness and coping skills, in ways such as implementing drills that simulate the accidents occurred by many factors like fire or disease such as earthquakes and Tsunami. By giving the local people a series of respectful explanations about these efforts, we intend to progressively dispel their anxieties concerning the safety of nuclear power generation.

Q2. The dividends of FY2018 are “undecided”, but could you tell us the forecasts at the present time regarding them?
A2. Although the dividends are “undecided”, we have no intention of revising our basic policy of continuing with a stable dividend of 50 yen per share over the year at the present time.

 Regarding dividends, our basic approach is to continue with stable dividends, and we have been implementing dividends of 50 yen per share from an overall consideration of forecasts and so forth of the mid- and long-term revenue-expenditure and financial situations, not merely of the results for a single fiscal year.
 As things currently stand, we have sustained a considerably advanced degree of damage to our self-owned capital as a result of the protracted suspension of Shimane nuclear power generation operation, and as regards dividends up until our nuclear power generation restarts, we will be making particular decisions in each case, based on an examination of the revenue-expenditure and financial situations at the time. But we have no intention of revising our basic policy of continuing with stable dividends.

 While there are fluctuations each fiscal year, we do believe that, barring any unforeseen sudden causes of revenue-expenditure deterioration such as stopping large-scale coal-fired thermal power, we can prevent any serious deficits. Restart of operations at the Shimane Nuclear Power Station remains an indispensable condition for stabilization of our business. We believe that our top priority is to focus on restarting operation of the Shimane Nuclear Power Station as soon as possible, and on achieving further efficiency improvement.

Q3. Electricity System Reform is underway in Japan, and a year has passed since the full liberalization of the retail sale of electricity started in April last year. How do you take this? Also, there are those in the capital markets who hold the opinion it will be a big risk for private businesses to continue running nuclear power stations under free competition– what are your thoughts on this?
A3. Although the competition is intense, our new menu of electricity rates and services are receiving solid approval from many customers. We will provide high value-added services so as to go on being chosen by the customers of the Chugoku Region, which is our operating base.
 As for private businesses continuing to run nuclear power stations, we believe it will be indispensable to have in place an environment that gives them prospects for the future, so that they can plan and implement long-term operations. We will keep advocating that the requisite policies and measures should be devised.

 Following the full liberalization of the retail sale of electricity, numerous operators have newly entered the Chugoku Region and the competition is intense. In these circumstances, we are receiving solid approval from many customers, as may be gathered from the fact that the number of subscribers to our members-only “Gutto Zutto Club” website and new “Gutto Zutto Plan” of tariffs exceeded 500,000 respectively by the end of March 2017.
 The Energia group will provide high value-added services to meet diverse energy-related needs ranging from home to commercial, so as to go on being chosen by the customers of the Chugoku Region, which is our operating base.

 At the same time, so that customers can enjoy advantages from liberalization, it will be necessary for the power supply-demand situation to be stable – which will require restart of nuclear power to proceed, among other things – and for a business environment to be in place where, even under competition, nuclear power generation is utilized as an important base-load power source – on the major precondition that its safety is ensured.
 In May 2016, as part of this business environment improvement and with a certain level of involvement by the government, laws were established for the purpose of stably securing funds necessary for nuclear fuel cycle operations, so that the operations could be carried out steadily and efficiently. In October 2016, the Nuclear Reprocessing Organization of Japan was established as the implementing body. The government has been reviewing the nuclear damage compensation system as well, including examining appropriate role-sharing between the government and businesses.
 As for private businesses continuing to run nuclear power stations, we believe it will be indispensable to have in place an environment that gives them prospects for the future, so that they can plan and implement long-term operations. We will keep advocating that the requisite policies and measures should be devised.

Q4. What kind of concepts do you have for growth scenarios over mid- and long-term?
A4. First of all, we aim for an early restart of the Shimane Nuclear Power Station, and will strive to strengthen the competitiveness of our power sources by developing Misumi Power Station Unit 2. Also, by striving to increase earning capability through growth businesses in other regions of Japan and overseas, we aim to stably ensure profit levels above our pre-earthquake levels.

 In January 2016, we announced the "Energia Group Corporate Vision", which describes our profit and financial targets for the future looking towards the 2020s.
  First of all, we will make an all-out effort to accommodate the examination of the Shimane Nuclear Power Station in hopes of restarting Unit 2 early and proceeding steadily toward the commissioning of state-of-the-art Unit 3. In addition, we will strive to strengthen the competitiveness of our power sources, including developing Misumi Power Station Unit 2, a 1000 MW coal-fired thermal power plant.
 Also, we are making efforts to increase the earning capability of the group by engaging in the establishment of revenue bases in other regions of Japan and overseas, including electricity sales businesses in the Greater Tokyo area and investing in a coal-fired power generation project in Malaysia.
 Moreover, in April 2017, we established a new joint venture with JFE Steel Corporation with the objective of studying the development of a coal-fired thermal power plant in Chiba City.
 Through these efforts, we hope to achieve the profit and financial targets stated in the Corporate Vision.

June 2017

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