By Koichi Kuranuki / Yomiuri Shimbun Senior Writer

Tohoku Electric Power Co. saw a drop in both sales and net profit in its consolidated financial results for the fiscal year through March 2025, despite the electric power company's earnings being buoyed by its resumption of the Onagawa nuclear power plant after an almost 14-year hiatus.

Challenges remain in the company's financial situation, influenced by such factors as surging prices for liquefied natural gas $(LNG)$ triggered by Russia's aggression against Ukraine, as well as large-scale disasters such as earthquakes. Going forward, the company plans to invest heavily in developing its power plants and reinforcing transmission networks with decarbonization in mind. Observers are paying attention to the company's financial strategy of putting emphasis on its return on invested capital $(ROIC)$ as a financial indicator.

The Onagawa nuclear power plant resumed operations in November 2024, providing a boost of 26 billion yen to Tohoku Electric's consolidated recurring profit compared with the previous fiscal year. Nuclear power plants have a low power generation cost, and the restarted Onagawa nuclear power plant will decrease the company's total LNG usage. As a result, the company expects a 36 billion yen boost to its consolidated recurring profit in the fiscal year ending March 2026.

However, Tohoku Electric's retail electricity sales have dropped by about 3.3 billion kilowatt-hours compared with the previous fiscal year. Surging LNG prices caused by Russia's aggression against Ukraine have led to a decline in performance among new power companies that entered the market following electric power deregulation, and that decline has brought about a temporary lull in price competition. "However, (price competition) is picking up again, as wholesale electricity market prices have stabilized," said Tomofumi Saito, general manager of Tohoku Electric's Corporate Strategy Division.

Electricity demand is expected to rise, as there are more and more plans to construct data centers and semiconductor factories against the backdrop of artificial intelligence, which is spreading. Electricity demand is expected to rise about 3% annually over the next 10 years in the Tohoku area, equivalent to an increase of 2.2 billion kilowatt-hours.

Additionally, competition among power companies to stably supply electricity generated from low-carbon sources is expected to intensify. As large-scale investments will be necessary in that competition, it will be important for companies to utilize the so-called "decarbonization power source auction," a bidding system to promote investment in decarbonization in the field of power generation, at the electricity capacity market managed by a government-authorized institution.

Tohoku Electric plans to build a new, highly efficient No. 6 generator at the Higashi-Niigata thermal power plant in Niigata Prefecture after decommissioning the Nos. 1 and 2 generators. The No. 6 generator, expected to start operations in fiscal 2030, is the result of a decarbonization auction, which the company participated in after incorporating future decarbonization into its plans for the generator.

Investments in power sources and transmission networks aimed at decarbonization are expected to continue, and power companies are placing greater emphasis on ROIC as a financial indicator. ROIC measures the profitability of a company's invested capital and is calculated by dividing net operating profit after taxes by total invested capital, including interest-bearing debt and shareholders' equity.

Return on equity measures the rate of profit generated on capital invested by shareholders and is an important financial indicator for shareholders. However, Saito noted that ROIC is more appropriate for "assessing whether there is an adequate return on the total invested capital, including interest-bearing liabilities."

In the past, Japanese power companies were allowed to use rate-of-return regulation, in which a company can reflect its capital investment costs in electricity prices to help secure a profit. Competition at that time was less severe than now, because the companies had monopolized their regions.

Tohoku Electric had used ROIC as an internal financial monitoring indicator until fiscal 2023, but as of fiscal 2024, the company has officially designated it as a formal financial target. The company aims to achieve an ROIC of 3.6% in fiscal 2025 and aims to maintain a rate of 3.5% or higher from fiscal 2030.

----

This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.

YDN-m0000118465-1

(END) Dow Jones Newswires

June 04, 2025 00:24 ET (04:24 GMT)

Copyright (c) 2025 The Yomiuri Shimbun