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(May 12,2016 Update)

Business Risk


The following primary risk factors to which the TEPCO Group is subject may exert a significant influence on investor decisions. Issues that may not necessarily be relevant as risk factors are also presented below in keeping with TEPCO's vigorous efforts to disclose information to its investors.

The accident that occurred at the Fukushima Daiichi Nuclear Power Station in March 2011 as a result of the Tohoku-Chihou-Taiheiyou-Oki Earthquake and subsequent tsunami has caused widespread anxiety with regard to such issues as the dispersal of radioactive substances and disruption in the stable supply of electricity. Also, the accident led to a significant deterioration in the TEPCO Group's management conditions.

To address this adversity, the Company, jointly Nuclear Damage Compensation and Decommissioning Liability Facilitation Corporation (hereinafter the "Fund"), formulated the New Comprehensive Special Business Plan, and obtained the approval of said plan from the minister in January 2014. In line with this plan, with the cooperation of a number of stakeholders, including its shareholders and investors, TEPCO promotes various management reform initiatives, while placing the utmost priority on facilitating the smooth payment of compensation and decommissioning.

Under a holding company system with the aim of remaining highly competitive and fulfilling its responsibility for compensation, decommissioning and revitalization related to the Fukushima nuclear accident, TEPCO Fuel & Power, Incorporated (fuel and thermal power generation business), TEPCO Power Grid, Incorporated (power transmission and distribution business), and TEPCO Energy Partner, Incorporated (retail electricity business) has collectively endeavor to maximize corporate value through strengthening these three core business division companies' business management and competitiveness and optimal allocation of TEPCO group resources based on appropriate governance by Tokyo Electric Power Company Holdings, Incorporated.

However, the operating environment surrounding the TEPCO Group remains harsh and the Company's business operations may be significantly affected if the following risks materialize.

The forward-looking statements included in the following represent estimates as of April 28, 2016.

(1) Accident at Fukushima Daiichi Nuclear Power Station

The Company is striving to push forward with the decommissioning of and other steps at the Fukushima Daiichi Nuclear Power Station, putting a top priority on the safety, in accordance with the Mid-and-long-Term Roadmap towards the Decommissioning of Fukushima Daiichi Nuclear Power Units 1-4 (hereinafter the "Mid-and-long-Term Roadmap") and in cooperation with the government and relevant institutions. However, the execution of such steps entails a number of challenges. Among the most difficult and pressing management issues are storing and disposing of contaminated water and other tasks associated with preventing groundwater from entering the reactor buildings. At the same time, the removal of nuclear debris involves technical difficulties that the Company has never before encountered. Because of these challenges, the implementation of these steps may not progress in accordance with the Mid-and-long Term Roadmap. This could, in turn, impact the Group's business operations and performance as well as financial condition.

Furthermore, in view of the deterioration in the Group's fund procurement capability due to the lowering of its ratings following the nuclear accident, the Group's business performance, financial condition and operations may be affected.

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(2) Stable Supply of Electric Power

Due to the Tohoku-Chihou-Taiheiyou-Oki Earthquake, the operations of all generators at the Fukushima Daiichi, Daini and Kashiwazaki-Kariwa Nuclear Power Stations have been suspended. This, in turn, caused the TEPCO Group's electricity supply capability to deteriorate. In response, the Company is implementing measures aimed at securing stability on both the electricity supply and demand sides. However, natural disasters, accidents at facilities, sabotage, including terrorist acts, and problems in obtaining fuel are among the contingencies that could cause large-scale, extended power outages, which could render TEPCO unable to provide a stable supply of electric power. Such cases could negatively affect the TEPCO Group's business performance and financial condition, public trust and operations.

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(3) Nuclear Power Generation and Nuclear Fuel Cycle

Based on the outcome of the nuclear accident at Fukushima, revisions are being made to Japan's national nuclear policy, while the Nuclear Regulation Authority has resolved to tighten safety regulations. The Company will be obliged to incorporate countermeasures aimed at improving the safety of nuclear power generation pursuant to the abovementioned revisions. Also, the operations of the Company and its affiliates involving nuclear power generation and the nuclear fuel cycle might be affected by such revisions. These factors may, in turn, impact the Group's business performance and financial condition.

As for nuclear power plants, the Company is striving to further reinforce safety countermeasures while promoting corporate reforms, in line with the strong determination to prevent severe accidents from occurring no matter what the precipitating incident may be. Taking into consideration uncertainty about how long it will be before the resumption of operations at the Kashiwazaki-Kariwa Nuclear Power Station, the TEPCO Group's business performance and financial condition might be affected if the abovementioned circumstances surrounding nuclear power generation remain the same.

In addition, the nuclear power generation and nuclear fuel cycle themselves pose various risks, such as that associated with reprocessing irradiated nuclear fuel, disposing of radioactive waste and decommissioning nuclear power plants and other facilities, all of which require substantial capital investment and long periods of operation. Initiatives such as the introduction of a national system for handling back-end business have reduced these risks, but issues such as revisions of this system, an increase in provisions to reserves for costs not included in this system, operating conditions at the Rokkasho Reprocessing Plant and other facilities, and procedures for the decommissioning of the Rokkasho Uranium Enrichment Plant could affect the TEPCO Group's business performance and financial condition.

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(4) Business and Environmental Regulations

The possible regulatory environment changes closely related to the TEPCO Group, such as changes in the structure of electric power business resulting from the revisions of national policy on energy and a tightening of regulations on global warming, could affect the TEPCO Group's business performance and financial condition. In addition, such issues as a decrease in the quality of electric power due to a substantial increase in renewable energy resulting from stricter environmental regulations could disrupt the smooth execution of Group operations.

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(5) Electricity Sales Volume

The volume of sales in the electric power business directly reflects economic and industrial activities and is subject to the influence of the economic environment. Moreover, demand for air conditioning and heating is subject to the influence of the weather, particularly in the summer and the winter. In addition, such factors as the intensified competition resulting from full liberalization of the electric power industry which was commenced in April 2016, the popularization of energy conservation measures and the advancement of energy-saving technologies may impact the sales of electricity. These issues could affect the TEPCO Group's business performance and financial condition.

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(6) Customer Service

The TEPCO Group is working to enhance customer service. However, inappropriate responses to customers and other issues could affect such matters as customer satisfaction and public trust in the TEPCO Group, which could affect the business performance, financial condition, as well as the smooth execution of operations.

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(7) Financial Markets Conditions

The TEPCO Group holds domestic and foreign stock and bonds in its pension plan assets and other portfolios. Changes in the value of these holdings due to issues that may include conditions in stock and bond markets could affect the TEPCO Group's business performance and financial condition.

Moreover, issues including future interest rate movements affect the TEPCO Group's interest payments.

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(8) Fossil Fuel Prices

The prices for liquefied natural gas (LNG), crude oil, coal and other fuels for thermal power generation change according to factors that include international market conditions and foreign exchange market movements, which could affect the TEPCO Group's business performance and financial condition. However, changes in fuel prices and foreign exchange markets are reflected in electricity rates through the fuel cost adjustment system, which reduces the impact on performance from fuel price fluctuations within a defined range.

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(9) Securing Safety, Quality Control and Preventing Environmental Pollution

The TEPCO Group works to thoroughly secure safety, control quality, prevent environmental pollution, transparency and disclosure of reliable information. However, the smooth execution of operations could be affected if the public's trust in the Group is violated by such events as 1) the occurrence of an accident, fatality or large-scale emission of pollutants into the environment as the result of such causes as operational error or a failure to comply with laws or internal regulations or 2) a public relations failure on the part of the Group resulting in such an incident as inappropriate information disclosure.

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(10) Corporate Ethics and Compliance

The TEPCO Group works to ensure compliance with corporate ethics during the execution of operations. However, the violation of laws and regulations or other acts contrary to the TEPCO Group's corporate ethics could damage public trust in the TEPCO Group and affect the smooth execution of Group operations.

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(11) Information Management

The TEPCO Group maintains information important to its operations, including a large volume of customer information. The Group strictly administers information through means that include internal regulations and employee training. However, leaks of information could damage public trust in the TEPCO Group's ability to manage information and affect the smooth execution of Group operations.

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(12) Businesses Other than Electric Power

The TEPCO Group carries out businesses other than electric power, including businesses overseas. Issues, including changes in TEPCO Group's management condition, increasing competition with other participants in these businesses, stricter regulations, changes in economic conditions, including foreign exchange rates and international fuel markets, political uncertainty and natural disasters, could cause actual results to differ from forecasts at the time of investment and affect the TEPCO Group's business performance and financial condition.

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(13) Acquisition of TEPCO Share by the Fund

On July 31, 2012, TEPCO issued Preferred Stocks (Class A Preferred Stocks and Class B Preferred Stocks; collectively, the "Preferred Stocks") by third-party allotment, with the Fund as allottee.

Class A Preferred Stocks entail voting rights at the General Meeting of Shareholders as well as put options with Class B Preferred Stocks and Common Shares as consideration. Class B Preferred Stocks also entail put options with Class A Preferred Stocks and Common Shares as consideration, although holders are not granted voting rights unless otherwise provided for in laws and regulations.

Due to the aforementioned acquisition of stocks, the Fund holds a majority of the total voting rights of the company. Consequently, the Fund's exercise of its voting rights at the shareholder's meeting, etc. might affect the Company's business operations going forward.

In addition, further dilution of the Company's existing shares is possible if 1) put options on Class B Preferred Stocks are executed by the Fund to acquire Class A Preferred Stocks and/or 2) put options on the Preferred Stocks are executed by the Fund to acquire Common Shares. In particular, should the Fund execute the latter put options as stated in 2) above, such dilutions might result in a decline in the Company's share price. The share price could also be affected if the Fund were to sell Common Shares on the secondary market. Depending on the circumstances of the stock market at the time of such sale, the impact of the sale on the Company's share price might be significant.

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