The following primary risk factors to which the Company and its Group are 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 Company's vigorous efforts to disclose information to its investors.
The Directors and Executive Officers periodically and as needed, identify and evaluate the business risks associated with the Company and its Group. These risks are then reflected as appropriate onto the management plan for that fiscal year. Internal rules are also in place to ensure risk is managed appropriately for the entire Group.
Risks are generally managed by the relevant department as they are executing their work in conformity with the internal rules. Risks that span multiple departments are reviewed by a cross-organizational committee, then managed appropriately.
The Risk Management Committee headed by the Executive Officer and President manage risks that could have a significant impact, minimizing the impact that the risk poses on management by preventing the materialization of the risk and responding swiftly and accurately should the risk materialize. Employees also receive periodic training on relevant laws, internal rules, and manuals.
However, the operating environment surrounding the Company and its Group remains harsh and the Company's business operations may be significantly affected if the following risks materialize. Risks are listed in the order of importance determined by the magnitude of the potential impact on the business and likelihood of occurrence.
The forward-looking statements included in the following represent estimates as of the moment.

(1) Decommissioning of Fukushima Daiichi Nuclear Power Station

Level of impact Very high Occurrence possibility Medium-High
Potential risk The Company is pushing forward with decommissioning and other work safely, steadily and systematically at the Fukushima Daiichi Nuclear Power Station in accordance with the Mid-and-long-Term Roadmap towards the Decommissioning of TEPCO HD’s Fukushima Daiichi Nuclear Power Station (hereinafter the "Mid-and-long-Term Roadmap"). However, there are technically uncertain and unresolved issues, such as fuel debris retrieval which has never been done before, and it is possible that the decommissioning work will not progress as planned in 30 to 40 years.
In addition, decommissioning work requires the understanding of the regional community and society, but insufficient information dissemination, human error, and the occurrence of problems may cause difficulties in gaining the trust of such community and society and implementing the work steadily.
Although plans are to discharge ALPS treated water based on the government’s basic policy, there is a possibility that the discharge will not be implemented steadily due to delays in preparation work and lack of understanding from the local community and society at large.
If these decommissioning efforts do not proceed smoothly, business performance, financial condition and operations of the Company and its Group (hereinafter “the TEPCO Group”) may be affected.
Response
measures
As this decommissioning challenge is unprecedented in the world, the Company has developed the "Mid- to Long-term Decommissioning Action Plan" based on the Mid-and-Long-Term Roadmap, which is a major goal to be pursued, and also on new information and findings that are gradually obtained. The Company will continue to collect new information and knowledge one by one through Unit 1 containment vessel internal survey and trial fuel debris retrieval from Unit 2, and flexibly revise the "Mid- to Long-term Decommissioning Action Plan" in order to systematically work toward the completion of decommissioning in 30 to 40 years.
In terms of corporate structure, the Company has established a "D&D Information & Planning Management Office" within the Fukushima Daiichi Decontamination & Decommissioning Engineering Company to give first priority to local community and society at large and ensure prompt and transparent dissemination of information, while reviewing maintenance methods and taking pre-emptive measures to address risks.
With regard to the discharge of ALPS treated water, the Company will proceed with specification of facility design and operations, etc. based on the government's basic policy and with safety as a major premise. In addition, the Company will strengthen and expand its efforts to minimize the adverse impact on reputation by listening carefully to the opinions of local residents and other parties concerned and taking appropriate measures as needed.
Furthermore, the Company will take multilayered measures to reduce the amount of contaminated water generated, including repairing the building’s roof and performing the paving process on the inner side of land-side impermeable wall.

 

(2) Stable Supply of Electric Power

Level of impact Very high Occurrence possibility Medium-High
Potential risk Large-scale disasters, accidents at facilities, sabotage, including terrorist acts and riots, problems in procuring fuel, and the outbreak of infectious disease are among the contingencies that could cause large-scale, extended power outages, which could render the Company unable to provide a stable supply of electric power. Such cases could affect the TEPCO Group's business performance and financial condition, while damaging public trust and imposing negative impact on business operations.
Response
measures
To ensure stable supply of electric power, the Company works with government agencies and develops a long-term supply plan, while the Supply and Demand Countermeasures Subcommittee closely monitors the short-term supply and demand situation and takes necessary measures as needed.
In response to the recent shortage of reserve capacity and tight supply-demand balance, in particular, the Company will work on supply-side measures to maintain stable supply, while also taking demand-side measures (demand response, etc.), in cooperation with the government and the Organization for Cross-regional Coordination of Transmission Operators.
In response to the increasingly severe and widespread occurrence of natural disasters, the Company is reinforcing facilities based on damage assumptions made by the Central Disaster Prevention Council of the Cabinet Office and other organizations, with a focus on strengthening electric power resilience. From the perspective of preventing facilities accidents, efforts are being made to maintain a stable supply by replacing aging facilities systematically and efficiently. To protect against terrorism, riots, and other sabotage, the Company maintains close cooperation with related agencies from ordinary times. From the viewpoint of mitigating damage caused by equipment failure, the Company works to minimize the scope and duration of power outage by multiplexing facilities that connect multiple power grid systems. For early restoration of damaged facilities, the Company proactively utilize digital technology, diversify power supply methods by using storage batteries and electric vehicle as distributed power sources, secure restoration equipment and materials, develop a Group-wide disaster response system, conduct in-house drills assuming various hazards, and strengthen cooperation and collaboration with the Maritime and Ground Self-Defense Forces, the government, municipalities, general power transmission and distribution companies, and other related parties.
With regard to fuel procurement, efforts will be made at JERA to procure fuel as stably and flexibly as possible by leveraging the flexibility of its fuel portfolio and fuel trading by JERA Global Markets, while the Company exerts efforts to monitor the situation.
Regarding measures against infectious diseases, the Company will continue to reinforce basic infection control measures and utilize telework and staggered work hours to ensure the health and safety of its employees, while taking necessary response appropriately by monitoring structural changes in the energy industry and the impact of social trends on its business model.

 

(3) Nuclear Power Generation and Nuclear Fuel Cycle

Level of impact Very high Occurrence possibility Medium-High
Potential risk The revision of Japan’s nuclear policy and the tightening of safety regulations by the Nuclear Regulation Authority may impact operations of the TEPCO Group’s nuclear power generation and nuclear fuel cycle businesses, as well as the Group's business performance and financial condition.
Nuclear energy is an important power source not only from the perspective of achieving carbon neutrality, but also from the perspective of providing a stable supply of low-cost electricity and strengthening resilience. The Company is strengthening safety measures and promoting organizational reforms with strong determination not to repeat a severe accident. However, in the event that in-house construction, inspection and other technical responses are prolonged or restoration of trust from siting communities and society at large fails to progress as planned due to incidents such as the ones related to nuclear material protection and unfinished construction work for the safety measures in FY2020, the outlook for the restart of nuclear power plant will become uncertain, thermal fuel costs will rise, unnecessary fuel assets will be generated, and the asset value of power generation facilities will be changed. These situations could impact the TEPCO Group’s business performance and financial condition.
As the back-end business, including spent fuel reprocessing, disposal of radioactive waste, and dismantling of nuclear power generation facilities, requires large capital spending and a long period of operation, institutional measures have been taken to ensure that these processes are implemented properly and without delay. Specifically, a system is in place to contribute to the cost required for spent fuel reprocessing and radioactive waste disposal, and a system is also in place to set aside a reserve for the cost of dismantling nuclear power generation facilities. Although such government measures have mitigated uncertainties related to the back-end business, factors that could affect the TEPCO Group's business results and financial condition include revision of the institutional measures, a higher estimate for future costs outside of these measures, operating conditions at JNFL's Rokkasho Reprocessing Plant and other facilities, and procedures for the decommissioning of the uranium enrichment plant at the same site.
Response
measures
With regard to nuclear power generation, the Company will steadily implement the corrective action plan submitted to the Nuclear Regulation Authority in September 2021 to strengthen the nuclear material protection function, which is an urgent issue for the power plant, while increasing human resources, including the appointment of external experts. In addition, the Company will inject more resources into facility measures to continuously improve nuclear security.
Furthermore, the Company will move part of its headquarter functions to Kashiwazaki City, Niigata Prefecture, where one of its power plants is located, and promote site-oriented business operations through integrated management of the head office and the power plant. A system will also be built to reflect the opinions of regional residents on the power plant operation.
With regard to the back-end business, the Company will ease uncertainties by taking appropriate actions in accordance with national policies and related institutional measures, while closely monitoring future trends in policies and systems. The Company will also cooperate in the promotion of nuclear fuel cycle projects, including the Rokkasho Reprocessing Project and the uranium enrichment project.
With regard to the final disposal of high-level waste, the Company, as a waste generator with fundamental responsibilities, established an information desk for inquiries as part of its cooperation with the government and the Nuclear Waste Management Organization (NUMO) to actively promote understanding for the realization of geological disposal.

 

(4) Electricity Sales Volume and Sales Price

Level of impact Very high Occurrence possibility High
Potential risk Electricity sales volume directly reflects weather influence particularly in summer and winter as well as economic and industrial activities, and impacted by power saving and energy conservation and the progress of carbon neutral initiatives. Trading trends on fuel markets and the wholesale electricity market, or intensifying competition in the electricity retail market could affect sales price. As a result of the above, the TEPCO Group's business performance and financial condition might be affected.
Response
measures
In addition to electricity retail sales through power distribution grid systems, the Company, capturing the trend toward carbon neutrality, will offer services that meet customers' needs, including proposals for energy conservation and the installation of power generation and storage facilities and high-efficiency equipment at customers' offices, factories, and homes.
[Household customers]
By offering subscription-type services for solar power generators, EVs, EcoCute systems and other electrification equipment, in addition to new electricity rate plans as a package, the Company will realize a lifestyle where environmentally friendly electricity can be used 24-7 at ease.
[Corporate customers]
The Company will develop energy services for the entire utility facility covering not only power supply but also on-site services. For environmentally conscious customers, the Company will offer value-added carbon neutral services.
Sales rates appropriately reflect fluctuations in power procurement costs and other factors.

 

(5) Fossil Fuel Prices

Level of impact Very high Occurrence possibility High
Potential risk The prices for liquefied natural gas (LNG), crude oil, coal and other fuels change according to factors that include international fuel market conditions and foreign exchange market trends, which could affect the TEPCO Group's business performance and financial condition. In particular, a global surge in fuel prices due to the situation in Ukraine might affect the TEPCO Group's business performance and financial condition. However, changes in fuel prices and foreign exchange markets are reflected in electricity rates within a defined range through the fuel cost adjustment system, which reduces the impact on performance from fuel price fluctuations.
Response
measures
At JERA, efforts are being made to respond to risks associated with fuel price fluctuations through price competitiveness that leverages a world-class procurement scale, a fuel portfolio with strong responsiveness to price fluctuation risks, and fuel trading and hedging in the futures market through JERA Global Markets.
At TEPCO Energy Partner, efforts are being made to manage risks appropriately by such means as introducing hedge transactions using electricity derivatives, while cutting costs by expanding procurement sources and building highly competitive power supply portfolio.

 

(6) Changes in the Electricity Business Structure and Energy Policy

Level of impact Very high Occurrence possibility Medium
Potential risk The TEPCO Group's business performance and financial condition could be affected by changes in the environment surrounding the Group, including structural changes in the electricity industry and other revisions of national energy policies as well as tighter regulations related to global warming.
Response
measures
The Company will comprehensively and proactively collect necessary information on energy policies, systems related to the electricity business, and trends in environmental regulations, and explain the TEPCO Group's approach through various forums in cooperation with relevant sections while taking necessary measures.

 

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

Level of impact High-Very high Occurrence possibility Medium-High
Potential risk The TEPCO Group works to secure safety, control quality and prevent environmental pollution while focusing on maintaining highly transparent and reliable information disclosure. 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 breach of laws or internal regulations, and 2) in appropriate public relations and information disclosure.
Response
measures
With the aim of fulfilling social responsibilities, the TEPCO Group has established the "TEPCO Group Charter of Corporate Conduct” to unite in its commitment to act with integrity, complying with laws, regulations, and rules with a high level of ethical awareness, based on the highest priority on safety and strict compliance with corporate ethics.
Placing the top priority on safety in all aspects of business activities, the TEPCO Group has developed rules and measures that are effective in safety activities and compliance with laws and regulations, which are evaluated and improved on an ongoing basis.
In terms of quality control and environmental management, rules and manuals have been established to reinforce thorough compliance, and the status of compliance is checked through internal audits and necessary improvements are made as appropriate.
With regard to information disclosure, efforts are being made to convey necessary information accurately and promptly to our customers, local communities, and society at large.
The nuclear operation business is committed to improving safety and quality based on an on-site and actual-products perspective by instructing managers to check and improve the status of on-site equipment and personnel on a regular basis. These efforts will be continuously improved based on guidance and advice from external experts.

 

(8) Corporate Ethics and Compliance

Level of impact High-Very high Occurrence possibility Medium-High
Potential risk The TEPCO Group works to firmly establish business operations that comply with corporate ethics. However, the violation of laws and regulations or other acts contrary to its corporate ethics could damage public trust in the Group and affect smooth business operations. In the nuclear operation, under the policy to foster safety culture among workers, training and dialogue activities are being promoted to clarify specific actions that each worker is required to take in real situations. However, if such efforts prove insufficient, TEPCO Group's social credibility could be undermined and smooth business operations may be negatively impacted.
Response
measures
The "TEPCO Group Charter of Corporate Conduct" and the "Code of Conduct Related to the Corporate Ethics and Compliance Policies of the TEPCO Group" have been established to clarify the Company's direction and specific actions to be followed by directors and employees. The TEPCO Group Corporate Ethics Committee, chaired by the President and composed of members including external experts, has been formed to deliberate and decide on various measures to firmly establish corporate ethics and receive guidance and advice on the status of implementation. A manager and staff members in charge of corporate ethics assigned to each organization ensure that activities to firmly establish corporate ethics are implemented by the TEPCO Group as a whole.
In addition, periodic awareness surveys are conducted to check the degree to compliance with corporate ethics, and the future action policy is determined based on the survey results. Furthermore, corporate ethics hotlines are set up within and outside the Company for use by the entire TEPCO Group with the aim of preventing violations of corporate ethics across the Group.
In the nuclear operation, in response to the incident related to nuclear material protection at the Kashiwazaki-Kariwa Nuclear Power Station, etc., the Company is working to improve internal communication and employee motivation through dialogue between the management and power plant workers, which led to the creation of the ""Purpose of the Power Station," and the appointment of external experts, in order to achieve a power station that is trusted by regional residents.

 

(9) Information Management and Security

Level of impact High-Very high Occurrence possibility High
Potential risk The TEPCO Group maintains information important to its operations, including a large volume of customer information. The Group strictly manages information through means that include internal regulations and employee training, but leaks of such information due to cyber incidents, etc. could damage public trust in the TEPCO Group and affect its smooth business operations.
Response
measures
To deal with increasingly sophisticated and advanced cyber incidents, efforts are being made to strengthen security by all possible means, including defensive measures, constant monitoring, and response and recovery training.
As the TEPCO Group recognizes that the protection of customer information is particularly important, system measures have been taken, including restrictions on data export to external storage media, while educating and enlightening employees about the impact of information leaks on customers and society.

 

(10) Management Reform Initiatives Based on the Comprehensive Special Business Plan

Level of impact High-Very high Occurrence possibility Medium-High
Potential risk In order to fulfill its responsibilities to Fukushima, the TEPCO Group will continue to work on discontinuous management reforms, including productivity reforms, promotion of reorganization/integration and other forms of collaboration, and the strengthening of its business base, with the aim of securing funds for compensation and decommissioning and improving corporate value. As an operator of nuclear power plants, the Group will undertake fundamental reforms by placing the top priority on restoring trust of regional residents and society at large, but if trust is not fully restored and the management reforms do not proceed as planned, the Group's business performance, financial condition, and operations may be affected.
Response
measures
In order to realize management reforms based on the Comprehensive Special Business Plan, action plans specifying responsible persons, deadlines, and objectives to be achieved have been prepared and are in progress. The progress of each action plan is monitored according to its level of importance, and the plans will be achieved through the PDCA cycle.
For the purpose of regaining the trust of the regional community and society at large, management reforms, including nuclear operations, will be steadily implemented to allow autonomous organizational improvements based on Group-wide efforts, including the upper management, to recognize one's weaknesses/issues. The Group will increase its corporate value by streamlining management through productivity reforms based on "Kaizen" (continuous improvement) and by providing new values centered on carbon neutrality and disaster prevention.

 

(11) Acquisition of TEPCO Share by the NDF

Level of impact High Occurrence possibility Medium-High
Potential risk On July 31, 2012, TEPCO issued Preferred Stocks (Class A Preferred Stocks and Class B Preferred Stocks; collectively, the "Preferred Stocks") through private placement with NDF. Class A Preferred Stocks carry voting rights to be exercised at the General Meeting of Shareholders as well as the right to convert the shares into Class B Preferred Stocks and Common Shares. Class B Preferred Stocks do not carry voting rights at the General Meeting of Shareholders, unless otherwise provided for in laws and regulations, but have the right to convert the shares to Class A Preferred Stocks and Common Shares.
The NDF holds more than half of the total voting rights by underwriting the Preferred Shares, so that the exercise of such voting rights at the General Meeting may affect TEPCO Group's business operations. If NDF exercises its right to convert Class B Preferred Shares into Class A Preferred Shares, or if it exercises its right to convert the Preferred Shares into common shares, there is a possibility that the existing shares will be diluted. In particular, if the right to convert into common shares is exercised, the dilution of the existing shares may result in a decline in the share price of the holding company TEPCO, and if NDF sells such common shares on the market, the share price of the holding company TEPCO may be further affected depending on the market environment at the time of sale.
Response
measures
Placing the top priority on fulfilling its responsibilities to Fukushima, the TEPCO Group will make its upmost efforts to restore public trust and enhance its corporate value.

 

(12) Customer Service

Level of impact High Occurrence possibility Medium
Potential risk The TEPCO Group is making every effort to enhance customer service. However, customer service in violation of laws and regulations and other issues could significantly undermine customer satisfaction and public trust in the Group's services and affect the business performance, financial condition and smooth operations of the Group.
Response
measures
To realize concrete strategies in the Comprehensive Special Business Plan, the TEPCO Group established a new Group Corporate Philosophy on July, 2021, based on which the Group will build a new corporate culture that dares to innovate for customers, and strives to be a company that customers can continue to trust and choose.
At TEPCO Energy Partners, which carries out sales activities, in addition to providing practical training/education and maintaining scripts to improve customer services, the Company utilizes "customer feedback" collected through sales calls and visits to improve operations and post examples of major improvements on the website.
Also, the Sales Quality Management Committee headed by the President of TEPCO Energy Partners evaluates initiatives across the Company and formulates an improvement policy, while the CX Enhancement Office is responsible for supporting and checking the improvement efforts of each department to prevent the occurrence of inappropriate incidents.

 

(13) Initiatives Related to Climate Change, etc.

Level of impact High Occurrence possibility Medium
Potential risk Having announced targets to "reduce CO2 emissions of electricity delivered to customers by 50% in FY2030 compared to FY2013" and "reduce CO2 emissions from the supply of energy to net zero by 2050," the TEPCO Group is striving to contribute to the realization of carbon neutral society. However, regulatory revision/tightening, higher costs of system measures, a decline in electricity sales volume reflecting an increase in distributed generation and the market needs for decarbonized electricity, among other factors, could impact the Group's business performance, financial conditions, business operations as well as corporate image.
Changes in activities of ESG-related investors may also affect the TEPCO Group's business performance, financial conditions, business operations and corporate image.
Response
measures
While working on both long-term stable supply and CO2 reduction, the Group will shift its business focus onto "carbon neutrality" and integrate its efforts to focus on two pillars of 1) developing renewable energy and other zero-emission power sources, and 2) promoting the electrification of energy demand.
Specifically, the "Area Energy Innovation Office" was established to promote "a business that realizes secure and comfortable lifestyle through carbon neutral and disaster-resilient town planning." With a focus on the energy service that covers everything from installation to long-term operation of electric/utility facilities, plans are to go beyond the scope of household and corporate customers to provide services encompassing society and communities that realize secure and comfortable lifestyle based on disaster/ crime prevention, and work to strengthen collaboration with various business partners.
Also, a structure of incorporating global ESG trends into management has been put in place through the appointment of the ESG Committee and ESG Officer, and efforts are underway to identify and address ESG issues, enhance ESG information disclosure in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and engage with shareholders and investors.

 

(14) Financial Markets Conditions

Level of impact High Occurrence possibility Medium
Potential risk Domestic/foreign stocks and bonds held as pension plan assets and other portfolios may affect the TEPCO Group's business performance and financial condition as their market values change in line with conditions in the stock and bond markets. Moreover, future interest rate movements and other factors may affect the Group's interest payments.
Response
measures
Efforts are being made to reduce financial risks for the entire TEPCO Group and mitigate impact on performance through diversified investment of pension plan assets and reduction of retirement benefit obligations by introducing the defined contribution pension plan.
For interest payments, efforts are being made to reduce the risk of interest fluctuation by procuring funds through the issue of fixed rate bonds.

 

(15) Businesses Other than Electric Power

Level of impact High Occurrence possibility Medium
Potential risk The TEPCO Group operates businesses other than electric power, including overseas businesses. Various issues, including changes in the Group's management condition, increasing competition with rival companies, stricter regulations, changes in economic conditions, including foreign exchange rates and international fuel markets, political uncertainty, regulatory changes, and natural disasters, could cause actual results to differ from forecasts at the time of investment/financing, and may affect the Group's business performance and financial condition.
Response
measures
Investment in new business fields is implemented within the range of defined management resources in priority order, based on the business portfolio strategy set out in the Comprehensive Special Business Plan. Investment decision for each project is made by the Investment Management Committee based on the assessment of profitability and strategic effects in accordance with predetermined hurdle rate criteria. Launched projects are monitored quarterly and unprofitable businesses are closed or downsized with the aim of improving investment performance through selection and concentration.

 

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