HOKURIKU ELECTRIC POWER COMPANY AND CONSOLIDATED SUBSIDIARIES
March 31, 2016
The accompanying consolidated financial statements of Hokuriku Electric Power Company (the "Company") and its consolidated subsidiaries (collectively, the "Group") are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan.
In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information.
Amounts of less than one million yen have been rounded off.
Consequently, the totals shown in the accompanying consolidated financial statements (both in yen and in U.S. dollars) do not necessarily agree with the sums of the individual amounts.
The accompanying consolidated financial statements include the accounts of the Company and any significant companies controlled directly or indirectly by the Company. All significant intercompany transactions and balances have been eliminated in consolidation.
Investments in significant companies over which the Company exercises significant influence in terms of their operating and financial policies are stated at cost plus equity in their undistributed earnings; consolidated net income includes the Company's equity in the current net earnings of the affiliates, after the elimination of unrealized intercompany profit.
Investments in unconsolidated subsidiaries and other affiliates, not significant in amount, are stated at cost.
The closing date of the subsidiaries is same as that of the Company.
Marketable equity securities, excluding investments in affiliates accounted for by the equity method, included in long-term investments are classified as other securities and carried at fair value with unrealized gain and loss on the securities, net of the applicable taxes, included in net assets.
Non-marketable equity securities classified as other securities are carried at cost determined mainly by the moving average method or less impairment loss if the value of the investments has been significantly impaired. No debt securities were held on March 31, 2016.
Derivative financial instruments are stated at fair value.
Fuel, biomass and supplies are stated principally at the lower of cost or net realizable value, cost being determined principally by the average method.
Property, plant and equipment is principally stated at cost less contributions in aid of construction.
Depreciation of property, plant and equipment is computed principally by the declining-balance method over the estimated useful lives of the respective assets. Allocation method for capitalized asset retirement cost related to decommissioning of specified nuclear power units, is described in the Section (o).
Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to income as incurred.
Amortization of intangible fixed assets is computed by the straight-line method over the estimated useful lives of the respective assets.
The Group provide the allowance for doubtful accounts based on the historical ratio of actual credit losses to the total receivables and the amount of uncollectible receivables estimated on an individual basis.
The provision is reserved for reprocessing costs of irradiated nuclear fuel resulting from operation of nuclear power production facilities. The provision is stated at present value of the amount that would be required to reprocess with specific plans the irradiated nuclear fuel incurred in proportion to combustion of nuclear fuel using 0.6% (1.5%, for FY2015) of discount rate.
Transition obligations of ¥12,653 million resulting from the change in the accounting standard to estimate the reprocessing cost of irradiated nuclear fuel applicable from April 1, 2005 had been recognized over 15 years as operating expense from the fiscal year ended March 31, 2006. Due to revision of the act related to reserve for reprocessing of irradiated fuel in 2008, the revised transition obligations of ¥9,752 million has been amortized over a 12 years from April 1, 2008 by straight-line method. Outstanding transition obligation as of March 31, 2016 was ¥3,250 million ($36,634 thousand).
The variance incurred from the estimate and actual costs for reprocessing of irradiated fuel is recognized from the following period over the periods during which the spent fuels covered by specific reprocessing plans are produced. The unrecognized difference of the estimates on March 31, 2016 and 2015 were loss of ¥12,822 million ($144,492 thousand) and loss of ¥9,136 million, respectively.
Provision for reprocessing of irradiated nuclear fuel without specific plans is recognized, multiplying the quantity of irradiated nuclear fuel incurred by the present value of reprocessing cost per unit of fuel (discount rate of 4.0%).
To offset fluctuations in income in connection with hydroelectric power generation caused by varying water levels, the Company and consolidated subsidiaries are required to provide a reserve for fluctuation in water levels under the Electricity Business Act.
Enforcement of the "Ministerial Ordinance Concerning Drought Reserves" (Ordinance of METI No. 53 of 2016)
The "Ministerial Ordinance Concerning Drought Reserves" (Ordinance of METI No. 53 of 2016) was enforced on April 1, 2016 and the "Ministerial Ordinance Concerning Drought Reserves" (Ordinance of MITI No. 56 of 1965) (hereinafter referred to as the "Former Ministerial Ordinance") was repealed.
Consequently, the amount to be accumulated or disposed of and the limit of accumulation are calculated by a different method that multiplies the amount determined by the method based on the Former Ministerial Ordinance by the value (ratio of electricity service provided by a specified retail electricity supplier) that is calculated by dividing electricity sales of a specified retail electricity supplier by electricity sales of an electric utility. Also, in case that it is decided not to apply the provisions of Article 36 (1) of the Electricity Business Act (Act No.170 of July 11, 1964), the balance of the drought reserves would be disposed of and the same amount of disposition would be transferred to capital surplus.
For reference, the effect of this change is to be determined.
Attribution of expected retirement benefits to periods of service
In calculation of retirement benefit obligations, the benefit formula basis is mainly used for attributing expected retirement benefits to periods of service.
Amortization of actuarial gain or loss
Actuarial gain or loss is amortized in the years following the year in which the gain or loss is recognized primarily by the declining balance method over periods of 3 years, which is shorter than the average remaining years of service of the employees.
(1) Hedge accounting method
Forward foreign exchange contracts which meet certain criteria are accounted for by the allocation method which requires that recognized foreign currency payables be translated at corresponding contract rates.
(2) Hedging instruments and hedged items
Hedging instruments …… Forward foreign exchange contracts
Hedged items …… Part of payables denominated in foreign currency
(3) Hedge policy
For the purpose of avoiding the risk of fluctuations in foreign exchange rates and others or reducing fund raising costs, we make use of derivative transactions for those debts that are caused by our normal operations, in accordance with our internal rules on derivative transactions.
(4) Method of evaluating hedge effectiveness
As hedging is considered being highly effective, evaluation of its effectiveness is omitted.
Amortization of goodwill is computed by the straight-line method over the estimated useful life. In case the amount is immaterial, goodwill is recognized in profit and loss immediately.
All highly liquid investments with a maturity of three months or less, that are readily convertible to cash and present an insignificant risk of any changes in value, are considered cash equivalents in the consolidated statement of cash flows.
Based on Section 8 of the "Guidance on Accounting Standard for Asset Retirement Obligations" (Accounting Standards Board of Japan Guidance No.21, issued on March 31, 2008) and the provisions of the "Ministerial Ordinance of Funds Reserved for Decommissioning Costs of Nuclear Power Units" (Ordinance by MITI No. 30 of 1989), total estimated asset retirement costs related to decommissioning of specified nuclear power units are allocated to expense by the straight-line method over the expected operation period and planned period for safe storage.
National and local consumption taxes are accounted for using the tax-excluded method.