HOKURIKU ELECTRIC POWER COMPANY AND CONSOLIDATED SUBSIDIARIES
March 31, 2017
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, 2017.
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 (m).
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.
To provide for losses caused by fluctuation in water levels, the Company has a reserve calculated, based on the Ministerial Ordinance on Drought Reserves (Ordinance No. 53 of 2016 of the Ministry of Economy, Trade and Industry), pursuant to the provisions of Article 36 of the Electricity Business Act (Act No. 170 of 1964) prior to the revision by Article 1 of the Law for Partial Amendment of the Electricity Business Act, Etc. (Act No. 72 of 2014), which shall be read as still effective under the provisions of Paragraph 3, Article 16 of the Supplementary Provisions of said Law.
(Changes in Accounting Policies)
(Enforcement of the Ministerial Ordinance on Drought Reserves (Ordinance No. 53 of 2016 of the Ministry of Economy, Trade and Industry))
On April 1, 2016, the Ministerial Ordinance on Drought Reserves (Ordinance No. 53 of 2016 of the Ministry of Economy, Trade and Industry; hereafter, the "New Ministerial Ordinance") came into effect, and the Ministerial Ordinance on Drought Reserves (Ordinance No. 56 of 1965 of the Ministry of International Trade and Industry; hereafter, the "Old Ministerial Ordinance") was repealed. As a result, the provision or reversal of the reserve and the reserve limit are calculated by multiplying the amount determined using the method based on the Old Ministerial Ordinance by the value obtained by dividing the electricity sales pertaining to specified retail supply by the electricity sales pertaining to the electricity business (specified retail supply ratio).
The application of the New Ministerial Ordinance conforms to the provisions stipulated in Article 5 of the Supplementary Provisions of the New Ministerial Ordinance, and the reserve for fluctuation in water levels will be reduced when the provisions of Paragraph 1, Article 36 of the Electricity Business Act (Act No. 170 of 1964) prior to the revision by Article 1 of the Law for Partial Amendment of the Electricity Business Act, Etc. (Act No. 72 of 2014) become no longer applicable, and the amount equivalent to the reduced amount will be included in the retained earnings.
As a consequence of this change, profit before income taxes in this consolidated fiscal year decreased by ¥2,842 million yen compared to the amount that would be obtained using the previous method.
Net asset amount per share in this consolidated fiscal year decreased by ¥9.77, and net loss per share increased by ¥9.77. Diluted net income per share is not affected, because there are no dilutive shares.
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, Currency swap
Hedged items --------- Part of payables denominated in foreign currency, Long-term loans payable
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 METI 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.
The expenses required for reprocessing irradiated nuclear fuel and other relevant purposes in relation to nuclear power generation are appropriated as contributions costs for reprocessing irradiated nuclear fuel, where contributions are estimated according to the amount of the irradiated nuclear fuel generated as a result of operating the nuclear power plant based on Paragraph 1, Article 4 of the Act for Partial Amendment to the Act for Deposit and Management of the Reserve Funds for Reprocessing of Spent Fuel from Nuclear Power Generation (Act No. 40 of 2016; hereafter, the "Amendment Act").
By paying of the contributions to the Nuclear Reprocessing Organization of Japan (hereafter, the "Organization"), the obligation of the cost burden to nuclear operators is fulfilled, and the Organization performs the reprocessing.
With respect to differences arising from the change in the accounting standards in FY2005, the averaged amount will be paid as contributions pertaining to irradiated nuclear fuel for each consolidated fiscal year until FY 2019, and the amount paid will be appropriated as contributions costs for reprocessing irradiated nuclear fuel based on Article 4 of the Supplementary Provisions of the Ministerial Ordinance Partially Amending the Electricity Business Accounting Regulations, Etc. (Ordinance No. 94 of 2016 of the Ministry of Economy, Trade and Industry; hereafter, the "Amendment Ordinance"). The unappropriated balance at the end of this consolidated fiscal year is 2,438 million yen.
Previously, for the expenses required for reprocessing the irradiated nuclear fuel and other relevant purposes, the amount equivalent to the present value estimated according to the amount of irradiated nuclear fuel generated as a result of nuclear power plant operations was reserved and allocated; following the enforcement of the Amendment Act and the Amendment Ordinance on October 10, 2016, as well as the amendment of the Electricity Business Accounting Regulations, it was determined that contributions stipulated in Paragraph 1, Article 4 of the Amendment Act would be appropriated as contributions costs for reprocessing irradiated nuclear fuel according to the amount of irradiated nuclear fuel generated as a result of operations.
Accordingly, the fund for reprocessing of irradiated nuclear fuel (¥2.706 billion) was offset by the provision for reprocessing of irradiated nuclear fuel and tapped, and the provision for reprocessing of irradiated nuclear fuel (¥409 million) and the provision for reprocessing of irradiated nuclear fuel without specific plans (¥6,229 million) were re-allotted to noncurrent liabilities due within one year (¥6,232 million) and other current liabilities (¥406 million). In addition, the provision for reprocessing of irradiated nuclear fuel (¥807 million yen) was re-allotted to other noncurrent liabilities. Incidentally, the amount allocated as noncurrent liabilities due within one year, which is to be paid in a lump sum based on Article 7 of the Supplementary Provisions of the Amendment Act, was already paid to the Organization at the end of this consolidated fiscal year.
With regard to the irradiated nuclear fuel involved in the calculation of the provision for reprocessing of irradiated nuclear fuel before the Amendment Act was enforced, the balance of the estimate difference at the end of the previous consolidated fiscal year pertaining to the amount equivalent to the present value estimated according to the amount of the irradiated nuclear fuel for which notification, as having specific plans for reprocessing, has been submitted to the Minister of Economy, Trade and Industry (¥12,822 million yen) is not recognized due to the enforcement of the Amendment Act.
National and local consumption taxes are accounted for using the tax-excluded method.