Annual Report 2001 - tohoku-epco.co.jp · Shirakami Sanchi, which contains one of the world’s largest virgin forests of Japanese beech trees ( buna ), was declared a World Natural

Tohoku Electric Power Co., Inc.Annual Report 2001

Tohoku Electric Power Co., Inc. supplies electric power to approximately 7.5 million

customers (households and companies) in the seven prefectures of Japan’s Tohoku

region. The Company strives to serve customers in accordance with its business philos-

ophy based on achieving prosperity together with the regional community and creat-

ing new corporate values.

Tohoku Electric Power was established in 1951. At present, among ten electric utili-

ties, the Company ranks fourth in terms of operating revenues, income before special

items and income taxes, and net income, and fifth in terms of electric power sales vol-

ume. In fiscal year 2000, the Company’s electric power sales amounted to approxi-

mately 74.5 billion kWh, about the same as equivalent figure for entire Belgium.

The Tohoku region supplied by the Company has a surface area of approxi-

mately 80,000 square kilometers, roughly the size of Austria, and a population

of about 12 million. The GDP of the region amounts to about US$410 billion,

and corresponds roughly to that of the Netherlands.

One special feature of the industrial structure of the Tohoku region is the

leading role played by the IT-related sector, centered on the electric

machinery industry. Another feature is that the region leads Japan in

terms of advanced plant facilities. During the year 2000,

228 new plants (of 1,000 sq. meters or larger) were set up

in the Tohoku region, accounting for 20.1% of the

1,134 new plants constructed in Japan as a

whole. Similarly, the region led Japan

throughout the five-year period

from 1996 to 2000 with a

share of over 20%.

Profile

Hokkaido EPCo.

Tohoku EPCo.

Sendai

Tokyo

Tokyo EPCo.Hokuriku EPCo.

Chugoku EPCo.

Kyushu EPCo. Shikoku EPCo.

Okinawa EPCo.

Chubu EPCo.

Kansai EPCo.

Osaka

Financial and Operating Highlights . . . . . . . . 1

Message from the Management . . . . . . . . . . . 2

Medium-Term Business Plan . . . . . . . . . . . . . . . 4

Topics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Power Supply Network. . . . . . . . . . . . . . . . . . . . . 8

Financial Section . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 39

Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Consolidated Subsidiaries and Affiliates . . . 40

Non-Consolidated Corporate Data. . . . . . . . 40

Contents(Cover)The main picture shows a forest scene in Shirakami Sanchi, amountainous district straddling the border between Aomori andAkita prefectures. Shirakami Sanchi, which contains one of theworld’s largest virgin forests of Japanese beech trees (buna), wasdeclared a World Natural Heritage site in 1993.

The inset photos show, from left to right: Tohoku ElectricPower’s Hondoji hydroelectric power station (Yamagata Prefecture),a pylon on the Kita-Niigata transmission route (Niigata Prefecture),and the Onagawa nuclear power station (Miyagi Prefecture).

Tohoku Electric Power Co., Inc.1

Financial and Operating HighlightsTohoku Electric Power Co., Inc.Years ended March 31, 2001 and 2000

Note: Regarding Forward-Looking StatementsThis Annual Report contains plans, strategies, estimates, and other forward-looking statements madeby the Tohoku Electric Power Co., Inc. These statements are based on assumptions derived from theinformation available to the Company at the time of writing. Issuing statements forecasting matterssuch as performance involves an element of risk and uncertainty, and since it is possible for theCompany’s expectations to differ from future realities, the reader is requested to refrain from depend-ing solely upon the reliability of the forward-looking statements herein.

Thousands ofMillions of yen U.S. dollars

(Consolidated basis) 2001 2000 2001Operating revenues ¥1,716,568 ¥1,577,368 $13,854,463Net income 79,646 21,988 642,824Total assets 4,379,005 4,331,990 35,343,058Property, plant and equipment, net 3,622,707 3,655,211 29,238,958Total shareholders’ equity 787,571 719,421 6,356,505Capital expenditures 273,469 319,071 2,207,175Depreciation and amortization 270,067 291,985 2,179,717

Yen U.S. dollars

2001 2000 2001Net income per share ¥158.39 ¥43.72 $1.278

2001 2000Generating capacity (MW) 15,955 15,933


(Non-consolidated basis) 2001 2000 2001Operating revenues ¥1,570,721 ¥1,539,606 $12,677,328Net income 73,890 23,454 596,368Total assets 4,028,446 4,070,307 32,513,688Property, plant and equipment, net 3,414,536 3,446,556 27,558,805Total shareholders’ equity 742,925 681,226 5,996,166

Yen U.S. dollars

2001 2000 2001Net income per share ¥146.93 ¥46.64 $1.185Cash dividends per share 75.00 50.00 0.605

2001 2000Electric power sales (millions of kWh) 74,514 71,804Peak load (MW) 14,700 14,430Generating capacity (MW) 15,220 15,209

Note: All dollar amounts in this annual report represent U.S. dollars translated from yen, for convenience only, at the rate of¥123.90=US$1.00, the approximate rate of exchange on March 31, 2001. Billion is used in the American sense of one thousandmillion.


In May 2001, Tohoku Electric

Power Co., Inc. celebrated the 50th

anniversary of its founding. The

Company would here like to take

the opportunity to once again

thank its customers, shareholders,

investors, and business partners for

their support over the years.

(left) Chairman of the Board, Toshiaki Yashima(right) President, Keiichi Makuta

Message from the Management

The Business Environment and theCompany’s New Long-Term Vision

A partial deregulation of the retail power mar-

ket was introduced in March 2000 for extra-

high-voltage customers. Although Japanese

electric power companies still bear a statutory

supply obligation, this partial deregulation has

led to the partial breakdown of the power

industry’s business foundations, which were

based on a regional monopoly and cost-of-

service system. As a result, more competition is

to be expected from gas suppliers and other

players in the energy industry, as well as com-

petition from new entrants into the market. In

addition, there is likely to be a wide range of

changes in the power supply business environ-

ment, including a structural slowdown in

demand due to Japan’s transition to a low-

growth economy and increasing investment by

industry in energy conservation, as well as the

spread of distributed generation and tighter

environmental regulations.

To deal with such changes in the business

environment, the Company formulated its first

Medium-Term Business Plan in 1998 and its

second Medium-Term Business Plan in 2001,

with the objective of strengthening its business

footing.

In March 2000, the Company formulated a

new long-term vision suited for today’s com-

petitive environment in order to present the

new business orientation to the entire Tohoku

Electric Power Corporate Group. Based on the

themes of reform, creation, and innovation,

“Vision 2010” focuses on the Company’s

future business development toward the goal

of enhancing the value of the corporate group

as “an integrated energy services corporation

of choice.”


We can say with confidence that the

Company and Group have achieved steady

advances in across-the-board corporate reforms

and recorded business results in fiscal year

2000, the term ended March 31, 2001, that

demonstrate solid gains in reinforcing its busi-

ness strength.

Business Results (on a non-consolidated basis)

During fiscal year 2000, the Japanese economy

stayed in general on the path toward a modest

recovery, driven mainly by capital investment,

despite the appearance of signs of increasing

sluggishness in production in the second half

of the year. Nonetheless, a full-fledged recov-

ery failed to materialize, with the employment

situation remaining severe and personal con-

sumption somewhat lagging.

Although the economy of the Tohoku

region experienced largely the same situation

as the rest of the country, production levels for

electric machinery and other equipment

showed growth exceeding national levels.

Against this backdrop, the Company’s sales

of electric power posted year-on-year growth of

3.8% for fiscal year 2000. This increase reflected

brisk production by the IT-related industry sec-

tor as well as increases in heating-cooling

demand due to an unusually hot summer and a

particularly severe winter. This growth of 3.8%

placed the Company at the head of the ten elec-

tric power companies in Japan. Coming on the

heels of 4.0% growth in the previous fiscal year,

the Company was the growth leader in the

industry for two consecutive years.

As a result, non-consolidated operating rev-

enues for fiscal 2000 rose 2.0% year-on-year to

¥1,570.7 billion (US$12,677 million), the sec-

ond-highest level since the Company’s found-

ing. Despite the rate reduction (5.68% average

rate reduction for the regulated segment) imple-

mented in October 2000, income before special

items and income taxes amounted to ¥117 bil-

lion (US$944 million), the third-highest level

since the Company’s founding, due to a thor-

ough, wide-ranging program to boost efficiency.

Net income amounted to ¥73.8 billion (US$596

million), the highest level since the Company’s

founding.

The Company was able to achieve a size-

able reduction in interest-bearing liabilities by

taking steps to enhance efficiency, led by

reductions in capital investment. Total assets,

which hitherto had been increasing, declined

as the result of efforts to boost asset efficiency.

This decrease was the first decline in 13 years,

since fiscal year 1987. As such, it marks a truly

significant event for the Company.

Outlook

Looking to the future, Tohoku Electric Power

will work to enhance its profitability, in keep-

ing with the EVA®* Economic Value Added

index, while moving toward its goal of

“enhancing the value of the Corporate

Group.” At the same time, the Company will

seek to develop as a corporate group that plays

a valuable role in society.

We intend to meet fully the expectations of

customers, shareholders, investors, and associ-

ates in our role as a corporation that is trusted

and preferred.

Toshiaki YashimaChairman of the Board

Keiichi MakutaPresident

* EVA® is the registered trademark of Stern Stewart & Co.


Medium-Term Business Plan

In February 2001, Tohoku Electric Power formulated its FY2001 Medium-Term

Business Plan covering fiscal years 2001 through 2003.

The FY2001 Medium-Term Business Plan will further accelerate and substanti-

ate the corporate reforms that have been under way, paving the way for the

realization of Vision 2010, which was formulated in March 2000.

The basic objectives of the FY2001 Medium-Term Business Plan are to

strengthen the Company’s price competitiveness and improve the Company’s

reputation for trustworthiness. More specifically, the Company will make

steady progress toward the following priority goals.

Focal Points of Competitive Strategy

● Achieving price competitiveness that leaves rivals behind while reinforcing marketing● Setting up a flexible formation of facilities that can meet forecast demand● Implementing marketing that emphasizes customer satisfaction● Developing on-site power generation business within the corporate group

● Implementing financial strategy with the objective of raising corporate value● Developing multiple scenarios regarding the future business environment to manage risks● Evaluating business plans on the basis of EVA®

● Reducing interest-bearing liabilities and streamlining assets

● Building firm foundations as an integrated energy services corporation● Undertaking realignment of the corporate group centered on power operations● Building a growth strategy that leverages the strengths of the corporate group● Boosting competitiveness through tie-ups

● Moving ahead with corporate change● Strengthening corporate governance● Expanding the performance-based compensation system● Improving operational efficiency by effectively utilizing Information Technology

11


MajorFirst Medium-Term Business Plan

Second Medium-Term Business PlanQuantitative FY2001 Medium-Term Business PlanTargets

(FY1998 -2000)(FY2001-2003)

ROA(Return on Assets)

Reduction ininterest-bearingliabilities

Shareholders’equity ratio

Outlays onfacilities andequipment

Outlays onrepairs andimprovements

Employees

Major Quantitative Targets in the FY2001 Medium-Term Business Plan

To average 4% or more over the 3-year period fromFY2000 to FY2002 (see Note 1)

To average 4% or more over the 3-year period fromFY2001 to FY2003

To achieve a reduction of ¥150 billion by the end ofFY2002 from the FY1999 year-end balance of ¥2.6trillion (see Note 2)

To achieve a reduction of ¥250 billion by the end ofFY2003 from the FY1999 year-end balance of ¥2.6trillion

To achieve 20% by the end of FY2004 (see Note 3) To achieve 20% by the end of FY2002

To be held to an average of ¥300 billion or less peryear




To reduce staff by around 1,000 over the 5-yearperiod from FY1999 to FY2003 to 13,500

To reduce staff by around 1,500 over the 5-yearperiod from FY1999 to FY2003 to 13,000

● Responding to environmental issues and ensuring energy security● Utilizing renewable energy● Reinforcing safety measures at nuclear power plants

● Building confidence-based relationships with customers and the regional communityunder competitive business conditions

● Strengthening customer confidence by providing a reliable supply of electric power● Contributing to the prosperity of our community to invigorate the region

In fiscal 2000, the Company was able to record business results topping its initial forecast.

The main achievement in outperforming the original targets were in ROA, which stood at 5.5%,

well over the target of 4%, and the reduction in interest-bearing liabilities, which dropped by ¥122

billion (US$984 million), as opposed to the target of an average annual reduction of ¥50 billion.

In view of the achievements of fiscal 2000, the quantitative targets for fiscal 2001 have been

revised upward.

Focal Points of Public Interest Issues

Major Quantitative Targets

22

33

* The Medium-Term Business Plan was introduced in 1998 to list business targets to be achieved over the coming three years. It isa rolling plan that may be revised as needed in response to changes in the business environment.

Notes 1, 2, and 3: In response to changes in the business environment, FY2000, which was the final year of the first Medium-Term Business Plan, we established new quantitative targets for ROA, reductions in interest-bearing liabilities, and the sharehold-ers’ equity ratio.

Yamagata Prefecture

The Sea of JapanFukushima Prefecture

Niigata-Sendai natural gas pipeline

Miyagi Prefecture

The Pacific

Niigata Prefecture

Tohoku Natural Gas plan for LNG supply to the Northern Tohoku area

Expansion of natural gas supply along pipeline by Tohoku Natural Gas

Tohoku Natural Gas plan for extension of gas pipeline to the Southern Tohoku area

5 3

12

4

67

The Tohoku Electric Power Group

Tohoku Natural Gas Co., Inc.supplies natural gas

Nihonkai LNG Co., Ltd.Receipt, storage, gasification and supply of LNG

Sony Corp. Sendai Technology Centersupplied since Dec. 1997

1

Gas Bureau, City of Sendaito be supplied from Apr. 2002

2

Sapporo Breweries, Ltd. Sendai Breweryto be supplied from Oct. 2002

3

TDF Corp. Miyagi Factorysupplied since Oct. 1998

4

Kuraray Co., Ltd.supplied since Dec. 1983

5

Hokuriku Gas Co., Ltd.supplied since Dec. 1983

6

Japan Petroleum Exploration Co., Ltd.supplied since Dec. 1983

7


Topics

Tohoku Electric Power led other power compa-nies in moving into gas supply operations byestablishing Nihonkai LNG Co., Ltd. andTohoku Natural Gas Co., Inc.

Nihonkai LNG Co., Ltd. supplies regasifiedLNG and LNG to Japan Petroleum ExplorationCo., Ltd. in the Niigata region, and regasifiedLNG to Hokuriku Gas Co., Ltd. and KurarayCo., Ltd.

Tohoku Natural Gas Co., Inc. supplies nat-ural gas via the Niigata-Sendai Gas Pipeline(approx. 250km in length) to large industrialcustomers — Sony Corporation and TDF

Corporation. During fiscal 2000, the companyconcluded new gas supply contracts with theSendai City Gas Bureau and Sapporo BreweriesLtd.

The supply of gas to the Sendai City GasBureau will be a particularly large undertaking.Supplying approximately 1,200,000 tons ofnatural gas (converted from LNG), the contractwill run for a 22-year term starting April 2002.This marks the first time in Japan that an elec-tric power company has moved into the busi-ness of supplying natural gas on a wholesalebasis to a public service gas provider.

Gas and ESCO OperationsIn Vision 2010, Tohoku Electric Power put forth a new image for the

Group as an integrated energy services corporation that is the preferred

choice of customers. With the electric power business at the center, the

energy conservation field — including gas and ESCO (Energy Service

Company) businesses — has been positioned as the core business

domain. Vision 2010 outlines the Company’s goal of becoming a

solutions-oriented corporate group providing a wide range of energy

services to meet customers’ needs. In the future, the Company will

channel its business resources mainly into its core business domain.

Gas Initiatives

Gas Operations of the Tohoku Electric Power Group


The Tohoku Electric Power Corporate Groupwill forge ahead with the development of thisbusiness, supplying gas to large-scale customersalong the Niigata-Sendai Gas Pipeline route.The Group is also considering an expansion of

its gas business by supplying gas to the south-ern Tohoku region through an extension of theNiigata-Sendai Gas Pipeline, supplying LNG tothe northern Tohoku region by lorries, andentering the retail gas business.

Tohoku Energy Service Co., Inc. was estab-lished in December 2000 to move into theESCO business, with the objectives of broaden-ing the energy choices available to customerswhile securing customers for the entire Group.

The Company’s ESCO business is under-pinned by three sets of operations: the on-siteinstallation of small-scale electric power gener-ation facilities; the heat-storage contractingbusiness; and the energy auditing business. Inaddition, the Company offers integrated one-stop services ranging from facility review toequipment sales, design, implementation,monitoring of operations, and maintenance.In the future, it plans to look into the develop-ment of other businesses, including micro-gasturbines and fuel cells.

Beginning in January 2001, the Companylaunched marketing campaigns aimed at avariety of enterprises in the seven prefecturesof the Tohoku region. As of May 31, 2001,these campaigns have resulted in 142 requests

to provide business proposals and two con-tracts have already been informally concluded.

Note: The ESCO (Energy Service Company) business consistsof providing energy conservation-related services to cus-tomers and receiving in return a portion of the benefitsfrom the ensuing cost savings as compensation.

Establishment of Tohoku Energy Service Co., Inc.

Name of investor (general area of business) Equity stakeTohoku Electric Power Co., Inc. 10%Yurtec Corp. (electrical engineering, construction work) 35%

Tohoku Electric Power Engineering & Construction Co., Inc. (design, construction, 27%and maintenance of electric power generating facilities)

Mitsubishi Electric Corp. (electrical equipment manufacturing) 20%

Mitsubishi Corp. (trading company) 2%Mitsui & Co., Ltd. (trading company) 2%Kamei Corp. (trading company) 2%

Nisseki Mitsubishi Oil Corp. (oil company) 2%

Established: December 2000

Capital: ¥300 million

Investors and their equity stakes

TohokuElectricPowerGroup

Operations of Tohoku Energy Service Co., Inc.

Tohoku Energy Service Co., Inc.

2,000

2000 around 2005 around 2010

500

50

(kw)

(Power supply contracts)

Tohoku Energy Sevice Co., Inc. established

Adoption of diesel engines

Heat storage on consignment

Diesel engines


Adoption of micro gas turbines

Diesel engines


Micro gas turbines

Adoption of fuel cells

Use of micro gas turbines spreads

Use of fuel-cell spreads

Installation, operation, and maintenance ofin-house generators and cogenerationequipment. Initial investment is kept lowthrough the use of leasing.

On-site installation ofpower generation sources

Cheap nighttime electricity isused to make ice for air-condi-tioning or to heat water for cen-tral heating. Installation andoperation of central heating andair-conditioning systems.

Heat-storage contractingbusiness Energy auditing business

Proposals for more effectiveways of using energy.

ESCO Initiatives


Power Supply Network

Shimokita

Higashidori Nuclear

Kitatsugaru

AomoriKamikita

Hachinohe

Gonohe

Noshiro

Noshiro

AkitaAkita

Sumikawa Geothermal

Kakkonda Geothermal

IwateShizukuishi

Miyako

Uenotai Geothermal

UgoOfunato

MizusawaTobishima

Shinjo

Yakuwa

Hondoji

Nishi-Yamagata

Yonezawa

Miyagi

Ishinomaki

Nishi-Sendai

Sendai Sendai

Shin-Sendai

Onagawa NuclearAwashima

Higashi-Niigata

Kita-Niigata

Niigata

Niigata

Ryotsu

SadoAikawa

Echigo

Honna

Chuetsu

Kariwa

Higashi-Joetsu

Ishizone

Minami Uonuma

FukushimaShinchi

HaramachiMinami-Soma

Yanaizu

Ueda

MiyashitaHonna

Yanaizu-nishiyama Geothermal

Numazawa No.2 Sukagawa

IwakiIzumizaki

Major FacilitiesPower Stations (Total) 228 15.22GW

Hydroelectric 210 2.44GW

Thermal 17 11.43GW(including geothermal and internal combustion)

Nuclear 1 1.35GW

Transmission FacilitiesLine Length 14,734km

Circuit Length 23,277km

Supports 59,363

Substations 590 56.53GVA

Distribution FacilitiesLine Length 136,555km

Supports 2,884,998

(as of March 31, 2001)

Major hydroelectric power station

Thermal, geothermal or nuclear power station

Electric power station under construction

Other company’s power station

Major substation

Other company’s major substation

Other company’s AC/DC converter station

Major switching station

Other company’s major switching station

Transmission line (500kV)



Other company’s Transmission line

Financial Section

Financial Review (Consolidated basis) . . . . . . . . . . . . . . . . . . .10

Five-Year Summary (Consolidated basis) . . . . . . . . . . . . . . .12

Five-Year Summary (Non-consolidated basis) . . . . . . . . . .14

Consolidated Financial Statements

Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . .19

Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Notes to Consolidated Financial Statements . . . . . . . . . .21

Report of Certified Public Accountants . . . . . . . . . . . . . . . .29

Non-Consolidated Financial Statements

Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . .33

Notes to Non-Consolidated Financial Statements . . . .34

Report of Certified Public Accountants . . . . . . . . . . . . . . . .38


Contents

Financial Review (Consolidated basis)

Operating ResultsOperating revenues for fiscal 2000 increased 8.8%over the previous term, to ¥1,716.5 billion($13,854 million), mainly due to an increase inelectric power sales. A change in the scope of con-solidation, which made the former equity methodaffiliate Yurtec Corp., an electrical constructioncompany — into a consolidated subsidiary, alsocontributed to an increase in revenues.

In spite of efforts to improve efficiency by allgroup companies, operating expenses increased12.2% to ¥1,478.2 billion ($11,931 million),mainly due to a rise in crude oil prices. Expensesfor the newly consolidated Yurtec Corp. also con-tributed to an increase in overall expenses. As aresult, operating income decreased 8.3% from theprevious term, to ¥238.2 billion ($1,923 million),and income before special items and income taxesdeclined 5.7% to ¥130 billion ($1,049 million). Netincome, however, increased 262.2% to ¥79.6 bil-lion ($642 million). This is mainly attributable tothe non-repetition of provision for accrued sever-ance indemnities generated in the previous term.Earnings per share were ¥158.39 ($1.278), up from¥43.72 for the previous term.

Performance by business segments was as fol-lows. The figures below were not subject to elimi-nation and adjustment for consolidation. As aresult of changes in the scope of consolidation,operating revenues from the construction businessexceeded 10% of total revenues, which requiredthe establishment of a separate section dedicatedto segment information beginning in the termunder review in line with the rules stipulated inRegulations on Preparation of ConsolidatedFinancial Statements. Accordingly, year-on-yearcomparisons are omitted here.

Electric Power SalesOperating revenues amounted to ¥1,570.7 billion($12,677 million). While fuel costs increased as aresult of rise in crude oil prices, expenses for

depreciation and interest payments declined. As aresult, operating income came to ¥222.9 billion($1,799 million).

Construction BusinessOperating revenues came to ¥245.1 billion ($1,978million) against the backdrop of sluggish public-sector investment and weak housing starts. TheGroup adopted a policy of streamlining the organi-zational structure and implementing cost-cuttingmeasures. As a result, operating income came to¥6.3 billion ($51 million), and orders receivedtotaled ¥237.5 billion ($1,916 million).

Other BusinessesOperating revenues came to ¥70.1 billion ($565million), mainly due to an increase in the numberof circuits provided for the telecommunicationsbusiness. The Group implemented thorough cost-cutting measures, although depreciation costs andfacility utilization charges increased for thetelecommunications business. As a result, operat-ing income came to ¥8.7 billion ($70 million).

Capital ExpendituresDuring the term, the total amounts for capitalexpenditures for the Group (not subject to elimina-tion and adjustment for consolidation) decreased14.3% to ¥273.4 billion ($2,207 million), of which¥260.1 billion ($2,099 million) was expended forelectric power operations, ¥2.8 billion ($23 mil-lion) for construction, and ¥10.4 billion ($84 mil-lion) for other businesses.

In the mainstay field of electric power operations,the Company implemented efficient capital invest-ment to precisely match output capacity to futuredemand based on our long-term demand forecast.We worked to reduce plant construction coststhrough development and introduction of new tech-nologies and rationalization of designs and construc-tion methods. An amount of ¥78.7 billion ($635million), accounting for 30.3% of total capital

Capital expenditures (consolidated) Capital expenditures in electric power operations (consolidated)

General construction¥2.8 billions

Other operations¥10.4 billions

Electric power operations¥260.1 billions

¥273.4billions ¥260.1

billions

Construction/expansion of power generation facilities¥78.7 billions

Construction/expansion of power transmission and transformer facilities¥61.3 billions

Nuclear fuel¥22.8 billions

Facilities andequipment upgrading¥97.1 billions



expenditure for electric power operations, was usedfor establishment and enlargement of power genera-tion facilities. An amount of ¥61.3 billion ($495 mil-lion), accounting for 23.6% of the total, was used forestablishment and enlargement of power transmis-sion, transformation and other facilities. An amountof ¥22.8 billion ($184 million), or 8.8% of the total,was used for facilities related to nuclear fuel. Theremaining portion of ¥97.1 billion ($784 million),accounting for 37.3%, was invested in improvementof facilities and as expenses for research.

Financial Position On a consolidated basis, the term-end balance oftotal assets increased 1.1% to ¥4,379 billion($35,343 million), mainly due to additional assetsin the newly consolidated subsidiary, Yurtec Corp.On a non-consolidated basis, however, total assetsdecreased 1.0% to ¥4,028.4 billion ($32,513 mil-lion) due to a decline in interest-bearing debts,which was made possible thanks to improved man-agement efficiency, especially through deductionof capital expenditures. Shareholders’ equity on aconsolidated basis increased 9.5% during the termunder review to stand at ¥787.5 billion ($6,356million) at term-end. As a result, the shareholders’equity ratio improved to 18.0% from 16.6% at theprevious term-end.

Cash FlowsThe term-end balance of cash and cash equivalents(hereinafter, “funds”) increased by ¥7.1 billion, or7.2%, to ¥106.7 billion ($861 million), comparedwith ¥99.6 billion at the previous term-end. Thiswas mainly attributable to more efficient use ofcapital through reduction in capital expenditures.Funds provided by operating activities were mainlyused for capital spending and repayment of interest-bearing liabilities. Cash flows by activitywere as follows.

Cash flows from operating activitiesCash inflow from operating activities decreased by¥40.3 billion, or 9.3%, to ¥390.9 billion ($3,155million). This was a mixed result of an increase inincome before income taxes of ¥89 billion, and adecrease in depreciation of ¥21.6 billion, as well asthe non-repetition of the previous term’s provisionfor accrued severance indemnities of ¥97.1 billion.

Cash flows from investing activitiesCash outflow from investing activities decreased by¥122.1 billion, or 35.9%, to ¥218.1 billion ($1,760million), mainly due to a decline in expendituresfor the acquisition of property, plant and equip-ment by ¥110.7 billion, as a result of more efficientfund operation for equipment works.

Cash flows from financing activities Cash outflow from financing activities increased by¥64.5 billion, or 63.8%, to ¥165.6 billion ($1,337million). Special mention should be given to theactivities of the parent company, which carried outa reduction in interest-bearing debts worth ¥51.7billion ($417 million) as scheduled, as well asrepayment of short-term borrowings worth ¥16.3billion ($131 million) before due dates, as well asdebt assumption for corporate bonds worth ¥50billion ($403 million).

Credit Ratings As of July 2001, credit ratings for long-term corpo-rate bonds issued by the parent company were asfollows.

Moody’s Investors Service: Aa3Standard & Poor’s: AApi (Appendix “pi” refers to credit ratings based onpublicly disclosed information) Japan Rating and Investment Information: AAA

Cash Flows (consolidated)

-400 -200 0 200 400 600

(¥ billions)

106.7(A)

390.9(iii)

99.6(B)

-165.6(i)

-218.1(ii) (A) Cash & cash equivalents at end of March 2001

(i) Cash flows from financing activities

(ii) Cash flows from investing activities

(iii) Cash flows from operating activities

(B) Cash & cash equivalents at end of March 2000(A=B+i+ii+iii)


Five-Year Summary (Consolidated basis)

Millions of yen

2001 2000 1999 1998 1997Operating results

Operating revenues ¥1,716,568 ¥1,577,368 ¥1,539,209 ¥1,597,881 ¥1,512,019Operating expenses 1,478,292 1,317,566 1,343,015 1,374,553 1,324,812Operating income 238,275 259,802 196,194 223,327 187,207Interest expense 105,127 118,131 114,442 133,651 127,048Other (income) expenses, net 3,059 3,667 421 (2,765) (4,369)Income before special items and

income taxes 130,089 138,003 81,330 92,440 64,527Special items (926) (97,875) (2,977) 215 2,241Income before income taxes 129,162 40,127 78,353 92,655 66,768Income taxes, current 45,965 53,276 40,711 46,038 41,184Income taxes, deferred 101 (36,477) (5) 9 (69)Minority interests in earnings of

consolidated subsidiaries 3,449 1,341 — — —Equity in net profits of affiliated

companies — — — 786 1,662Net income 79,646 21,988 37,646 47,395 27,316

“Equity in net profits of affiliated companies,” which had previously been posted under “Income before income taxes,” wasrenamed “Profits on equity-method investment” and posted under other income/loss account beginning with the term endedMarch 31, 1999.

Sources and application of fundsSources:

Internal funds ¥ 413,400 ¥ 386,925 — — —External funds:

Bonds 177,152 148,184 — — —Borrowings 310,430 412,158 — — —

487,583 560,342 — — —Total 900,983 947,267 — — —

Applications:Capital expenditures 273,469 319,071 — — —Debt redemption 627,513 628,196 — — —

Total 900,983 947,267 — — —

Assets and capitalTotal assets ¥4,379,005 ¥4,331,990 ¥4,042,796 ¥3,982,880 ¥3,865,957Property, plant and equipment, net 3,622,707 3,655,211 3,505,697 3,462,082 3,363,786Common stock 251,441 251,441 251,441 251,441 251,441Total shareholders’ equity 787,571 719,421 659,085 646,768 624,714

Tohoku Electric Power Co., Inc. and Consolidated SubsidiariesYears ended March 31

97 98 99 00 01

Operating revenues

(¥ billions)

0

400

800

1,200

1,600

2,000

97 98 99 00 01

Net income & Net income per share

(¥ billions)

0

20

40

60

80

100

(¥)

0

40

80

120

160

200

■ Net income(left scale)

■ Net income per share(right scale)


Millions of yen

2001 2000 1999 1998 1997Cash flows

Operating activities:Net cash provided by

operating activities ¥390,949 ¥431,250 — — —Investing activities:

Net cash used in investing activities (218,135) (340,270) — — —Financing activities:

Net cash (used in) provided by financing activities (165,673) (101,167) — — —

Cash and cash equivalents at endof the year 106,774 99,633 — — —

2001 2000 1999 1998 1997Plant data

Generating capacity (MW)(Number of plants):Hydroelectric 2,476 2,455 — — —

(218) (217) — — —Thermal 12,130 12,130 — — —

(18) (18) — — —Nuclear 1,349 1,349 — — —

(1) (1) — — —Total 15,955 15,933 — — —

(237) (236) — — —Substation capacity (MVA) 56,526 56,032 — — —Transmission lines (km) 14,734 14,691 — — —Distribution lines (km) 136,555 135,467 — — —

Other dataNumber of employees 20,709 16,515 — — —

97 98 99 00 01

Shareholders’ equity ratio

(%)

0

4

8

12

16

20

97 98 99 00 01

Total assets

(¥ billions)

0

1,000

2,000

3,000

4,000

5,000


Five-Year Summary (Non-consolidated basis)Tohoku Electric Power Co., Inc.Years ended March 31

Millions of yen

2001 2000 1999 1998 1997Operating results

Operating revenues ¥1,570,721 ¥1,539,606 ¥1,523,186 ¥1,579,730 ¥1,492,022Operating expenses 1,349,066 1,289,642 1,331,399 1,360,543 1,308,383Operating income 221,655 249,964 191,786 219,187 183,639Interest expense 100,642 113,119 113,309 132,356 125,409Other (income) expenses, net 3,997 98,687 3,872 (2,098) (4,001)Income before special items and

income taxes 117,015 38,156 74,603 88,929 62,231Special items (938) (696) (975) 236 2,216Income before income taxes 116,076 37,460 73,628 89,165 64,448Income taxes, current 40,910 50,480 38,073 44,278 39,786Income taxes, deferred 1,275 (36,474) — — —Minority interests in earnings of

consolidated subsidiaries — — — — —Net income 73,890 23,454 35,555 44,886 24,661

Sources and application of fundsSources:

Internal funds ¥ 377,767 ¥ 365,743 ¥ 365,718 ¥ 445,753 ¥ 376,538External funds:

Bonds 179,253 149,384 179,148 197,266 149,141Borrowings 268,992 362,000 352,533 358,599 379,124

448,245 511,384 531,681 555,865 528,265Total 826,012 877,127 897,399 1,001,618 904,803

Applications:Capital expenditures 255,069 304,235 378,861 438,154 467,144Debt redemption 570,943 572,892 518,538 563,464 437,659

Total 862,012 877,127 897,399 1,001,618 904,803

Assets and capitalTotal assets ¥4,028,446 ¥4,070,307 ¥3,958,203 ¥3,902,916 ¥3,782,706Property, plant and equipment, net 3,414,536 3,446,556 3,447,174 3,406,058 3,306,518Common stock 251,441 251,441 251,441 251,441 251,441Total shareholders’ equity 742,925 681,226 619,449 609,178 589,575

Common stock data:Number of shareholders 256,638 253,280 237,252 235,399 237,297Number of shares issued (thousands) 502,883 502,883 502,883 502,883 502,883

Price range (yen):High ¥1,740 ¥1,947 ¥2,195 ¥2,100 ¥2,630Low 1,240 1,230 1,800 1,800 1,950

97 98 99 00 01

Operating revenues

(¥ billions)

0

400

800

1,200

1,600

2,000

97 98 99 00 01

Net income & Net income per share

(¥ billions)

0

20

40

60

80

100

(¥)

0

40

80

120

160

200

97 98 99 00 01

Capital expenditures

(¥ billions)

0

100

200

300

400

500

■ Net income(left scale)

■ Net income per share

(right scale)


2001 2000 1999 1998 1997Electric power sales (millions of kWh)Residential 22,429 21,843 20,993 20,484 19,953Commercial and industrial:

Commercial 13,579 13,798 13,200 12,652 11,982Small industrial 11,914 11,603 11,224 11,276 10,966Large industrial 7,925 22,777 21,904 22,384 21,417Other 1,787 1,783 1,736 1,781 1,817

35,205 49,961 48,064 48,093 46,182Total 57,634*2 71,804 69,057 68,577 66,135

Deregulated segment*1 16,880 — — — —Total electric power sales 74,514 71,804 69,057 68,577 66,135

*1 Customers who fall within the scope of deregulated segment such as extra high-voltage users whose contract demands are atleast 2,000kW and use a 20,000-volt supply system.

*2 Excluding deregulated segment

Peak load (MW) 14,700 14,430 13,590 13,490 13,100

Plant dataGenerating capacity (MW)(Number of plants):Hydroelectric 2,442 2,431 2,435 2,435 2,434

(210) (210) (212) (212) (212)Thermal 11,429 11,429 10,624 9,625 8,624

(17) (17) (17) (17) (16)Nuclear 1,349 1,349 1,349 1,349 1,349

(1) (1) (1) (1) (1)Total 15,220 15,209 14,408 13,408 12,407

(228) (228) (230) (230) (229)Substation capacity (MVA) 56,525 56,032 52,732 51,149 49,374Transmission lines (km) 14,734 14,691 14,503 14,541 14,454Distribution lines (km) 136,555 135,467 134,151 132,523 130,861

Other dataNumber of customers(Excluding deregulated segment):Residential 6,416,972 6,347,386 6,272,291 6,191,888 6,080,232Commercial and industrial 1,105,855 1,115,819 1,128,673 1,136,268 1,139,360

Total 7,522,827 7,463,205 7,400,964 7,328,156 7,219,592Number of employees 13,159 13,729 14,673 14,689 14,730

97 98 99 00 01

Total assets

(¥ billions)

0

1,000

2,000

3,000

4,000

5,000

97 98 99 00 01

Shareholders’ equity ratio

(%)

0

4

8

12

16

20

97 98 99 00 01

Electric power sales

(billions of kWh)

0

20

40

60

80

100

■ Deregulated segment■ Other■ Industrial■ Commercial■ Residential


Consolidated Balance Sheets

Thousands ofU.S. dollars

Millions of yen (Note 3)2001 2000 2001

AssetsProperty, plant and equipment (Note 4) ¥7,340,295 ¥7,163,005 $59,243,704

Less accumulated depreciation (3,717,588) (3,507,794) (30,004,745)Property, plant and equipment, net 3,622,707 3,655,211 29,238,958

Nuclear fuel:Loaded nuclear fuel and nuclear fuel under processing 104,565 109,334 843,946

Long-term investments (Note 5) 90,226 63,858 728,216

Deferred income taxes (Note 10) 120,443 90,993 972,098

Other assets 130,888 151,377 1,056,400

Current assets:Cash and cash equivalents 106,774 99,633 861,775Notes receivable and amounts due from customers,less allowance for uncollectibles (Note 6) 122,804 86,714 991,154

Deferred income taxes (Note 10) 10,517 16,900 84,882Other current assets (Note 5) 70,078 57,966 565,601

Total current assets 310,174 261,214 2,503,422Total assets ¥4,379,005 ¥4,331,990 $35,343,058

See notes to consolidated financial statements.

Tohoku Electric Power Co., Inc. and Consolidated SubsidiariesMarch 31, 2001 and 2000




Liabilities and shareholders’ equityLong-term debt (Note 7) ¥2,543,184 ¥2,570,553 $20,526,101

Accrued retirement benefits (Notes 2 and 9) 223,707 178,404 1,805,544

Reserve for reprocessing irradiated nuclear fuel (Note 8) 63,068 43,457 509,023

Reserve for decommissioning nuclear power units 23,470 21,032 189,426

Deferred income taxes (Note 10) 555 — 4,479

Current liabilities:Short-term borrowings 161,479 229,199 1,303,301Current portion of long-term debt (Note 7) 265,993 270,095 2,146,836Notes and accounts payable 96,533 33,950 779,120Accrued income taxes (Note 10) 17,545 43,738 141,606Other current liabilities 146,472 200,335 1,182,179

Total current liabilities 688,025 777,319 5,553,066

Reserve for fluctuation in water levels 6,338 5,411 51,154

Minority interests in consolidated subsidiaries 43,084 16,390 347,732

Contingent liabilities (Note 16)

Shareholders’ equity:Common stock, ¥500 par value:

Authorized — 1,000,000,000 shares 251,441 251,441 2,029,386Capital surplus 26,497 26,497 213,857Retained earnings (Notes 11 and 20) 495,762 441,486 4,001,307Unrealized holding gain on securities (Note 5) 13,886 — 112,074Treasury stock, at cost (16) (4) (129)

Total shareholders’ equity 787,571 719,421 6,356,505Total liabilities and shareholders’ equity ¥4,379,005 ¥4,331,990 $35,343,058



Consolidated Statements of Income



Operating revenues:Electric power ¥1,569,922 ¥1,539,042 $12,670,879Other 146,646 38,325 1,183,583

1,716,568 1,577,368 13,854,463Operating expenses:

Electric power (Note 12) 1,340,608 1,282,293 10,820,080Other 137,684 35,272 1,111,251

1,478,292 1,317,566 11,931,331Operating income 238,275 259,802 1,923,123

Other expenses:Interest expense 105,127 118,131 848,482Other, net 3,059 3,667 24,689

108,186 121,798 873,171Income before special items and income taxes 130,089 138,003 1,049,951

Special items:Provision for reserve for fluctuation in water levels 926 692 7,473Cumulative effect of accounting change (Note 2) — 97,183 —

Income before income taxes 129,162 40,127 1,042,469

Income taxes (Note 10):Current 45,965 53,276 370,984Deferred 101 (36,477) 815

46,066 16,798 371,799

Minority interests in earnings of consolidated subsidiaries 3,449 1,341 27,836Net income (Note 17) ¥ 79,646 ¥ 21,988 $ 642,824


Tohoku Electric Power Co., Inc. and Consolidated SubsidiariesYears ended March 31, 2001 and 2000


Consolidated Statements of Shareholders’ Equity

Millions of yenNumber ofshares of Common Capital Retained

common stock stock surplus earningsBalance at March 31, 1999 502,882,585 ¥251,441 ¥26,497 ¥381,151

Bonuses to directors and statutory auditors (225)Cash dividends paid (25,143)Cumulative effect of adoption oftax-effect accounting 70,640

Decrease in retained earnings atbeginning of the year for inclusionof subsidiaries in consolidation (6,923)

Net income for the year ended March 31, 2000 21,988Balance at March 31, 2000 502,882,585 251,441 26,497 441,486

Bonuses to directors and statutory auditors (228)Cash dividends paid (25,142)Net income for the year ended March 31, 2001 79,646

Balance at March 31, 2001 502,882,585 ¥251,441 ¥26,497 ¥495,762

Thousands of U.S. dollars (Note 3)

Common Capital Retainedstock surplus earnings

Balance at March 31, 2000 $2,029,386 $213,857 $3,563,244Bonuses to directors and statutory auditors (1,840)Cash dividends paid (202,921)Net income for the year ended March 31, 2001 642,824

Balance at March 31, 2001 $2,029,386 $213,857 $4,001,307




Consolidated Statements of Cash Flows



Operating activities:Income before income taxes ¥129,162 ¥ 40,127 $1,042,469Adjustments to reconcile income before income taxesto net cash provided by operating activities:Depreciation and amortization 270,067 291,985 2,179,717Provision for accrued retirement benefits 366 99,736 2,953Loss on sales and disposal of property, plant and equipment 12,987 13,040 104,818Provision for reprocessing irradiated nuclear fuel 19,610 4,459 158,272Provision for decommissioning nuclear power units 2,437 2,138 19,669Provision for reserve for fluctuation in water levels 926 692 7,473Interest and dividend income (1,626) (2,008) (13,123)Interest expense 105,127 118,131 848,482Changes in operating assets and liabilities:

Amounts due from customers (3,511) (32,297) (28,337)Fuel and supplies and nuclear fuel (3,859) (17,647) (31,146)Accounts payable 24,662 1,182 199,047Other current assets and liabilities 2,158 60,383 17,417

Subtotal 558,510 579,924 4,507,748Interest and dividends received 1,023 1,128 8,256Interest paid (104,104) (116,926) (840,225)Income taxes paid (64,479) (32,876) (520,411)

Net cash provided by operating activities 390,949 431,250 3,155,359Investing activities:

Acquisitions of property, plant and equipment (271,905) (382,643) (2,194,552)Contributions received in aid of construction 3,579 5,869 28,886Increase in investments and advances (3,234) (6,755) (26,101)Effect of initial consolidation of a subsidiary (Note 14) 28,106 — 226,844Decrease in other assets and liabilities 25,319 43,259 204,350

Net cash used in investing activities (218,135) (340,270) (1,760,573)Financing activities:

Proceeds from long-term loans and issuance of bonds 269,821 235,305 2,177,732Repayment or redemption of long-term loans and bonds (321,934) (289,432) (2,598,337)Decrease in short-term borrowings (87,720) (21,716) (707,990)Cash dividends (25,135) (25,135) (202,865)Other (705) (189) (5,690)

Net cash used in financing activities (165,673) (101,167) (1,337,150)Increase in consolidated subsidiaries — 17,132 —Net increase in cash and cash equivalents 7,140 6,945 57,627Cash and cash equivalents at beginning of the year 99,633 92,688 804,140Cash and cash equivalents at end of the year ¥106,774 ¥ 99,633 $ 861,775




Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies(a) Basis of preparationThe accompanying consolidated financial statementsof Tohoku Electric Power Company, Incorporated (the“Company”) and its consolidated subsidiaries are com-piled from the consolidated financial statements pre-pared by the Company as required by the Securitiesand Exchange Law of Japan and are prepared on thebasis of accounting principles and practices generallyaccepted and applied in Japan, which differ in certainrespects from the application and disclosure require-ments of International Accounting Standards.

In addition, the notes to the consolidated financialstatements include information which is not requiredunder accounting principles generally accepted inJapan but is presented herein as additional information.

As permitted by the Securities and Exchange Law,amounts of less than one million yen have been omit-ted. As a result, the totals shown in the accompanyingconsolidated financial statements (both in yen andU.S. dollars) do not necessarily agree with the sum ofthe individual amounts.

(b) Principles of consolidation and accounting forinvestments in unconsolidated subsidiaries andaffiliates

In accordance with the revised accounting standard forconsolidation which became effective the year endedMarch 31, 2000, the accompanying consolidated finan-cial statements for the years ended March 31, 2001 and2000 include the accounts of the Company and its sig-nificant companies controlled directly or indirectly bythe Company, and companies over which the Companyexercises significant influence in terms of their operat-ing and financial policies have been included in theconsolidated financial statements on an equity basis.All significant intercompany balances and transactionshave been eliminated in consolidation.

The differences, not significant in amount, betweenthe cost and the underlying net equity of investmentsin consolidated subsidiaries at the dates of acquisitionare, as a rule, amortized over a period of five years.

(c) Property, plant and equipmentProperty, plant and equipment is generally stated atcost.

Depreciation of property, plant and equipment iscomputed by the declining-balance method over the

estimated useful lives of the respective assets.Significant renewals and additions are capitalized atcost. Maintenance and repairs are charged to incomewhen incurred.

(d) Nuclear fuelNuclear fuel is stated at cost less accumulated amortiza-tion. The amortization of loaded nuclear fuel is com-puted as the proportion of current heat production tototal heat production estimated over the life of thenuclear fuel.

(e) Marketable and investment securitiesUntil the year ended March 31, 2000, marketable secu-rities and investment securities had been stated at costdetermined by the moving average method.

A new accounting standard for financial instru-ments, which became effective April 1, 2000, requiresthat securities be classified into three categories: trad-ing, held-to-maturity or other securities. Under thenew standard, trading securities are carried at fair valueand held-to-maturity securities are carried at amortizedcost. Marketable securities classified as other securitiesare carried at fair value with changes in unrealizedholding gain or loss, net of the applicable incometaxes, included directly in shareholders’ equity. Non-marketable securities classified as other securities arecarried at cost. Cost of securities sold is determined bythe moving average method.

As of April 1, 2000, the Company and its consoli-dated subsidiaries assessed their intent to hold theirinvestments in securities and classified their invest-ments as “held-to-maturity securities” or “other securi-ties” and accounted for the securities at March 31,2001 in accordance with the new standard referred toabove.

The effect of the adoption of this new standard forfinancial instruments was to increase long-term invest-ments and other assets by ¥21,769 million ($175,698thousand) and ¥10 million ($80 thousand), respec-tively, and to decrease deferred income taxes (non-current assets) and minority interests by ¥7,349 mil-lion ($59,313 thousand) and ¥12 million ($96 thou-sand), respectively at March 31, 2001.

In addition, deferred income taxes (non-current lia-bilities) amounting to ¥555 million ($4,479 thousand)and unrealized holding gain on securities amountingto ¥13,886 million ($112,074 thousand) were recorded.

Tohoku Electric Power Co., Inc. and Consolidated Subsidiaries


(f) Fuel and suppliesFuel (oil, gas and coal) and supplies are stated at costdetermined by the average method.

(g) Cash equivalentsAll highly liquid investments with a maturity of threemonths or less when purchased are considered cashequivalents.

(h) Employees’ retirement benefitsAt March 31, 2000, accrued retirement benefits werestated at the amount which would be required to bepaid if all employees covered by the retirement benefitplans voluntarily terminated their employment at thatdate.

In accordance with a new accounting standard foremployees’ retirement benefits which became effectiveApril 1, 2000, accrued retirement benefits for employ-ees at March 31, 2001 have been provided mainly at anamount calculated based on the retirement benefitobligation and the fair value of the pension plan assetsas of March 31, 2001, as adjusted for the unrecognizednet retirement benefit obligation at transition, unrec-ognized actuarial gain or loss, and unrecognized priorservice cost.

The retirement benefit obligation is attributed toeach period by the straight-line method over the esti-mated years of service of the eligible employees. Priorservice cost is expensed as incurred.

The total amount of net retirement benefit obliga-tion at transition was recorded as expense. Actuarialgain and loss are amortized in the year following theyear in which the gain or loss is recognized primarilyby the straight-line method over periods (principally 1year through 10 years) which are shorter than the aver-age remaining years of service of the employees.

The effect of the adoption of the new standard forretirement benefits was to increase retirement benefitexpense by ¥16,273 million ($131,339 thousand) andto decrease income before income taxes by ¥16,155million ($130,387 thousand) for the year ended March31, 2001.

(i) Reserve for decommissioning nuclear power unitsThe Company, as required by a regulatory authoritywhich is an advisory body to the Ministry of Economy,Trade and Industry, records a reserve for decommis-sioning nuclear power units. Provision is made for thecost of future disposition of nuclear power units inproportion to the ratio of their current generation of

electric power to the estimated total generation of elec-tric power estimated over the life of each unit.

(j) Reserve for fluctuation in water levelsTo offset fluctuations in income caused by varyingwater levels, the Company and its consolidated sub-sidiaries are required under the Electric Utility Law torecord a reserve for fluctuation in water levels.

(k) LeasesThe Company and its consolidated subsidiaries leasecertain equipment under noncancelable lease agree-ments referred to as capital leases. Capital leases otherthan those which transfer the ownership of the leasedproperty to the lessee are accounted for as operatingleases.

(l) Income taxesIn accordance with a new accounting standard forincome taxes which became effective March 31, 2000,deferred tax assets and liabilities have been recognizedin the consolidated financial statements for the yearsended March 31, 2001 and 2000 with respect to thedifferences between financial reporting and the taxbases of the assets and liabilities, and were measuredusing the enacted tax rates and laws which will be ineffect when the differences are expected to reverse.

The effect of the adoption of the new standard forincome taxes was to increase total assets by ¥106,735million and retained earnings by ¥107,000 million atMarch 31, 2000, and to increase net income by¥36,359 million for the year ended March 31, 2000.

(m) Foreign currency translationA revised accounting standard for foreign currencytranslation became effective April 1, 2000. Under thenew standard, all monetary assets and liabilities,regardless of short-term or long-term, denominated inforeign currencies are translated into yen at theexchange rates prevailing as of the fiscal year end, andthe resulting gain and loss are included in income.

The effect of the adoption of the revised standardon the consolidated financial statements was immater-ial for the year ended March 31, 2001.

(n) Derivative and hedging transactionsThe Company has entered into various derivativetransactions in order to manage certain risks arisingfrom adverse fluctuations in foreign currency exchangerates. In accordance with a new accounting standard


for financial instruments which became effective April1, 2000, derivatives are carried at fair value withchanges in unrealized gain or loss charged or creditedto operations, except for those which meet the criteriafor deferral hedge accounting under which unrealizedgain or loss is deferred as an asset or a liability.Receivables and payables hedged by qualified deriva-tives are translated at the corresponding foreignexchange contract rates.

As the derivative positions held by the Companymeet the criteria mentioned above, deferral hedgeaccounting has been applied.

(o) Appropriation of retained earningsUnder the Commercial Code, the appropriation ofretained earnings with respect to a given financial yearis made by resolution of the shareholders at a generalmeeting held subsequent to the close of such financialyear. The accounts for that year do not, therefore,reflect such appropriations. See Note 20.

Certain amounts previously reported have been reclassified to conform to the current year’s presentation.

2. Accounting ChangeEffective April 1, 1999, the Company and a majority ofthe consolidated subsidiaries changed their method ofaccounting for retirement benefits and began provid-ing the accrued retirement benefits at 100% of theamount which would be required to be paid if all eligi-ble employees voluntarily terminated their employ-ment at the balance sheet date instead of providing theaccrual at 40% of such amount. The cumulative effectof this change amounted to ¥97,183 million at April 1,1999 and was recorded as a special loss for the yearended March 31, 2000. The effect of this change inmethod of accounting was to decrease operatingincome by ¥1,430 million and income before incometaxes and net income by ¥98,613 million for the yearended March 31, 2000.

3. U.S. Dollar AmountsAmounts in U.S. dollars are included solely for the con-venience of the reader. The rate of ¥123.90 = U.S.$1.00,the approximate rate of exchange on March 31, 2001,has been used. The inclusion of such amounts is notintended to imply that yen have been or could be read-ily converted, realized or settled in U.S. dollars at thator any other rate.

4. Property, Plant and EquipmentProperty, plant and equipment at March 31, 2001 and2000 is summarized as follows:


2001 2000 2001

Hydro power plant ¥ 478,190 ¥ 462,540 $ 3,859,483Thermal power plant 1,757,216 1,756,472 14,182,534Nuclear power plant 590,920 589,854 4,769,330Transmission plant 1,299,784 1,281,497 10,490,589Transformation plant 686,635 684,173 5,541,848Distribution plant 1,109,754 1,108,698 8,956,852General plant 330,496 338,065 2,667,441Other 452,526 380,182 3,652,348

6,705,525 6,601,484 54,120,460Constructionwork in progress 634,770 561,521 5,123,244

Total ¥7,340,295 ¥7,163,005 $59,243,704

Contributions in aid of construction which werededucted from the cost of property, plant and equip-ment at March 31, 2001 and 2000 were as follows:


2001 2000 2001

¥154,514 ¥151,856 $1,247,086


5. Marketable Securities and Investment SecuritiesAt March 31, 2001, held-to-maturity securities for which market prices were available were as follows:

Millions of yen Thousands of U.S. dollars

Balance Balancesheet Market Unrealized sheet Market Unrealized

amount value gain amount value gain

Unrealized gain:Bonds ¥24 ¥25 ¥1 $193 $201 $8

At March 31, 2001, other securities for which market prices were available were as follows:

Millions of yen Thousands of U.S. dollars

Balance Balancesheet Unrealized sheet Unrealized

Cost amount gain (loss) Cost amount gain (loss)

Unrealized gain:Stock ¥6,114 ¥28,070 ¥21,955 $49,346 $226,553 $177,199

Unrealized loss:Stock 1,002 856 (146) 8,087 6,908 (1,178)

Total ¥7,117 ¥28,927 ¥21,809 $57,441 $233,470 $176,020

At March 31, 2001, marketable securities and investment securities stated at cost were as follows:Thousands of

Millions of yen U.S. dollars

Held-to-maturity:Municipal bonds ¥ 1,624 $ 13,107Discounted bank debentures 1,598 12,897Bonds 10 80

Other securities:Unlisted stock 30,301 244,560

The redemption schedule for securities with maturity dates classified as other securities and held-to-maturity debtsecurities as of March 31, 2001 is summarized as follows:

Millions of yen

Due after Due afterDue in one year five years

one year through through Due afteror less five years ten years ten years

Municipal bonds ¥ 273 ¥1,146 ¥83 ¥121Discounted bank debentures 1,598 — — —Bonds 21 13 — —

Total ¥1,893 ¥1,159 ¥83 ¥121

Thousands of U.S. dollars

Due after Due afterDue in one year five years

one year through through Due afteror less five years ten years ten years

Municipal bonds $ 2,203 $9,249 $669 $976Discounted bank debentures 12,897 — — —Bonds 169 104 — —

Total $15,278 $9,354 $669 $976


6. Notes Receivable and Amounts Due fromCustomers

Notes receivable and amounts due from customers atMarch 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Notes receivableand amounts duefrom customers ¥124,065 ¥87,280 $1,001,331

Less allowancefor uncollectibles (1,260) (566) (10,169)

Total ¥122,804 ¥86,714 $ 991,154

7. Long-Term DebtAt March 31, 2001 and 2000, long-term debt consistedof the following:


2001 2000 2001

Bonds in yen duethrough 2018 ¥1,386,048 ¥1,417,595 $11,186,828

6.5% bonds inforeign currenciesdue 2002 48,320 48,320 389,991

1.9% convertiblebonds in yendue 2002 19,376 19,376 156,384

Loans from banksand otherfinancial institutionsdue through 2022 1,023,246 1,043,162 8,258,644

Other 332,186 312,194 2,681,081Subtotal 2,809,177 2,840,648 22,672,937Less current portion (265,993) (270,095) (2,146,836)

Total ¥2,543,184 ¥2,570,553 $20,526,101

The 1.9% convertible bonds, unless previouslyredeemed, are convertible into shares of common stockof the Company at any date through March 28, 2002at the current conversion price of ¥3,087 ($24.91) pershare. Under the terms of indenture of the bonds, thisconversion price is subject to adjustment in certaincases which include stock splits.

Long-term debt payments fall due subsequent toMarch 31, 2001 as follows:

Thousands ofYear ending March 31, Millions of yen U.S. dollars

2002 ¥ 265,993 $ 2,146,8362003 288,725 2,330,3062004 282,191 2,277,5702005 and thereafter 1,972,266 15,918,208

Total ¥2,809,177 $22,672,937

All assets of the Company are subject to certain statu-tory preferential rights established to secure the bonds,convertible bonds and loans from The DevelopmentBank of Japan.

Certain of the agreements relating to long-termdebt stipulate that the Company is required to submitproposals for the appropriation of retained earningsand to report other significant matters, if requested bythe lenders, for their review and approval prior to pre-sentation to the shareholders. No such requests haveever been made.

Secured long-term debt at March 31, 2001 was asfollows:


Bonds ¥1,434,368 $11,576,820Convertible bonds 19,376 156,384Long-term loans 503,987 4,067,691

Assets pledged as collateral for the above long-termdebt at March 31, 2001 were as follows:


Land ¥ 10,737 $ 86,658Buildings 43,603 351,920Machinery and equipment 56,491 455,940Others 4,955 39,991

Total ¥115,788 $934,527

8. Reserve for Reprocessing Irradiated NuclearFuel

The annual reserve for reprocessing irradiated nuclearfuel is provided at 60% of the amount which would berequired to reprocess all the nuclear fuel irradiated plusa portion of the nuclear fuel under irradiation.

9. Retirement Benefit PlansAt March 31, 2001, the Company and certain of itssubsidiaries had defined benefit plans, includingfunded non-contributory tax-qualified retirement pen-sion plans and a lump-sum retirement benefits plan,which together cover substantially all full-timeemployees who meet certain eligibility requirements.The Company has the option to pay employees addi-tional retirement benefits on retirement.

The following table sets forth the funded andaccrued status of the plans, and the amounts recog-nized in the consolidated balance sheet at March 31,2001 for the Company’s and the consolidated sub-sidiaries’ defined benefit plans:



Retirement benefit obligation ¥(446,388) $(3,602,808)Plan assets at fair value 203,283 1,640,702Unfunded retirement benefitobligation (243,105) (1,962,106)

Unrecognized netretirement benefitobligation at transition — —

Unrecognized actuarialgain or loss 19,397 156,553

Unrecognized priorservice cost — —

Accrued retirement benefits ¥(223,707) $(1,805,544)

The components of retirement benefit expenses for theyear ended March 31, 2001 are outlined as follows:


Service cost ¥18,936 $152,832Interest cost 11,926 96,255Expected return on plan assets (5,123) (41,347)Amortization of netretirement benefitobligation at transition 40,116 323,777

Amortization ofactuarial gain or loss (131) (1,057)

Amortization ofprior service cost (26,593) (214,632)

Additional retirementallowance 6,989 56,408

Total ¥46,120 $372,235

The principal assumptions used in determining theretirement benefit obligation and other components ofthe Companies’ plans are shown below:

Discount rates 2.5% ~ 3.0%Expected return on assets 2.5%Period for recognition ofprior service cost 1 year

Period for recognition ofactuarial gain or loss 1 year ~ 10 years

Period for recognition ofgain or loss at transition 1 year

Method of allocation ofestimated retirementbenefits Equally over the period

10. Income TaxesThe Company and its consolidated subsidiaries are sub-ject to several taxes based on earnings, which, in theaggregate, resulted in a statutory tax rate of approxi-mately 36% for both 2001 and 2000.

The significant components of deferred tax assetsand liabilities at March 31, 2001 were as follows:


Current deferred tax assetsand liabilities:Deferred tax assets:

Accrued retirementbenefits ¥ 61,684 $ 497,853

Deferred charges 27,413 221,251Unrealized gain 24,724 199,548Other 36,708 296,271

150,530 1,214,931Valuation allowance (7,755) (62,590)Total deferred tax assets 142,775 1,152,340

Deferred tax liabilities:Valuation difference

on other securities (7,975) (64,366)Depreciation of nuclearpower units (1,944) (15,690)

Other (2,449) (19,765)Total deferred tax liabilities (12,369) (99,830)

Net deferred tax assets ¥130,405 $1,052,502

The difference between the effective tax rate reflectedin the accompanying consolidated statement ofincome for the year ended March 31, 2001 and thestatutory tax rate was immaterial.

11. Retained EarningsThe Commercial Code of Japan provides that at least10% of all appropriations of retained earnings, includ-ing cash dividends and bonuses to directors and statu-tory auditors, be appropriated to the legal reserve untilsuch reserve equals 25% of common stock. This reserveis not available for dividends but may be used toreduce or eliminate a deficit by resolution of the share-holders or may be capitalized by resolution of theBoard of Directors.

The legal reserves of the consolidated subsidiariesare included in retained earnings in the accompanyingconsolidated financial statements.

12. Operating ExpensesOperating expenses in the electricity business for theyear ended March 31, 2001 were as follows:


Personnel ¥ 188,863 $ 1,524,317Fuel 227,563 1,836,666Purchased power 238,139 1,922,025Maintenance 169,515 1,368,159Depreciation 245,040 1,977,723Taxes other than income taxes 91,549 738,894Subcontracting fees 46,735 377,199Other 133,200 1,075,060

Total ¥1,340,608 $10,820,080

13. Research and Development ExpensesResearch and development expenses for the year endedMarch 31, 2001 were ¥12,177 million ($98,280 thousand).

14. Supplementary Cash Flow InformationAssets and liabilities included in consolidation follow-ing the additional acquisition of initially consolidatedsubsidiary, Yurtec Corp., and the net cash inflow fromadditional acquisition are summarized as follows:


Non-current assets ¥ 54,939 $443,414Current assets 107,292 865,956Non-current liabilities (24,082) (194,366)Consolidation adjustmentsaccount (9,109) (73,518)

Current liabilities (55,676) (449,362)Minority interests inconsolidated subsidiaries (43,908) (354,382)

The Company’s interestbefore additional acquisition (25,906) (209,087)

Cost of acquisition of stockof Yurtec Corp. 3,548 28,635

Cash and cash equivalentsheld by Yurtec Corp. (31,654) (255,480)

Net proceeds ¥ 28,106 $226,844

15. LeasesFor the years ended March 31, 2001 and 2000, leasepayments relating to capital leases accounted for asoperating leases amounted to ¥6,190 million ($49,959thousand) and ¥6,041 million, respectively which wereequal to the depreciation expense of the leased assetscomputed by the straight-line method over the respec-tive lease terms.

Future minimum lease payments (including theinterest portion thereon) subsequent to March 31,2001 and 2000 for capital leases accounted for as oper-ating leases are summarized as follows:


Year ending March 31, 2001 2000 2001

2002 or 2001 ¥ 5,514 ¥ 4,707 $ 44,5032003 or 2002and thereafter 10,953 7,857 88,401

Total ¥16,468 ¥12,565 $132,913

For the year ended March 31, 2001, lease revenuesrelating to capital leases accounted for as operatingleases amounted to ¥12 million ($96 thousand), whichequaled the depreciation expense of the leased assetscomputed by the straight-line method over the respec-tive lease terms.

Future minimum lease revenues (including theinterest portion thereon) subsequent to March 31,2001 for capital leases accounted for as operating leasesare summarized as follows:


Year ending March 31, 2001 2000 2001

2002 or 2001 ¥11 ¥14 $ 882003 or 2002and thereafter 12 17 96

Total ¥23 ¥31 $185

16. Contingent LiabilitiesAt March 31, 2001, the Company and the consolidatedsubsidiaries were contingently liable as co-guarantorsof loans of other companies, primarily in connectionwith the procurement of fuel, in the amount of¥159,227 million ($1,285,125 thousand), and as guar-antors of employees’ housing loans, in the amount of¥6,434 million ($51,928 thousand).

As of March 31, 2001, the Company assigned to abank its obligation to make payments of ¥243,444 mil-lion ($1,964,842 thousand) plus interest on the princi-pal of its bonds at rates ranging from 5.9% to 7.1% duethrough 2004. In this connection, the Company madea deposit with the bank in fulfillment of the relatedobligation. The deposit and the bonds have beenexcluded from the accompanying consolidated balancesheets at March 31, 2001.

17. Amounts Per ShareThe amounts per share for the years ended March 31,2001 and 2000 were as follows:

Yen U.S. dollars

Year ended March 31, 2001 2000 2001

Net income:Basic ¥158.39 ¥43.72 $1.278Diluted 156.90 43.65 1.266

Cash dividendsapplicable to the year 75.00 50.00 0.605

Yen U.S. dollars

At March 31, 2001 2000 2001

Net assets ¥1,566.20 ¥1,430.60 $12.640

18. Derivatives(1) The Company utilizes forward foreign exchange

contracts solely in order to hedge against the risk offluctuations in foreign currency exchange rates andto stabilize its future cash flows relating to debtsdenominated in foreign currencies relating to itsoperations.



The Company also utilizes currency swaps forthe purpose of hedging its exposure to adverse fluc-tuations in foreign exchange rates and to manageits future cash flows relating to interest paymentson bonds denominated in foreign currencies.

(2) The Company has entered into various derivativetransactions solely in order to hedge against certainrisks in compliance with its internal policies. TheCompany has not and does not utilize derivativesfor speculative trading purposes.

(3) The Company is exposed to the risk of credit loss inthe event of nonperformance by the counterpartiesto these derivative transactions, but considers the riskof any such loss to be minimal because the Companyenters into derivative transactions only with finan-cial institutions which have high credit ratings.

(4) The Company enters into, monitors and managesits derivative positions based on its own internalpolicies.

19. Segment InformationThe segment information of the Company and its consolidated subsidiaries for the year ended March 31, 2001 issummarized as follows:

Millions of yen

Eliminations ofElectric inter-segmentutility Construction transactions or Consolidated

business business Other Total headquarters total

Net sales:(1) Net sales to outside customers ¥1,569,922 ¥120,094 ¥ 26,552 ¥1,716,568 ¥ — ¥1,716,568(2) Inter-segment net sales 858 125,040 43,559 169,459 (169,459) —

Total 1,570,781 245,134 70,111 1,886,028 (169,459) 1,716,568Operating costs and expenses 1,347,801 238,774 61,320 1,647,896 (169,603) 1,478,292Operating income ¥ 222,979 ¥ 6,360 ¥ 8,791 ¥ 238,131 ¥ 144 ¥ 238,275Assets ¥4,029,235 ¥230,939 ¥198,847 ¥4,459,022 ¥ (80,017) ¥4,379,005Depreciation ¥ 253,824 ¥ 2,991 ¥ 17,614 ¥ 274,430 ¥ (4,363) ¥ 270,067Capital expenditures ¥ 260,189 ¥ 2,850 ¥ 10,429 ¥ 273,469 ¥ (4,432) ¥ 269,037


Eliminations ofElectric inter-segmentutility Construction transactions or Consolidated

business business Other Total headquarters total

Net sales:(1) Net sales to outside customers $12,670,879 $ 969,281 $ 214,301 $13,854,463 $ — $13,854,463(2) Inter-segment net sales 6,924 1,009,200 351,565 1,367,707 (1,367,707) —

Total 12,677,812 1,978,482 565,867 15,222,179 (1,367,707) 13,854,463Operating costs and expenses 10,878,135 1,927,150 494,915 13,300,209 (1,368,870) 11,931,331Operating income $ 1,799,669 $ 51,331 $ 70,952 $ 1,921,961 $ 1,162 $ 1,923,123Assets $32,520,056 $1,863,914 $1,604,899 $35,988,878 $ (645,819) $35,343,058Depreciation $ 2,048,619 $ 24,140 $ 142,163 $ 2,214,931 $ (35,213) $ 2,179,717Capital expenditures $ 2,099,991 $ 23,002 $ 84,172 $ 2,207,175 $ (35,770) $ 2,171,404

20. Subsequent EventThe following appropriations of retained earnings, which have not been reflected in the accompanying consolidatedfinancial statements, were approved at a shareholders’ meeting held on June 28, 2001:


Year-end cash dividends (¥50 = $0.403 per share) ¥25,143 $202,929Transfer to legal reserve 71 573Bonuses to directors and statutory auditors 140 1,129


Report of Certified Public Accountants

The Board of Directors and ShareholdersTohoku Electric Power Company, Incorporated

We have audited the consolidated balance sheets of Tohoku Electric Power Company,Incorporated and consolidated subsidiaries as of March 31, 2001 and 2000, and the relatedconsolidated statements of income, shareholders’ equity, and cash flows for the years thenended, all expressed in yen. Our audits were made in accordance with auditing standards,procedures and practices generally accepted and applied in Japan and, accordingly,included such tests of the accounting records and such other auditing procedures as weconsidered necessary in the circumstances.

In our opinion, the accompanying consolidated financial statements, expressed in yen,present fairly the consolidated financial position of Tohoku Electric Power Company,Incorporated and consolidated subsidiaries at March 31, 2001 and 2000, and the results oftheir operations and their cash flows for the years then ended, in conformity withaccounting principles and practices generally accepted in Japan consistently applied dur-ing the period subsequent to the change, with which we concur, made as of April 1, 1999,in the method of accounting for employees’ retirement benefits as described in Note 2 tothe consolidated financial statements.

As described in Note 1 to the consolidated financial statements, Tohoku Electric PowerCompany, Incorporated and consolidated subsidiaries have adopted new accounting stan-dards for consolidation and tax-effect accounting effective the year ended March 31, 2000,and for financial instruments, employees’ retirement benefits, and foreign currency trans-lations effective the year ended March 31, 2001 in the preparation of their consolidatedfinancial statements.

The U.S. dollar amounts in the accompanying consolidated financial statements withrespect to the year ended March 31, 2001 are presented solely for convenience. Our auditalso included the translation of yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made on the basis described in Note 3 to the consolidated finan-cial statements.

June 28, 2001

See Note 1 to the consolidated financial statements which explains the basis of preparation of the consoli-dated financial statements of Tohoku Electric Power Company, Incorporated and consolidated subsidiariesunder Japanese accounting principles and practices.


Non-Consolidated Balance Sheets



AssetsProperty, plant and equipment (Note 4) ¥6,843,982 ¥6,668,639 $55,237,949

Less accumulated depreciation (3,429,446) (3,222,082) (27,679,144)Property, plant and equipment, net 3,414,536 3,446,556 27,558,805

Nuclear fuel:Loaded nuclear fuel 17,093 19,559 137,958Nuclear fuel under processing 87,471 89,774 705,980

Total nuclear fuel 104,565 109,334 843,946

Investments in and advances to:Subsidiaries and affiliates 181,329 154,595 1,463,510Other (Note 5) 82,838 61,108 668,587

Total investments and advances 264,168 215,703 2,132,106

Deferred income taxes (Note 7) 84,394 84,557 681,146

Other assets 2,917 2,588 23,543

Current assets:Cash 32,188 37,223 259,790Time deposits and short-term investments — 41,100 —Amounts due from customers, less allowance for uncollectibles 80,132 81,176 646,747Fuel and supplies 28,682 25,023 231,493Deferred income taxes (Note 7) 7,056 15,524 56,949Other current assets 9,805 11,520 79,136

Total current assets 157,864 211,567 1,274,124Total assets ¥4,028,446 ¥4,070,307 $32,513,688

See notes to non-consolidated financial statements.

Tohoku Electric Power Co., Inc.March 31, 2001 and 2000




Liabilities and shareholders’ equityLong-term debt ¥2,395,025 ¥2,407,938 $19,330,306

Accrued retirement benefits 184,568 164,211 1,489,652

Reserve for reprocessing irradiated nuclear fuel 63,068 43,457 509,023

Reserve for decommissioning nuclear power units 23,470 21,032 189,426

Current liabilities:Short-term bank loans 159,500 228,000 1,287,328Current portion of long-term debt 247,981 255,182 2,001,460Accounts payable 81,317 65,056 656,311Accrued income taxes (Note 7) 14,427 33,427 116,440Accrued expenses 45,080 68,456 363,841Other current liabilities 64,815 96,990 523,123

Total current liabilities 613,122 747,113 4,948,523

Reserve for fluctuation in water levels 6,265 5,327 50,564

Contingent liabilities (Note 12)

Shareholders’ equity:Common stock, ¥500 par value:

Authorized — 1,000,000,000 shares 251,441 251,441 2,029,386Capital surplus 26,497 26,497 213,857Legal reserve (Note 9) 62,789 60,260 506,771Retained earnings (Notes 8 and 9) 389,105 343,026 3,140,476Unrealized holding gain on securities 13,092 — 105,665

Total shareholders’ equity 742,925 681,226 5,996,166Total liabilities and shareholders’ equity ¥4,028,446 ¥4,070,307 $32,513,688



Non-Consolidated Statements of Income



Operating revenues ¥1,570,721 ¥1,539,606 $12,677,328

Operating expenses:Personnel 187,167 186,893 1,510,629Fuel 220,505 195,411 1,779,701Purchased power 238,139 215,206 1,922,025Maintenance 164,812 170,766 1,330,201Depreciation 240,554 260,855 1,941,517Taxes other than income taxes 87,874 85,886 709,233Subcontracting fees 46,376 51,406 374,301Other 163,636 123,214 1,320,710

1,349,066 1,289,642 10,888,345Operating income 221,655 249,964 1,788,983

Other expenses:Interest expense 100,642 113,119 812,284Other, net 3,997 98,687 32,259

104,640 211,807 844,552Income before special item and income taxes 117,015 38,156 944,430

Special item:Provision for reserve for fluctuation in water levels 938 696 7,570

Income before income taxes 116,076 37,460 936,852

Income taxes (Note 7):Current 40,910 50,480 330,185Deferred 1,275 (36,474) 10,290

Net income (Note 13) ¥ 73,890 ¥ 23,454 $ 596,368


Tohoku Electric Power Co., Inc.Years ended March 31, 2001 and 2000

Tohoku Electric Power Co., Inc.Years ended March 31, 2001 and 2000


Non-Consolidated Statements of Shareholders’ Equity

Millions of yenNumber ofshares of Common Capital Legal Retained

common stock stock surplus reserve earningsBalance at March 31, 1999 502,882,585 ¥251,441 ¥26,497 ¥57,732 ¥283,778

Cumulative effect of adoption of tax-effect accounting 63,607

Bonuses to directors and statutory auditors (140)Cash dividends paid (25,143)Transfer to legal reserve 2,528 (2,528)Net income for the year ended March 31, 2000 23,454

Balance at March 31, 2000 502,882,585 251,441 26,497 60,260 343,026Bonuses to directors and statutory auditors (140)Cash dividends paid (25,143)Transfer to legal reserve 2,528 (2,528)Net income for the year ended March 31, 2001 73,890

Balance at March 31, 2001 502,882,585 ¥251,441 ¥26,497 ¥62,789 ¥389,105

Thousands of U.S. dollars (Note 3)Common Capital Legal Retained

stock surplus reserve earningsBalance at March 31, 2000 $2,029,386 $213,857 $486,359 $2,768,571

Bonuses to directors and statutory auditors (1,129)Cash dividends paid (202,929)Transfer to legal reserve 20,403 (20,403)Net income for the year ended March 31, 2001 596,368

Balance at March 31, 2001 $2,029,386 $213,857 $506,771 $3,140,476



Notes to Non-Consolidated Financial Statements

1. Summary of Significant Accounting PoliciesThe accompanying non-consolidated financial state-ments of Tohoku Electric Power Company,Incorporated (the “Company”) have been preparedfrom the accounts and records maintained by theCompany in accordance with the provisions of theCommercial Code of Japan and with accounting prin-ciples and practices generally accepted and applied inJapan, which differ in certain respects from the appli-cation and disclosure requirements of InternationalAccounting Standards.

In addition, the notes to the non-consolidatedfinancial statements include information which is notrequired under accounting principles generallyaccepted in Japan but is presented herein as additionalinformation.

The accompanying non-consolidated financialstatements have been prepared on the same basis asthe accounting policies discussed in Note 1 to the con-solidated financial statements except that these finan-cial statements relate to the Company only, withinvestments in subsidiaries and affiliates being sub-stantially stated at cost.

New accounting standardsEffective April 1, 1999, the Company adopted tax-

effect accounting. Until the year ended March 31,1999, income taxes were recorded on an accrual basis,but tax-effect accounting was not adopted. The effectof this adoption was to increase net income by ¥36,474million and retained earnings by ¥105,928 million forthe year ended March 31, 2000.

Effective April 1, 2000, the Company adopted“Accounting Standard for Financial Instruments” issuedby the Business Accounting Deliberation Council (the“BADC”) on January 22, 1999. The effect of the adop-tion of this standard was to increase long-term invest-ments by ¥20,446 million ($165,020 thousand) and todecrease deferred tax assets by ¥7,354 million ($59,354thousand) and to increase unrealized holding gain by¥13,092 million ($105,665 thousand). However, theadoption of this new accounting standard had no mate-rial effect on income before income taxes.

Effective April 1, 2000, the Company adopted“Accounting Standard for Retirement Benefits” issuedby the BADC on June 16, 1998. The effect of the adop-tion of this standard was to increase retirement benefitexpense by ¥15,683 million ($126,577 thousand) and todecrease income before income taxes by the sameamount.

Effective April 1, 2000, the Company adopted therevised “Accounting Standard for Foreign CurrencyTranslations” issued by the BADC on October 22, 1999.However, the adoption of this new standard had nomaterial effect on income before income taxes.

Certain amounts previously reported have beenreclassified to conform to the current year’s presentation.

2. Accounting ChangeEffective April 1, 1999, the Company changed itsmethod of accounting for employees’ retirement bene-fits and began providing accrued retirement benefits at100% of the amount which would be required to bepaid if all eligible employees voluntarily terminatedtheir employment at the balance sheet date instead ofproviding the accrual at 40% of such amount. Theeffect of this change was to increase the provision foraccrued retirement benefits for the year ended March31, 2000 by ¥98,527 million.

3. U.S. Dollar AmountsThe method of translating yen amounts into U.S. dol-lar amounts is the same as that described in Note 3 tothe consolidated financial statements.

Tohoku Electric Power Co., Inc.


4. Property, Plant and EquipmentProperty, plant and equipment at March 31, 2001 and2000 is summarized as follows:


2001 2000 2001

Hydro power plant ¥ 464,542 ¥ 448,159 $ 3,749,330Thermal power plant 1,605,947 1,602,478 12,961,638Nuclear power plant 592,018 590,363 4,778,192Internal combustion power plant 26,177 26,079 211,275

Transmission plant 1,322,426 1,286,373 10,673,333Transformation plant 699,627 686,172 5,646,707Distribution plant 1,152,400 1,117,409 9,301,049General plant 334,968 337,863 2,703,535Property leased to others 501 501 4,043

Other 16,964 16,262 136,9166,215,574 6,111,663 50,166,053

Construction work in progress 628,408 556,975 5,071,896

Total ¥6,843,982 ¥6,668,639 $55,237,949

Contributions in aid of construction which werededucted from the cost of property, plant and equip-ment at March 31, 2001 and 2000 were as follows:


2001 2000 2001

¥150,399 ¥148,108 $1,213,874

5. Deposits on Construction of Nuclear PowerPlant

Investments in and advances to — other includesdeposits made by the Company to The Tokyo ElectricPower Company, Incorporated (TEPCO) in connectionwith the construction of the Company’s nuclear powerplant. The deposits bear interest at 8% per annum.Under the terms of the related contract, the depositsare to be applied to the payments for power to be pur-chased and supplied to the Company by TEPCO’snuclear power plant. The deposits at March 31, 2001and 2000 were as follows:


2001 2000 2001

¥4,735 ¥10,371 $38,216

6. Assets Pledged as CollateralAll assets of the Company are subject to certain statu-tory preferential rights established to secure the bonds,convertible bonds and loans from The DevelopmentBank of Japan.

Secured long-term debt at March 31, 2001 was asfollows:


Bonds ¥1,438,178 $11,607,570Convertible bonds 19,376 156,384Long-term loans 413,218 3,335,092

7. Income TaxesThe Company is subject to corporation and inhabi-tants’ taxes based on earnings, which, in the aggregate,resulted in a statutory tax rate of approximately 35%for both 2001 and 2000. The differences between thestatutory rate and the effective tax rates were princi-pally the result of timing differences in the recognitionof certain income and expenses for tax and financialreporting purposes and certain expenses not deductiblefor income tax purposes.

The significant components of the Company’sdeferred tax assets and liabilities as of March 31, 2001were as follows:


Current deferred tax assets and liabilities:Deferred tax assets:

Accrued employees’ retirement benefits ¥ 49,597 $400,298

Deferred charges 27,149 219,120Other 24,063 194,213Total deferred tax assets 100,810 813,640

Deferred tax liabilities:Unrealized holding gain

on securities (7,398) (59,709)Other (1,960) (15,819)Total deferred tax liabilities (9,358) (75,528)

Net deferred tax assets ¥ 91,451 $738,103


8. Retained Earnings Appropriated forVoluntary Reserves

Retained earnings appropriated for voluntary reserves,which are subaccounts within retained earnings, arestated in accordance with the Special Taxation MeasuresLaw and the Commercial Code. The reserves arededucted from taxable income when provided andreversed to taxable income in subsequent years, whichresults in a deferral of income tax payment. See Note 9.

9. Legal Reserve and Retained EarningsIn accordance with the provisions of the CommercialCode, the Company has provided a legal reserve as anappropriation of retained earnings. The legal reservemay be used to reduce a deficit or may be transferredto common stock through suitable action of the share-holders or directors but is not available for dividends.

Retained earnings at March 31, 2001 and 2000 con-sisted of the following:


2001 2000 2001

Retained earnings appropriated for voluntary reserves (see Note 8):Reserve for losson overseasinvestments ¥ 26 ¥ 24 $ 209

Reserve fordepreciation ofnuclear powerplants 6,923 10,384 55,875

Retained earnings appropriated for reservefor cost fluctuation adjustments 103,000 103,000 831,315

Retained earnings appropriated for general purposes 152,400 83,000 1,230,024

Unappropriated retained earnings 126,755 146,617 1,023,042

Total ¥389,105 ¥343,026 $3,140,476

10. Research and Development ExpensesResearch and development expenses for the year endedMarch 31, 2001 were ¥11,688 million ($94,334 thousand).

11. LeasesThe following pro forma amounts represent the acqui-sition costs, accumulated depreciation and net bookvalue of the leased machinery and equipment as ofMarch 31, 2001 and 2000, which would have beenreflected in the balance sheets if capital lease account-ing had been applied to the capital leases currentlyaccounted for as operating leases:

Millions of yen

Acquisition Accumulated Net bookcosts depreciation value

2001 ¥19,267 ¥7,551 ¥11,7152000 ¥19,546 ¥9,960 ¥ 9,586


Acquisition Accumulated Net bookcosts depreciation value

2001 $155,504 $60,944 $94,552

For the years ended March 31, 2001 and 2000, leasepayments relating to capital leases accounted for asoperating leases amounted to ¥3,688 million ($29,765thousand) and ¥3,858 million, respectively, whichequaled the depreciation expense of the leased assetscomputed by the straight-line method over the respec-tive lease terms.

Future minimum lease payments (including theinterest portion thereon) subsequent to March 31,2001 for capital leases accounted for as operating leasesare summarized as follows:

Thousands ofYear ending March 31, Millions of yen U.S. dollars

2002 ¥ 3,781 $30,5162003 and thereafter 7,934 64,035

Total ¥11,715 $94,552


12. Contingent LiabilitiesAt March 31, 2001, the Company was contingentlyliable as co-guarantors of loans of other companies,primarily in connection with the procurement of fuel,in the amount of ¥164,792 million ($1,330,040 thou-sand), and as guarantors of employees’ housing loans,in the amount of ¥6,309 million ($50,920 thousand).

As of March 31, 2001, the Company assigned to abank its obligation to make payments of ¥243,444 mil-lion ($1,964,842 thousand) plus interest on the princi-pal of its bonds at rates ranging from 5.9% to 7.1% duethrough 2004. In this connection, the Company madea deposit with the bank in fulfillment of the relatedobligation. The deposit and the bonds have beenexcluded from the accompanying balance sheets atMarch 31, 2001.

13. Amounts Per ShareThe amounts per share for the years ended March 31,2001 and 2000 were as follows:

Yen U.S. dollars

Year ended March 31, 2001 2000 2001

Net income:Basic ¥146.93 ¥46.64 $1.185Diluted 145.59 46.53 1.175

Cash dividends applicable to the year 75.00 50.00 0.605

Yen U.S. dollars

At March 31, 2001 2000 2001

Net assets ¥1,477.33 ¥1,354.64 $11.92


Report of Certified Public Accountants

The Board of Directors and ShareholdersTohoku Electric Power Company, Incorporated

We have audited the non-consolidated balance sheets of Tohoku Electric Power Company,Incorporated as of March 31, 2001 and 2000, and the related non-consolidated statements ofincome and shareholders’ equity for the years then ended, all expressed in yen. Our auditswere made in accordance with auditing standards, procedures and practices generallyaccepted and applied in Japan and, accordingly, included such tests of the accountingrecords and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the accompanying non-consolidated financial statements, expressed inyen, present fairly the financial position of Tohoku Electric Power Company, Incorporatedat March 31, 2001 and 2000, and the results of its operations for the years then ended inconformity with accounting principles and practices generally accepted in Japan consis-tently applied during the period subsequent to the change, with which we concur, made asof April 1, 1999, in the method of accounting for employees’ retirement benefits asdescribed in Note 2 to the non-consolidated financial statements.

As described in Note 1 to the non-consolidated financial statements, Tohoku ElectricPower Company, Incorporated has adopted new accounting standards for tax-effectaccounting effective the year ended March 31, 2000, and for financial instruments,employees’ retirement benefits, and foreign currency translations effective the year endedMarch 31, 2001 in the preparation of its non-consolidated financial statements.

The U.S. dollar amounts in the accompanying non-consolidated financial statements withrespect to the year ended March 31, 2001 are presented solely for convenience. Our auditalso included the translation of yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made on the basis described in Note 3 to the non-consolidatedfinancial statements.

June 28, 2001

See Note 1 to the non-consolidated financial statements which explains the basis of preparation of the non-consolidated financial statements of Tohoku Electric Power Company, Incorporated under Japanese account-ing principles and practices.


Board of Directors

Chairman of the board Toshiaki Yashima

President Keiichi Makuta

Executive Vice presidents Kenji Okada ● Hiroaki Takahashi ● Koji Washio ● Hiroyuki Suzuki

Managing directors Mitsuru Kumagai ● Shinichi Sugiyama ● Yutaka Suto ● Kiyohiko Sato

Yasuyoshi Aoki ● Tsuneo Saito ● Takeo Nishi ● Kyonosuke Sasaki

Toshikatsu Hamada

Directors Isao Ishikawa ● Masayuki Oyama ● Keiichi Kato

Shigeo Saito ● Kunihide Kobayashi ● Teruaki Suzuki

Standing auditors Eigo Yonezawa ● Hiroshi Sakai ● Kazuya Hirata

Auditors Eishiro Saito ● Tatsuo Yoshida

(as of June 2001)

Domestic

Head office 7-1, Ichibancho 3-chome, Aoba-ku, Sendai,Miyagi 980-8550, JapanTelephone: +81-(0)22-225-2111 +81-(0)22-225-2651Facsimile: +81-(0)22-225-2550

Aomori branch 12-19, Minatomachi 2-chome, Aomori,Aomori 030-8560, JapanTelephone: +81-(0)17-742-2191 Facsimile: +81-(0)17-744-2140

Iwate branch 1-25, Konyacho, Morioka, Iwate 020-8521, JapanTelephone: +81-(0)19-653-2115 Facsimile: +81-(0)19-653-5980

Akita branch 15-6, Sanno 5-chome, Akita, Akita 010-0951, JapanTelephone: +81-(0)18-863-3151 Facsimile: +81-(0)18-823-4945

Miyagi branch 5th Floor, Sumitomo Seimei Sendai-Chuo Bldg.,6-1, Chuo 4-chome,

Aoba-ku, Sendai, Miyagi 980-6005, JapanTelephone: +81-(0)22-225-2141 Facsimile: +81-(0)22-213-4211

Yamagata branch 1-9,Honcho 2-chome, Yamagata, Yamagata 990-8691, JapanTelephone: +81-(0)23-641-1321 Facsimile: +81-(0)23-641-5982

Fukushima branch 2-35, Okitamacho, Fukushima, Fukushima 960-8522, JapanTelephone: +81-(0)24-522-9151 Facsimile: +81-(0)24-521-2120

Niigata branch 84,Gobancho, Kamiokawamae-dori, Niigata, Niigata 951-8633, JapanTelephone: +81-(0)25-223-3151 Facsimile: +81-(0)25-222-6447

Tokyo branch 5th Floor, Daini-Tekko Bldg., 8-2, Marunouchi 1-chome, Chiyoda-ku,

Tokyo 100-0005, JapanTelephone: +81-(0)3-3231-3501 Facsimile: +81-(0)3-3201-4832

Overseas

New York office Suite 2304,Park Avenue Tower, 65 East 55th Street, New York,

NY 10022, USATelephone: +1-212-319-6200 Facsimile: +1-212-319-1836

(as of June 2001)

Directory


Consolidated Subsidiaries and Affiliates

Non- Consolidated Corporate Data

Consolidated Subsidiaries Sakata Kyodo Power Co.,Ltd.Tousei Kougyou Co., Inc.Yurtec Corp.Tohoku Electric Power Engineering & Construction Co., Inc.Nihonkai LNG Co.,Ltd.Core Net Tohoku, Inc.Tohoku Intelligent Telecommunication Co., Inc.Tohoku Information Network Service Co., Inc.Tohoku Computer Service Co., Inc.Tohoku Office Automation Service, Inc.(Astel Tohoku Corp.*)

Affiliates Accounted for by Soma Kyodo Power Co.,Ltd.the Equity Method Joban Joint Power Co.,Ltd.

Arakawa Hydro-Electric Power Co.,Ltd.

Tohoku Electric Power Co., Inc.

Registered Head Office 7-1, Ichibancho 3-chome, Aoba-ku, Sendai Miyagi 980-8550, Japanhttp://www.tohoku-epco.co.jp

Data Established May 1, 1951

Paid-in Capital ¥251,441 million

Common Stock Authorized: 1,000,000,000 sharesIssued: 502,882,585 shares

Common Stock Price RangeFY2000 FY1999(Tokyo Stock Exchange)

High Low High LowFirst quarter ¥1,440 ¥1,240 ¥1,947 ¥1,800Second quarter ¥1,600 ¥1,365 ¥1,890 ¥1,605Third quarter ¥1,561 ¥1,370 ¥1,750 ¥1,420Fourth quarter ¥1,740 ¥1,422 ¥1,535 ¥1,230

Cash Dividends FY2000 FY1999

Interim ¥25.00 ¥25.00Year-end ¥50.00 ¥25.00

Total ¥75.00 ¥50.00

Number of Shareholders 256,638

Number of Employees 13,159

Number of Customers(Excluding deregulated segment) 7,522,827

Service Area 79,550 square Kilometers

Transfer Agent The Toyo Trust & Banking Co., Ltd.4-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan

* Astel Tohoku Corp. was liquidated on September 30, 2000 after transfer of its goodwill to Tohoku Intelligent TelecommunicationCo., Inc. on September 1, 2000. Resultant legal procedures were completed on December 22 of the same year.



(Back cover)Yawata-uma: Yawata-uma carved wooden horses are traditional folk-craft toys that date back 700years or so. Yawata-uma were originally made as good-luck charms for horse-owners who wished toensure the good health of their beloved animals. These brightly-colored ornaments are sold at festivals held in Aomori Prefecture, the northernmost prefecture of Japan's main island. These days,Yawata-uma are bought mainly as souvenirs by holidaymakers, or as mementos of happy events.

Tohoku Electric Power Co., Inc. (Japan)

Printed in JapanThis annual report is printed on recycled paper.

Documents

Annual Report 2001 - tohoku-epco.co.jp · Shirakami Sanchi, which contains one of the world’s largest virgin forests of Japanese beech trees ( buna ), was declared a World Natural