Hokkaido Electric could struggle to retain customers without nuke restarts

Lowering tariffs will be difficult if restarts aren't granted.

A second rate hike in November 2014 made the company profitable, and Moody's expects that cost controls will allow the company to generate net profit at least over the coming 12-18 months, even if the utility's nuclear reactors remain shut down.

"We expect Hokkaido Electric will remain profitable at least over the coming 12-18 months, albeit with thin margins," said Moody's Vice President -- Senior Analyst, Mariko Semetko.

"At the same time, we don't expect further meaningful improvements in the company's credit metrics, and anticipate that leverage will remain very high, leaving little cushion for the rating," adds Semetko who is also the Lead Analyst for the company. This is because Hokkaido Electric will reduce its tariffs if and when its nuclear reactors restart, limiting the upside of earnings and cash flow growth from nuclear generation.

Here's more from Moody's:

Furthermore, Hokkaido Electric is the furthest from restart among Japan's electric utilities that are heavily reliant on nuclear generation. The utility has not received preliminary approvals on any of its three reactors.

Recent restarts of other utilities took about a year after obtaining preliminary approvals. Without nuclear restart, the company will have difficulty lowering its tariffs, making customer retention harder in the face of deregulation.