Business Risk

As of June 23, 2026, the HEPCO Group has identified the following business risks that may affect its financial condition and results of operations. The Group recognizes these risks and is committed to preventing their occurrence and responding appropriately should they arise.

1. (1) Status of Nuclear Power Generation
   Ensuring the safety of the Tomari Nuclear Power Station is the Group's highest management priority. Under the leadership of the President, efforts are underway to further enhance safety based on the "Safety Enhancement Plan."
   Specifically, the Group is implementing a wide range of safety measures and strengthening its severe accident response framework. These efforts include compliance with current regulatory requirements, as well as additional safety enhancements to further improve reliability. Emergency drills simulating severe accident scenarios are also conducted on an ongoing basis. In March 2024, construction began on a new seawall at the Tomari Nuclear Power Station as part of tsunami countermeasures. Although completion is expected to take a little over three years, efforts are being made to accelerate the schedule and complete the work as early as practicable.
   To restart the Tomari Nuclear Power Station, the Group is working to obtain approvals under the new regulatory requirements. In July 2025, approval was received from the Nuclear Regulation Authority for changes to the reactor installation for Unit 3. The Group will continue to respond to ongoing regulatory reviews, including applications for approval of detailed design and construction plans, as well as amendments to the operational safety program.
   Nevertheless, delays in regulatory approvals or construction of safety measures, including the seawall, could prolong the suspension of operations at the Tomari Nuclear Power Station. Combined with continued increases in fuel costs, such factors could adversely affect the Group's financial performance.
2. (2)Equipment Failures and Supply Disruptions
   The Group strives to maintain the reliability of its power generation, transmission, and distribution facilities through regular inspections and maintenance, stable fuel procurement, and appropriate supply chain management.
   However, natural disasters, equipment failures, or disruptions in fuel procurement and supply chains could hinder the operation or maintenance of facilities. Such events may necessitate repair work or increased reliance on alternative power sources, resulting in higher costs and potentially affecting financial performance.
3. (3)Changes in Systems Surrounding the Electric Power Business
   Changes in national energy policies, including the development or revision of market systems and regulations aimed at promoting competition, may affect the Group's business environment and financial performance.
   The nuclear back-end business, including spent fuel reprocessing, radioactive waste disposal, and decommissioning, involves long-term uncertainties. While cost-sharing mechanisms based on legally prescribed rates are in place to mitigate such risks, any revisions to these frameworks could impact the Group's financial position.
4. (4)Impact of Climate Change
   In response to growing concerns regarding climate change, the HEPCO Group has established targets to reduce supply chain emissions (Scopes 1, 2, and 3) by 46% by fiscal year 2030 and 60% by fiscal year 2035, compared with fiscal year 2013 levels.
   To achieve these targets, the Group will pursue the restart of all units at the Tomari Nuclear Power Station, expand the use of renewable energy, and promote the decarbonization of thermal power generation. Additionally, the Group aims to contribute to emission reductions of 1.5 million tons by fiscal year 2030 and 2.5 million tons by fiscal year 2035 through initiatives such as renewable energy development, customer support for decarbonization, energy-saving proposals, and electrification using technologies including heat pump systems.
   Through these efforts, the Group seeks to contribute to achieving carbon neutrality across Hokkaido by 2050. However, stricter environmental regulations, including carbon pricing, or delays in decarbonization initiatives could adversely affect competitiveness and financial performance.
5. (5) Fluctuations in Fuel and Wholesale Electricity Market Prices
   Fuel procurement costs are subject to fluctuations in fuel prices and exchange rates, while electricity procurement costs are influenced by wholesale market prices. Recently, rising geopolitical tensions, including those in the Middle East, have contributed to increased price volatility.
   The Group seeks to mitigate these risks by maintaining a balanced power generation mix, diversifying procurement methods and suppliers, and utilizing hedging strategies, including derivatives transactions. Cost efficiency is also pursued by optimizing the balance between in-house generation and market-based procurement.
   For residential customers, fuel price fluctuations are reflected within a prescribed range under the fuel cost adjustment mechanism. For high-voltage and extra-high-voltage customers, both fuel costs and wholesale electricity price fluctuations are reflected. These mechanisms help mitigate the impact of price volatility on financial performance.
6. (6)Changes in Electricity Demand and Sales Volume
   Electricity demand may decline due to economic downturns, reduced industrial activity, energy conservation efforts, population decline, or weather-related factors. In addition, intensified competition may lead to reduced sales volume.
   Such developments could adversely affect the Group's financial performance.
7. (7)Variations in Rainfall and Snowfall
   Annual variations in rainfall and snowfall can affect hydroelectric output. Higher water levels tend to reduce fuel costs, while drought conditions may increase reliance on thermal generation, thereby raising costs.
   Although the drought reserve system helps mitigate these effects, significant fluctuations may still impact financial performance.
8. (8)Changes in Interest Rates and Prices
   Increases in market interest rates may raise financing costs for new borrowings. However, as the majority of the Group's interest-bearing debt consists of fixed-rate instruments, the impact of interest rate fluctuations is expected to be limited.
   In addition, rising prices and labor costs may increase procurement expenses for materials and equipment, which could adversely affect financial performance despite ongoing efforts to improve efficiency.
9. (9)Non-Electricity Businesses
   The Group conducts prior evaluations and exercises appropriate management for businesses outside the electric power segment. However, changes in the business environment or other factors may result in performance that differs from initial expectations.
   Such developments could impact overall business performance.
10. (10)Securing Human Resources
    Based on the "HEPCO Group Human Resource Strategy," the Group is promoting the development of talent capable of driving transformation and fostering an environment in which diverse employees can thrive and grow.
    However, a significant shortage of human resources could hinder business operations and adversely affect financial performance.
11. (11) Spread of Infectious Diseases
    The Group has implemented measures to prevent the spread of infectious diseases in order to ensure a stable supply of electricity. Nevertheless, widespread infections could disrupt operations and adversely affect financial performance.
12. (12) Compliance
    We have established the "HEPCO Group CSR Behavior Charter" and "Compliance Guidelines" to ensure thorough adherence to laws and regulations. To promote compliance initiatives effectively, we hold quarterly Corporate Ethics Committee meetings chaired by the President, where external experts verify the effectiveness of these efforts.
    In addition, both HEPCO and Hokkaido Electric Power Network, Inc. have established internal frameworks to ensure compliance with regulatory requirements and maintain neutrality and reliability in transmission and distribution operations.
    Any violation of applicable laws, regulations, or corporate ethics could result in reputational damage and adversely affect financial performance.
13. (13)Information Security
    The Group implements strict information security measures, including internal rules, employee training, and proper management of business and customer information.
    In response to cyber threats, measures are in place to prevent unauthorized access, along with systems for early detection and rapid response. Training programs are also conducted to strengthen incident response capabilities.
    However, system failures and other security incidents caused by cyberattacks could disrupt operations, damage public trust, and adversely affect financial performance.

Note on Forward-Looking Risk Assessment

For risks that are difficult to reasonably foresee, no specific estimates are provided regarding their likelihood, timing, or potential financial impact.