HEPCO Group Management Vision 2035 (Briefing for analysts and institutional investors)

April 2, 2025

HEPCO Group Management Vision 2035 Briefing for analysts and institutional investors

Growing HEPCO's Business Through GX & Striving to Further Develop Hokkaido

Introduction 1

Since we announced HEPCO Group Management Vision 2030 in 2020, the business environment in which our group operates has seen considerable changes expected to drive an increase in demand for electricity over the medium- and long-term. Factors propelling these changes include Japan's 2050 Carbon Neutral Declaration issued in response to growing momentum for climate change measures, moves to positioning the green transformation (GX), which aims to simultaneously achieve stable energy supply, economic growth, and decarbonization, as Japan's national strategy, and advances fostering a digital transformation (DX) that includes widespread application of generative AI.

Particularly thanks to the exceptional attractiveness and richness of its natural environment and the highest renewable energy potential anywhere in Japan, Hokkaido has been the site selected by the digital industry as it plans next generation semiconductor plants and data centers. In addition, powerful tailwinds are facilitating Hokkaido's development. The Japanese government is promoting local production and consumption of carbon-free energy, and more and more businesses may concentrate their operations in Hokkaido as the nation seeks to achieve carbon neutrality.

Still, however, the region's population continues to decline and age. Labor shortages may make it difficult to maintain public services and social infrastructure in the future. Efforts are needed to find solutions to these challenges as well.

It is in this context that HEPCO Group continues to manage our operations upon the foundation that is Hokkaido, and support the realization and further development of a sustainable society. In reaffirming this unwavering commitment and codifying it as our new management philosophy, we have defined HEPCO Group Management Vision 2035. It is the ideal to which we aspire to embody by the year 2035 so that HEPCO Group may achieve robust growth collectively with the Hokkaido region.

Even as the electricity business transforms, HEPCO Group will continue to fulfill our responsibility as an energy provider. We will ensure energy decarbonization is consistent with a secure and stable supply in accordance with the management tenants set out in this vision: 'Realization of GX for Hokkaido's Growth,' 'Challenge of Creating New Value,' and 'Robust Business Foundation for Sustainable Growth.' With an accurate understanding of what customers need and the challenges that communities face, we will continue to persevere to create value and further grow HEPCO Group so that we may facilitate a sustainable society as well as safe and secure living.

Light up your future.

Together with local communities, HEPCO Group will continue to ensure Hokkaido stays an attractive region that people are proud to share with the world and we will endeavor to enrich the lives of people who call Hokkaido home.

March 2025 Susumu Saito Representative Director & Chief Executive Officer

Hokkaido Electric Power Co., Inc.

Even as reform of the electric power system has paved way for liberalization and marketization of the electric power industry, momentum has increased for measures to address climate change since our previous management vision was announced in April 2020. A more noticeable emphasis has also been placed on economic security and stable energy supply as geopolitical risks have come to the forefront, triggering a surge in resource prices.

By promoting a green transformation (GX), Japan aims to concurrently achieve a stable energy supply, economic growth, and decarbonization. Moreover, the business environment has also been altered significantly as the digital transformation (DX), including the expanding application of generative AI, extends further and further and propels an upward shift in demand for electric power over the medium- and long-term.

FY2021

FY2022

FY2023

FY2024

FY2025

FY2026～

Increasing momentum for climate change measures

▼Japan's 2050 Carbon Neutral Declaration

▼6th Strategic Energy Plan

Shift to position GX as national strategy

▼Clean Energy Strategy

▼Basic Policy for Realization of GX

▼7th Strategic Energy Plan

▼GX2040 Vision

Expansion of geopolitical risks

▼GX Promotion Act & GX Decarbonization Power Source Act established

▼Spike in resource prices, and calls for economic security and stable supply

Reform of electric power system

Intensifying competition for retail electricity sales

▼Capacity market introduced

Progress in Digital technology and greater DX

▼Outlook for electric power demand over medium- and long-term turns up

Verification of electric power system reforms & regulatory revisions

▼Capacity market deliveries started

▼Transmission & distribution

divisions spun off

▼ Demand-supply Balancing market partially introduced

▼Non-discriminatory wholesaling*

▼Demand-supply balancing market fully introduced

▼Long-term decarbonization power source auction introduced

*Equal treatment between subsidiary retailers and third-party retailers

FY2021

FY2022

FY2023

FY2024

FY2025

（Projected）

…

2030 Vision Targets

As of FY2025 (projected), both consolidated ordinary income and the Consolidated capital ratio have surpassed the targets set for each.

HEPCO Group has strived to achieve the 2030 targets set for new priority business investment, retail and wholesale electricity, gas supply business, renewable energy generation, and reduction in CO2 emissions. The progress we have made is summarized in the table below.

※1 Renewable power generation, overseas electricity business (solar power), energy service providers (ESP), etc.

※2 Phase I: before restart of Tomari NPS ; Phase II: after all units of Tomari NPS are back in operartion ※ 3 Decreased from FY2024 due to sale of stake in investment projects

前回ビジョンの振り返り

ほくでんグループの新たな経営理念

2050年・2035年の社会像

持続的な企業価値向上に向けて

2035年に向けた取り組みの方向性

Review of Vision 2030

Our Efforts toward 2035

Our Vision of Society in the Years 2050 & 2035

HEPCO Group's New Management Philosophy

HEPCO Group's New Management Philosophy 6

Even in an ever-changing business climate, we will continue to transform and pursue a management style that keeps Hokkaido as our foundation so that the HEPCO Group may grow further and a sustainable society be achieved.

This new management philosophy serves as a recompilation of our principles orientated toward this concept.

Our ambition

Our role

Light up your future.

Together with local communities, HEPCO Group will continue to ensure Hokkaido stays an attractive region that people are proud to share with the world and enrich the lives of people who call Hokkaido home.

Create the future of energy and new value by transformation

We will never relent in our drive to continuously transform so that we always fulfill our responsibility as an energy provider. We will deliver new value to our customers and communities, and, with Hokkaido as our foundation, we will support its further development and realization of a sustainable society.

Our shared values

Challenge

We will aim to grow further and surpass everyone's expectations as we continue to enthusiastically take up challenges.

Co-creation

With our roots in Hokkaido, we will collaborate with communities, companies, local governments, and everyone in the region to harness ingenuity and create our future together.

Trust

We will live up to the trust placed in us by always acting with integrity and fairness and taking even better care of our stakeholders while respecting the diversity of values.

Although it is difficult to accurately predict the future, climate change measures compatible with economic growth along with the application of AI, robots and other digital technologies will most likely drive changes in society so that by around the year 2050 there will be an embrace of diversity that includes not just national, generational, and gender differences, but also coexistence with AI and other technologies, in addition to the realization of carbon neutrality (CN).

We foresee such a sustainable and prosperous society realized not just through actions taken by national and local governments, corporations, but even each one of us as individuals. HEPCO Group will contribute to our society in a variety of sectors, of which energy is just one.

Coexistence with AI and robots will make living more convenient and comfortable

Fusion of reality and virtual spaces will create new work styles

Various digital technologies will be leveraged to advance industry

Clean energy will be used

To be carbon neutral by 2050, not only do we need to thoroughly conserve energy, but also shift from CO2-emitting fossil fuels to decarbonized electric power and other carbon-free fuels such as hydrogen and ammonia. For Hokkaido with its vast and cold snowy climate, decarbonizing the energy used for heating and transportation is a major challenge, and one of the key options for achieving this is electrification using decarbonized power sources.

Final Energy Consumption in Hokkaido

Thorough energy conservation, etc.

CO₂ emitted from non-substitutable fossil fuels captured using CCUS*² or other method

Hydrogen, ammonia, etc. produced using renewables in Hokkaido

Demand increase from established data centers, etc. and expanded electrification

Further progress from expanded DX, GX, electrification, etc.

Electricity

Decarbonization

(Provisional figures for FY2023, heat value basis)

HEPCO Group has not only implemented supply-side initiatives that make use of carbon-free fuels and decarbonized power sources, but also furthered demand-side initiatives with the promotion of electrification and energy savings, including zero energy buildings

(ZEB)※1. These efforts help us to maximize our commitment to having

all energy in Hokkaido be carbon neutral by 2050 (pp. 32 & 33).

Future Energy Demand in Hokkaido (Illustration)

Heat 0.8%

Electricity

23.4%

Coal, etc. 17.0%

Renewables

5.3%

Gas 9.2%

Oil, etc.

44.3%

Source: Energy consumption statistics by prefecture

Present

2035

2050

※1 ZEB stands for net Zero Energy Building, which is a structure designed to keep annual primary energy that the building consumes to zero, while maintaining a comfortable indoor environment.

※2 CCUS stands for Carbon dioxide Capture, Utilization and Storage, a new technology that captures emitted CO₂ and either stores it deep underground or effectively utilizes it.

So that a sustainable and prosperous society and lifestyle may be realized by around the year 2050, continuous progress is needed over the next 10 years to address the increasing importance of climate change measures and economic security. In addition, over the next decade, the impact of declining population and Japan's aging society will take on more prominence, potentially disrupting daily life.

We believe solutions can be found to these social challenges by stably supplying energy that is the foundation for a digital society as well as making progress in decarbonization and applying AI, robots, and other digital technologies more extensively throughout society. HEPCO Group will contribute to realizing the vision of society in the

year 2035 as we leverage Hokkaido's potential to solve such challenges.

Anticipated Social Issues & Changes to the Social Structure Society in 2035

Hokkaido's development potential (p. 11)

HEPCO

Group's

contribution

(p. 13)

Climate change

· Although progress is being made on initiatives to reduce greenhouse gas emissions in countries around the world, these are still insufficient as a whole.

• Economic security taking on greater importance Global · Global population growth and other factors make community it even more important to raise self-sufficiency

  rates for food, water, energy, etc.

• Society is aging further and there are fewer

  Demographics children

• Depopulation decreases regional vitality

• Labor shortages and other factors pose a challenge

Livelihood for maintaining electricity, communications, water, healthcare, and other public services and social

infrastructure

(Challenges resolved)

Japan's GX policy※1 defines a course of action in the aims of achieving a stable energy supply and decarbonization as well as utilizing decarbonization-related technologies in addition to AI and other digital technologies to bolster economic growth and strengthen Japan's global industrial competitiveness. The policy also emphasizes the importance of local production and consumption of clean energy on a large-scale.

Hokkaido anticipates digital industries will cluster in the region as carbon-free power expands based on the principle of watt-bit integration※2. Powerful tailwinds are furthering development of the region.

With its abundant nature and vast land, Hokkaido has the potential to be a hub supplying not only food, but also carbon-free energy in Japan, a country which relies mostly on resource imports. This will make a significant contribution to enhancing Japan's sustainability. Hokkaido's sustainability may also serve as a tourism resource, making the region even more attractive globally.

Hub for Digital Industries

Hub for Supplying

Carbon-Free Energy

Major Food Supplier Popular Tourist Destination

The regions magnificent nature, powder snow, hot springs, and other tourism resources are very popular among tourists from both Japan and around the world.

※1 GX2040 Vision, etc. ※2 Approach integrating power grids and communication infrastructure ※3 Ratio of power (kWh) generated in FY2024

※4 Material from the "Research Group on Localized Power Demand Growth and Power Transmission and Distribution Networks"

To contribute to realizing the vision of society in the year 2035, HEPCO Group will spur efforts to take up the "Challenge of Realizing GX to Drive Hokkaido's Development" and "Challenge of Creating New Value" as well as strive to "Reinforce Our Business Foundation for Sustainable Growth," which provides a foundation for addressing these challenges and transform our businesses.

We have positioned these three points as management themes ahead of 2035 based on the recognition that HEPCO Group has the capability to contribute to Hokkaido's development.

HEPCO Group will continue to actively transform our business and take up these challenges to both grow our group businesses and develop Hokkaido.

HEPCO Group's Business Growth and Hokkaido's Development

We will bolster our business foundation so that we may move forward to transform our operations and take up challenges, including those listed above.

To contribute to the promotion of industry in Hokkaido and resolution of regional issues, we will also take up the challenge of developing non-energy businesses while maintaining our focus on the energy business.

To contribute to digital industries clustering in Hokkaido, we will steadily improve the power infrastructure in anticipation of greater demand as well as buildout of renewable energies, and take up the challenge to decarbonize energy.

The table below shows the direction in which initiatives (subtasks) are oriented for each management theme (task). We determined these to be "material issues (materiality) for HEPCO Group." Promoting efforts from the perspective of sustainability, including ESG, will also enable us to contribute to the achievement of SDGs.

Task

Subtask (key work)

Relevant SDGs

Sustainable Development Goals (SDGs): Adopted at the UN Summit in September 2015, declaring 17 goals relating to poverty, hunger, energy, climate change, and other areas to be achieved by 2030

前回ビジョンの振り返り

2050年・2035年の社会像

2035年に向けた取り組みの方向性

持続的な企業価値向上に向けて

ほくでんグループの新たな経営理念

Even with renewable energies being built out and demand for electric power rising as GX industries locate in Hokkaido, whether it be expansion of next-generation semiconductor plants or establishment of large data centers into the region, HEPCO Group continues to deliver electricity to our customers while simultaneously balancing environmental compliance, economic efficiency, and the assurance of a stable supply, all of which are premised on the axiom of ensuring safety.

To achieve this, we are striving to decarbonize power sources (p. 17) while maintaining supply and balancing capacity, and will lower electricity rates to their proper level after Tomari Nuclear Power Station has been restarted. We will also marshal the collective strengths of the HEPCO Group in our efforts to supply energy to meet new large-scale demand (p. 19).

Hokkaido Electric Power Network is steadily constructing a next-generation electric power network (p. 16).

500

(TWh, end-use)

50

Hokkaido Area Demand Increase (Projected) and Electricity Business Orientation

As DX, GX, electrification, and other initiatives expand, demand may increase

While GX industry expansion is expected to boost demand for electric power in the Hokkaido area, the scale of this increase is still uncertain

400

40

300

30 27.6

About 34

further

About 38

Transmission & distribution

Retail sales

200

0 2024

2030

2035

※ Since April 2020, the transmission and distribution business has been

handled by Hokkaido Electric Power Network, a wholly-owned

※ The above is HEPCO's current estimate.

subsidiary, so as to maintain neutrality.

Our Vision of Society in the Years 2050 & 2035

Our Efforts toward 2035

Sustainably Enhancing HEPCO's Value

Growing Power Demand and Stable Supply Plan including Renewable Energy 15

HEPCO Group's New Management Philosophy

Hokkaido Electric Power Network is working to enhance resilience to avoid large-scale and prolonged service interruptions as well as promote decarbonization by improving the grid to welcome the buildout of renewable energies, and is also pursuing initiatives to construct a next-generation electric power network for the medium and long-term to appropriately respond to future trends including large-scale expansion of demand.

Responding to large-scale expansion of demand & efficiently improving grids

・Welcome Zone Map published showing locations may be available

・Strategically construct facilities for large-scale demand and supply

Install non-firm connections※１

Introduce re-dispatching methods※２

Effectively utilize existing grid (address congestion)

・Resolve congestion based on merit order

・Increase transmittable capacity by reflecting weather and other conditions (dynamic rating)

Data centers, semiconductor plants, etc.

Improve grid to handle renewable energy buildout

・Reinforce Shin-Kitahon HVDC Link

Next-Generation Electric Power Network

Research and development of DER*³ integration technology

Advance balancing & grid stabilization technology

・Field new technologies (Secure synchronizing capacity and inertia without synchronous generators)

Establishment of technical rules and standards (grid codes) for maintaining inertia, etc.

・Implement initiatives to improve grid, including HVDC links, in anticipation of a master plan drafted by the Organization for Cross-regional Coordination of Transmission Operators

Long-range HVDC transmission

Hokkaido-Honshu HVDC Link (Shin-Kitahon)

Grid stabilization system※4

Microgrids

Enhance resilience

・Leverage distributed grids to more efficiently utilize grids

・Use online operations to stabilize grids

・Rapidly communicate information during service interruptions

※1 Non-firm connection: Method of connecting power sources to a grid without grid reinforcement on the condition that output is controlled during times of congestion so that the existing grid may be effectively utilized.

※2 Re-dispatching methods: Method of resolving grid congestion by increasing output of balancing power sources on grids with capacity while decreasing output of balancing power sources on congested grids so as to alleviate electric power grid congestion.

※3 DER: Distributed energy resources such as solar power generation facilities, wind power generation facilities, storage batteries, electric vehicles, etc.

※4 Grid stabilization system: System that provides high-speed load control necessary to maintain demand-supply balance during large-scale power outages or transmission line accidents so as to maintain grid stability and prevent large-scale service interruptions.

HEPCO Group will maximize nuclear and renewable energies, which are carbon-free power sources, so that we may achieve carbon neutrality.

However, weather changes may not allow wind, solar, and other renewable energies to generate power for long periods of time or may cause sudden fluctuations in output, so the balancing capacity of thermal and other traditional power sources is essential to stabilize supply.

Nuclear

Power

• Pursue the world's highest level of safety

• Restart Tomari NPS Unit 3 as early as possible in 2027 and all units by the first half of the 2030 decade

• Safely and stably operate units after restart, raise capacity factors, and operate long-term

Power Mix of HEPCO Group's Power Generation Division (Illustration) [Power Generation Ratios]

To that end, while continuing to utilize thermal power generated from fossil fuels during a transition period, our aim is to decarbonize thermal power, and we will proceed to review converting to carbon-free fuels (hydrogen, ammonia, etc.), introducing CCUS, and taking other steps.

Orientation of Initiatives

Thermal (Oil & coal)

FY2014

FY2031

Hydro

Renewables

Nuclear

(Tomari Unit 3)

Nuclear

Thermal (LNG, coal, etc.)

Low-carbon

Renewable Energies (including

Hydropower)

• Based on coexistence with local communities, build out wind, geothermal, and other renewable energies with the aim of developing over 3000 MW on a gross development basis by FY2036

• Increase hydropower output with new construction and repowering

• Also engage in renewable energy-related businesses, such as

operation and maintenance of other companies' renewable energy

FY2036

Hydro

Renewables (All Tomari Units)

thermal※

power plants and outsourcing of maintenance and management

Thermal

Power

• Suspend or decommission aging thermal power plants, including coal-fired plants with low efficiency

• Utilize LNG to transition

• Convert to carbon-free fuels (hydrogen, ammonia, etc.)

• Capture, actively utilize, and store CO2 (CCUS)

※CCUS, LNG, partial conversion to carbon-free fuels, etc.

FY2051

(Long-term

aim)

Hydro

Renewables

Nuclear

Decarbonized thermal※

※CCUS, conversion to carbon-free fuels, etc.

Hydrogen and ammonia, which do not emit CO2 during combustion, are expected to serve as energy sources that will play an important role in achieving carbon neutrality. These are used as carbon-free fuels in the industrial and transportation sectors, for power generation, as raw material for e-methane※ and other alternatives, and in other sectors where electrification poses significant challenges.

※Methane manufactured using decarbonized hydrogen and CO₂ as raw materials

HEPCO Group is advancing initiatives to make use of hydrogen, ammonia and CCUS so that we may contribute to decarbonizing energy in Japan from our base in Hokkaido and also grow our businesses.

Hydrogen, Ammonia, and CCUS-Related Initiatives (as of March 2025)

① Hydrogen

② ③

⑤ ⑦ ➃⑥

① Ishikariwan Shinko Power Station (fuel converted to hydrogen)

② Sapporo City (participation in project to utilize hydrogen in decarbonization leading areas)

③ Chitose area (green hydrogen supply)

➃ Land adjacent to Tomato-Atsuma Power Station (operation of hydrogen production facility)

⑤ Western Tomakomai region (construction of hydrogen supply chain)

⑥ Tomato-Atsuma Power Station (fuel converted to ammonia)

Ⓑ Ammonia

⑦ Tomakomai area (construction of ammonia supply chain)

CCUS

Ⓑ Tomakomai area (CO₂ capture, active utilization, and

storage)

※The above projects represents the current status of initiatives and include those for

which decisions have not been made on the official launch of the project.

HEPCO Group is working, mainly through energy-focused projects and programs, to strengthen our relationship with households, companies, local governments, and communities so that we are selected as their provider of choice.

In addition, we are promoting initiatives that reduce CO2, provide energy solutions, offer comfortable and eco-friendly living, co-create with communities, and solve local challenges as these will lead to the expansion and creation of value provided to customers.

Expansion and Creation of Value Provided to Customers

HEPCO

Group

- Energy Business ―

Stable energy supply

(Supplying energy for safe and comfortable living and meeting large-scale demand)

CO₂ reduction and renewable energy use

(Renewable energy supply, PPA, utilization of non-fossil certificates)

Energy solutions Fielding new

(Optimal plans, electrification support/proposals, energy technologies

conservation/ZEB, energy creation, & DR) (Hydrogen, ammonia, & e-methane)

Community & urban development

(CEMS※, BCP, proposals/coordination)

Local co-creation & solutions to local issues

(Deca

consumption, & EV utilization)

rbonization, local production for local

- Non-Energy Business―

Providing comfortable eco-friendly living/corporate activities

(Residential equipment, EV chargers, PV systems, electrical equipment, & mechanical equipment)

Providing reassuring and healthy living

(Medical care, monitoring services, & insurance)

Providing fulfilling lifestyles

(Food/local specialties, experiences/tourism, & entertainment)

Local co-creation & solutions to

Providing convenient lifestyles local issues

(Financial services, points, & optical communication) (Regional revitalization, promotion of primary industries, etc.)

Local governments

and communities

※Abbreviation of "Community Energy Management System" which is a system that manages energy throughout an entire area.

To contribute to the sustainable development of Hokkaido, we will focus on Hokkaido's strengths and local community challenges, identify business opportunities in these, and create new value by expanding businesses that combine our business foundation and technical capabilities that we have developed with the technologies and know-how of our alliance partners as we take up the challenge to create an even better future.

HEPCO

Capabilities

Business foundation and technological capabilities developed over many years

• Realize healthy and vibrant

living through the provision of

Development attractive and convenient

of affluent public and living services

lifestyles • Establish circular systems by

promoting resource recycling

Further strengthening of key industries, etc.

• Realize sustainable next-generation agriculture, forestry, and fisheries

• Create higher value-added products in the food industry through bolstered branding and sixth industrialization

• Develop tourism-related industries leveraging Hokkaido's nature, food, and culture

• Create new industries originating in Hokkaido

Local • Develop communities by utilizing community nature, food, culture, history, and development other local resources

Local Community Challenges (Examples)

Further population decline Decline in public and and aging society livelihood services

Impairment of primary industry

infrastructure (Lack of successors, etc.)

Worsening logistics problems

Impact of climate change (Changes in harvest/ catch volumes, etc.)

Widening regional disparities

Hokkaido's Strengths and Potential (Examples)

Renewable energy

potential

Vast forest area

Fertile farmland

Diverse tourism resources

Abundant marine resources

Alliance Partners

Technologies & know-how

Business Opportunities Creation of New Value (Vision and Initiatives)

Recognizing that Kaizen and DX are sources from which the power to transform emanates, we are resolutely extending both of these tools and working to improve the foundation underpinning such elements. We are confident these initiatives will lead to sustainable growth and transform our businesses.

Utilize digital technologies

as a means for enhancing productivity

Apply insight gained through Kaizen to reassess business processes in order to facilitate DX implementation

Advanced reciprocally

Support

Concept 1

Development of personnel

Develop our personnel so they acquire the necessary skills and take the initiative in facing challenges and adapting to change

At HEPCO Group, we value each and every one of our employees, our most important capital, very highly and seek to further enhance their motivation and abilities so that we may contribute to sustainably growing our businesses and realizing a sustainable society even though a shortage of workers is projected due to the aging and declining population.

The personnel development and environment enhancement initiatives set out in our HEPCO Group Human Capital Strategy bolster employee growth and endeavors, and the creation of a corporate culture that produces new value while reinforcing current value will enhance our business value.

HEPCO Group Human Capital Strategy

(Two basic concepts)

Human Capital Strategy Goal

Enhancement of

Corporate Value

Concept 2

Development of

the environment

Create an environment where our diverse personnel recognize and accept each other and are able to thrive while feeling they are growing and satisfied with their work

Create a corporate culture that produces new value while enhancing current value※

Sustainable business growth and contribution to the realization of a sustainable society

Employee growth & endeavors

※Current value refers to current work and services carried out by each and every employee as well as related rules, technologies, and expertise.

Addressing the three management agendas outlined on p. 13 will enable HEPCO Group to contribute to perfecting the vision of society in the year 2035.

At the same time, we will also realize a 'sustainable enhancement of our corporate value' by addressing measures to ①optimize our business portfolio, ②expand ROIC spread for each business, ③optimally allocate cash and optimize our capital structure, and ➃invest in growth.

【Management Model】

Reinvest in our businesses

① Optimize our business portfolio

Build a business portfolio that contributes to ensuring a stable supply of electric power and realizing carbon neutrality

Improve profitability by selecting and focusing on specific businesses

②Increase ROIC spread※1

for each business

Allocate resources

Maximize ROIC

Minimize WACC

Allocate resources

Reduce risk through diversified investment

③ Optimally allocate cash and optimize our capital structure

Optimize equity capital Enhance shareholder return

➃ Invest in growth

Invest in next-generation energy※2

Make prospective investments in next-generation energy that have yet to have seen real-world deployment in order to secure future revenue opportunities and reduce risk

Contribute to sustainably enhancing corporate value

Invest in human resources

Invest in DX

※1 ROIC spread: ROIC (Return On Invested Capital) - WACC

Realize actual enhancement of corporate value

※2 Next-generation energy investment: Investment in hydrogen, ammonia, CCUS, e-methane, etc. (next-generation energy will be incorporated into our business portfolio at the stage when the project is expected to monetize)

To achieve each specific measure, HEPCO Group will set relevant management targets and advance initiatives while, at the same time, maintaining a strong awareness of what exactly we are seeking to achieve.

② Increase ROIC spread for each business

【see p. 29】

• Build a business portfolio with the flexibility to adapt to a widely-changing business environment where demand for electric power may increase and progress move forward on initiatives to achieve carbon neutrality

• Select and focus on specific businesses to increase the ratio of investments in businesses with high capital efficiency and maximize ROIC company-wide

• Diversify investments to offset risks between businesses and reduce WACC company-wide

• Optimize our business portfolio to ensure proper investment and human resources are allocated to

  each business unit

• In addition, promote initiatives to maximize ROIC and minimize WACC for each business unit so as to expand ROIC spread and continually generate cash

Measure

Overview

Relevant Management Targets

① Optimize our business portfolio

【see p. 28】

③ Optimally allocate cash and optimize our capital structure

• To ensure a balance between sustainable growth and maintaining financial health, prioritize allocation of cash generated using measures ① and ② to grow investments in next-generation energy and optimize equity capital, and, as has always been done, continue to provide a stable dividend to enhance shareholder return predictability.

• During the phase where our company is expanding, increased investment will boost interest-bearing debt, but measures ① and ② will ensure our earning power corresponds to the increase in that debt

➃ Invest in growth

• Based on measure ③, invest in next-generation energy that has yet to see real-world deployment in anticipation of future energy decarbonization, and strengthen our management foundation with investments in human capital, DX, and other assets that presuppose enhanced productivity

※1 CN-related investment: Investment in hydroelectric power (including pumped storage) business, carbon-neutral thermal power business, renewable energy development business, storage battery development business, and decarbonization-related transmission & distribution business

※2 Debt-to-EBITDA ratio: Indicator showing a company's debt repayment capacity (calculated using interest-bearing debt divided by EBITDA (operating income + depreciation, etc.))

※3 Added Value: Calculated using personnel expenses + depreciation + interest payments + rent + taxes and public dues + ordinary income

The measures outlined on pp. 24 and 25 are commensurate with measures for improving PBR (Price-to-Book Ratio: indicator showing the ratio of the stock price to book value per share and is used for evaluating the company and making investment decisions) announced in January 2024.

Components PBR Enhancement Measures

※As indicators marked with a plus increase, PBR rises.

As indicators marked with a minus decrease, PBR rises.

(Note) To gain the trust and meet the expectations of capital markets, we will take the initiative through our investor relations and other channels to dialogue with capital markets and further bolster our efforts.

In optimizing our business portfolio, we have divided our group businesses into "Energy (Generation, Transmission & Distribution, and Retail) ／Non-Energy" and "Implemented (Core Energy etc) ／ Prior to Full Implementation (Next-Generation Energy)."

Implemented (Core Energy etc)

Prior to Full Implementation

(Next-Generation Energy)

Carbon-neutral fuel-fired

Nuclear power thermal power (Hydrogen &

ammonia co-firing)

Hydroelectric & Renewable energy

pumped storage development

LNG-fired thermal

power

Battery farm development

Coal & oil-fired thermal

power

O&M※2

Transmission & distribution

Development of Hubs Supplying Carbon-Free Energy※1 to Expand Business Opportunities

Business Model Transformation

Energy Decarbonization

Hydrogen

Ammonia CCUS

Retail electricity

Electrification promotion

Energy management

Interaction

services※3

e-Methane

Combining Energy and Non-Energy to Secure New Revenue Opportunities

Combine

Business Area Expansion

Local co-creation Telecommunications

Real estate

Information system

Business Portfolio Target Areas

※1 Business model for actively investing to leverage Hokkaido's carbon-free energy so that it may be supplied not just throughout Hokkaido, but also Japan

(we anticipate supplying not just electric power, but next-generation energies also throughout Japan in the future)

※2 O&M: Abbreviation for "Operation & Maintenance"

※3 Interaction services: Businesses integrally providing a variety of products and services not limited to the energy sector

Generation

Transmission & distribution

Retail

Other

HEPCO Group will allocate resources (investment and personnel) to each of the businesses listed as Business Portfolio Target Areas on p. 27 from the perspectives of optimizing ROIC companywide through careful selection and focus as well as reducing WACC company-wide through diversified investment, while also taking into consideration the respective market positions and always keeping in mind that we will strive to ensure a stable supply of electric power and realize carbon neutrality.

【Business Portfolio Moving Toward 2035】

O&M

Combine to increase value

Transmission & distribution (next-generation network)

Coal & oil-fired thermal

power

Transmission & distribution

(conventional network)

Retail electricity

Information systems

Real estate

Telecommunications

Local co-creation

Electrification promotion

Interaction services

Energy management

Nuclear power

Carbon-neutral fuel-fired thermal power (Hydrogen & ammonia co-firing)

Hydroelectric & pumped storage

LNG-fired thermal power

Renewable energy development

Battery farm development

Attractiveness

High

Legend

Low

Weak

HEPCO Group strength

Strong

※Attractiveness: Position of each business is determined based on social conditions, accompanying policy trends, competition, estimated profitability, and other factors HEPCO strength: Position of each business is determined based on market share, strength of skills and know-how, and other HEPCO Group capabilities

Energy

In line with the business models set out below, we will promote those businesses to which resources (investment and personnel) have been allocated in accordance with our optimized business portfolio, and strive to widen the ROIC spread for each business by improving operating profit margin and invested capital turnover as well as reducing business risk.