Tepco to tie up with Chubu Electric for thermal JV: source

The move is the clearest sign yet that the rigid boundaries between Japan's regional monopolies are breaking down in the wake of the 2011 Fukushima nuclear crisis, which exposed flaws in the national grid, pushed up prices and led to three of the utilities, including Tepco, to turn to the government for aid.

Tepco and Chubu Electric, which are the dominant electricity suppliers in Japan's first and third-largest economic regions respectively, will aim to agree on terms of the tie-up by the end of this business year, which runs through March, the source said, requesting anonymity because the source is not authorised to talk to the media.

The utilities will discuss joint procurement of liquefied natural gas (LNG) and the construction and operation of fossil fuel-fired power plants in the partnership that is likely to be held on an equal basis, the source said.

Spokespeople at both Tepco and Chubu Electric declined to comment.

Tepco had been in talks with Tokyo Gas, Kansai Electric Power Co, Osaka Gas and JX Holdings for a possible partnership.

Tepco was saved from bankruptcy by the government in 2012 following the reactor meltdowns at its Fukushima plant north of Tokyo after an earthquake and tsunami in March 2011, the world's worst nuclear disaster since Chernobyl in 1986.

The disaster exposed the company to tens of billions of dollars of compensation claims and clean-up costs and led to the shutdown of all the country's nuclear reactors for stringent safety checks.

That forced operators to import record amounts of coal and expensive LNG for electricity generation, contributing to a record run of trade deficits for Japan and forcing two other regional monopolies to seek state aid.

Tepco, the world's second-biggest LNG buyer after Korea Gas Corp, wants to rope in a partner to jointly purchase between 35 million an 40 million tonnes a year of LNG.

Tepco currently buys about 25 million tonnes every year, while Chubu Electric, the world's third-biggest LNG buyer, takes in around 14 million tonnes a year.

The partnership is likely to be in charge of replacing Tepco's ageing fossil fuel-fired plants with combined capacity of 10 gigawatts, according to the source.

(Reporting by Kentaro Hamada; Writing by Osamu Tsukimori; Editing by Aaron Sheldrick and Matt Driskill)