Tokyo Gas Co., Ltd. Annual Report 2010

Achieving Sustainable Growth
in a Low-Carbon Society
Annual Report 2010

1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan
http://www.tokyo-gas.co.jp/index_e.html

This report is printed on recycled paper from Tokyo Gas offices.

Printed in JapanTokyo Gas Co., Ltd.

Tokyo, the start of the day
7:00 AMThe Tokyo streets are waking up and people arestarting their day. All over the city, households
are using city gas. For hot water, indoor heating,and cooking. And as fuel for fuel cells.

Tokyo is one of the world’s leading cities, with a population of more than 13 million, the largest economy of any city in the world, and abundant natural beauty. From its base in theTokyo metropolitan area, Tokyo Gas has provided energy that has supported the development of lifestyles and industry in Japan for more than 120 years.

Tokyo, business district
Noon

During the day, when economic activity picks up, businesses
rely on city gas. For air conditioning in individual offices aswell as entire districts. And for heating and in-house power
generation in industrial areas.

In 1969, Tokyo Gas received Japan’s first imports of liquefied natural gas (LNG) as a raw material for city gas. LNG came to play a major role in ridding the metropolitan area of smog and returning blue skies to Tokyo. Today, with increasing attention being paid to mitigating climatechange, LNG is making another important contribution to the environment. As the energy
source of the future, natural gas can simultaneously support both lifestyle and industry development and environmental conservation. Moving forward, Tokyo Gas will continue working to
spread and expand the use of natural gas.

TOKYO GAS ANNUAL REPORT 2010

The Tokyo Gas Group is steadily implementing
initiatives targeting sustainable growth in the
low-carbon society of tomorrow.

The driving force of Tokyo Gas

Strong Partnership

Clean Energy

Growing Market

Tokyo Gas has built a corporate

Natural gas is a clean energy

The service area of Tokyo Gas

brand of security, safety, andwith abundant reserves and theis principally centered on thetrust among more than 10 mil-lowest carbon dioxide (CO2)

Kanto region. This area has thelion customers. On that foun-emissions from combustion

highest concentration of energy

dation, we will engage in dailyof any fossil fuel. Growth in its

demand in Japan and the scaledialogue with stakeholders inadvanced use will play a majorof economic activity in Kanto

order to be a corporate grouprole in the realization of a low-

is expected to show strongthat maintains the trust of cus-carbon society.

growth due to population influx.

tomers, and remains the

As we extend our supply infra-

choice of customers.

structure to surrounding areas,
we will continue working to
uncover potential demand.

Contents

6

4

Financial Highlights

6

To Our Shareholders and Investors		President Tsuyoshi Okamoto discusses the position of Tokyo
Gas in an age of dramatic change, the Company’s vision for
the realization of a low-carbon society, its progress with themedium-term management plan, and decisions the Company
has made to realize sustainable growth.

1212Special Feature

Achieving Sustainable Growth in a
Low-Carbon Society		The themes of this year’s special feature are how the businessactivities of the Tokyo Gas Group contribute to the achievement ofsustainable growth in a low-carbon society. From that perspective,
this section explains the background to the Company’s businessstrategies and initiatives and provides specific examples.

22

Tokyo Gas at a Glance

24

Review of Operations

30

Technology Development

32

Corporate Governance38

Corporate Social Responsibility

42

On-Site IR Report

45

Financial Section

73

Consolidated Subsidiaries and Equity-Method Affiliates

74

Investor Information

About This Annual Report

Other Publications

This annual report was prepared as a communications tool that helps to foster a better understanding of the Company and to build good
relationships with shareholders, investors, anda wide range of other people. In addition to theCompany’s operating results and business strategies, it also provides information about mattersthat are not as readily visible from outside theCompany, such as the Company’s philosophy,
its approach to the environment and safety, andthe features of its operations and markets.

CSR Report
The CSR Reportintroduces thecorporate social
responsibilities(CSR) that theGroup is fulfillingthrough its business activities aswell as specific initiatives.
つなぐTokyo Gas
Environmental Activities

︑
む
す
ぶ
︑
さ
さ
え
あ
う
︒

東 京 ガ スグ ル ー プ のCSR 2009
2008.4〜2009.3

This report introduces the Company’s
activities in the areaof the environment,
which is an important element in allof the Group’s business activities,
and introduces the superior characteristics of natural gas and theCompany’s initiatives.

TOKYO GAS ANNUAL REPORT 2010

Financial Highlights
Tokyo Gas Co., Ltd. and consolidated subsidiaries
Years ended March 31

Thousands of
U.S. dollars*1(except otherwise stated)

Millions of yen(except otherwise stated)

FOR THE YEARSNet sales
Operating income

2010

2009

2008

2007

2006

2010

¥1,415,718¥1,660,162¥1,487,496¥1,376,958¥1,266,501$15,222,774

85,22965,20470,048

162,315

112,345916,440

Net income

53,781

41,70842,487

100,699

62,114578,290

Depreciation

146,117

141,083

142,421

133,142

136,376

1,571,150

Capital expenditures

148,186

145,929

138,006

124,556

119,435

1,593,397

19.86

15.63

15.94

37.50

23.48

0.21

—

15.37

15.50

35.69

21.70

—

301.58284.72289.49293.11

270.46

3.24

9.00

8.00

8.00

8.00

7.00

0.09

Total payout ratio*3 (%)

60.11

63.35

73.56

60.14

84.29

—

Payout ratio (%)

45.32

51.18

50.19

21.33

29.81

—

Amounts per share ofcommon stock (¥ / $)Net income
Diluted net income*2
Net assets
Cash dividends applicableto the year

AT YEAR-END¥1,840,972¥1,764,185¥1,703,651¥1,692,635¥1,693,898$19,795,397

Interest-bearing debt

555,919593,230

558,716

525,467

559,911

5,977,623

Total net assets

826,291

784,616

780,455

806,045

738,486

8,884,849¥ 199,898¥ 182,791¥ 184,908¥ 233,841¥ 198,490$ 2,149,440

Operating income
to net sales (%)

6.0

3.9

4.7

11.8

8.9

—

Net income to net sales (%)

3.8

2.5

2.9

7.3

4.9

—

TEP* (Billions of yen / Millions of
U.S. dollars)

18.6

–4.8

1.7

53.8

22.9

200

ROE*6 (%)

6.8

5.4

5.4

13.2

9.0

—

ROA*7 (%)

3.0

2.4

2.5

5.9

3.7

—

Equity ratio (%)

44.2

43.8

45.1

47.0

43.0

—

D/E ratio* (times)

0.68

0.77

0.73

0.66

0.77

—

Gas sales volume (million m3)

13,666

13,942

14,215

13,315

13,098—

Number of customers (thousands)

10,637

10,513

10,380

10,207

10,016—

LNG imports (thousand tons)(non-consolidated)

10,052

11,162

10,874

10,191

9,745—

Total assets

RATIOS
Operating cash flow*4

5

8Operational Data

*1 U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥93 = U.S.$1, the prevailing exchange rate on March 31, 2010.
*2	From the fiscal year ended March 31, 2010, diluted net income per share is not presented in the above table because there are no residual securities from the
beginning of the fiscal year.
*3	Total payout ratio for fiscal year n = ((income distributed as dividends funded by net income in FY n) + (share repurchasing in FY n+1)) / (net income in FY n).
*4 Operating cash flow = net income + depreciation (including amortization of long-term prepayments)*5	T EP (Tokyo Gas Economic Profit) = net operating profit after tax prior to interest payments – cost of capital (invested capital x WACC)
WACC: Fiscal 2008 results: 3.4% / Fiscal 2009 results: 3.2% / Fiscal 2013 outlook: 3.8%
*6 ROE = net income / total equity (average of positions at start and end of fiscal year)*7 ROA = net income / total assets (average of positions at start and end of fiscal year)*8 D/E ratio = interest-bearing debt (year-end) / total shareholders’ equity (year-end)

FINANCIAL HIGHLIGHTSNet Sales

Operating Income /Operating Income to Net Sales

Net Income /Net Income to Net Sales

ROE / ROA

¥ billion¥ billion¥ billion

%

%

%

1,800

200

40

120

20

1,350

150

30

90

15

15

10
900

100

20

60

10

450

50

10

30

5

0

0

5

0

0

06

07

08

09

10

06

Total Equity /Equity Ratio¥ billion

%

1,000

80

240

750

60

180

500

40

120

250

20

60

0

0

0

06

07

08

09

10

07

08

09

0

10

06

07

08

09

0

10

06

07

08

09

Operating Cash Flow

Cash Dividends Per Share /Payout Ratio

Total Payout Ratio¥ billion

¥

%

%

9

90

90

6

60

60

3

30

30

0

0

0

06

07

08

09

10

06

07

08

09

10

06

07

08

09

10

10

FINANCIAL STRATEGY AND KEY INDICATORS IN THE MEDIUM-TERM MANAGEMENT PLAN (FY 2009 to FY 2013)• Through the steady implementation of the key policies in
the medium-term management plan, over the five-year
period of the plan we will aim to generate cash flow*1 ofabout ¥1,070 billion. We intend to use this cash flow for
aggressive investment in such areas as upstream/overseas projects, infrastructural improvement, and demand
development.
• In making investment decisions, we will give due consideration for capital costs and will work to maintain andimprove investment efficiency, aiming for ROA of 3.7% in
the final year of the plan.

Major Management Indicators
Consolidated
Fiscal 2008
(Result)

Fiscal 2009
(Result)

Fiscal 2013
(Plan)

182.7

199.8

1,060.0
Over 5 years

ROA %

2.4

3.0

3.7

ROE %

5.4

6.8

7.7

TEP ¥ billion

–4.8

18.6

18.0

Operating cash flow ¥ billion• We will strive to increase dividends over the long term
and will maintain the target of 60% for the total payout
ratio*2. We will work to make effective use of shareholder capital and will target ROE of 7.7% in the final
year of the plan.
*1	C ash flow = operating cash flow + other cash flow*2	Total payout ratio = ratio of shareholder return (income
distributed as dividends funded by net income) + (share
repurchases) to net income

TOKYO GAS ANNUAL REPORT 2010

Toward the realization of a low-carbon society, we are working to promote the utilization of naturalgas, which is increasingly important as a key source of energy. Moving forward, we will continue
striving to develop the integrated energy business by fostering the advanced use of natural gas in awide range of fields.

Tsuyoshi Okamoto
President and Representative Director

To Our Shareholders and Investors

The Group’s management philosophy is as follows: “As an integrated energy company, theTokyo Gas Group shall make an active contribution to pleasant living and the development ofenvironmentally friendly society, and also pursue ongoing advancement together with the restof society, as a corporate group that earns and maintains the trust of its customers, shareholders and communities through its various activities.” In accordance with this management
philosophy, my most important mission is to successfully pursue the Group’s medium-term
management plan for fiscal years from 2009 to 2013 and to establish the route toward growthfor All Tokyo Gas over the long term.

Operating Environment Remains Challenging
In the January to March quarter of 2010, there were signs that the global economic slump, which began withthe financial crisis in the United States in 2008, had bottomed out. GDP growth, for example, finally turned
positive, and corporate results showed signs of recovery. The moderate recovery trend in our operating
environment is expected to continue over the short term. However, city gas demand, which has drasticallydeclined, especially in the industrial sector, has not recovered to the level seen prior to the Lehman Brothers
collapse. More time will still be required to reach a full-fledged recovery.
We expect the influence of the economic recession to continue in the fiscal year ending March 31, 2011.
In the residential sector, due to the continued slowdown in the housing market, the number of new housing
starts in our supply area is expected to decline. In addition, in the industrial sector, customers remain very
cautious about future economic trends.
Competition with other forms of energy continues to intensify. In the residential sector, the aggressive promotion of all-electric houses by electric companies is spreading from new housing to existing housing. Moreover, in the commercial and industrial sectors, these promotion efforts are expanding to include all-electriccommercial kitchens and manufacturing factories. It is important that we deal directly with the fact that weare in an extremely challenging operating environment.

“In the midst of the transition to a low-carbon society, the importance of natural
gas is increasing. The mission of Tokyo Gas is to expand the advanced use ofnatural gas.”
Rising Importance of Natural Gas in the Rapidly Changing Energy Industry
Throughout the world, calls for measures to mitigate climate change appear set to bring about major changes
in the energy industry.
The Japanese government, for example, has set goals of reducing emissions of greenhouse gases by 25%
by 2020 and 80% by 2050, compared to the level in 1990. A number of policy measures are currently being
considered to meet these goals, including the Act on Promotion of Global Warming Countermeasures andother laws, environmental taxes, and a domestic emission trading system. There is no question that some ofthese measures will sooner or later be adopted. In the future, in accordance with the concept of “moving
toward a low-carbon society,” the Japanese government will likely conduct wide-ranging deliberations about
the supply of energy in ways that transcend the traditional framework of petroleum, electricity, and gas.
With regard to the reduction of greenhouse gases, a current focus of attention is the use of renewableenergies, such as solar power, solar heat, wind power, and biomass. However, renewable energies sufferfrom quantitative supply restrictions and problems with supply stability. These forms of energy can only
account for a limited portion of total energy demand.
On the other hand, in comparison with other fossil fuels, such as petroleum and coal, natural gas has an
overwhelming advantage in environmental friendliness. With a wide range of suppliers backed by substantial
reserves, natural gas also offers supply stability. The convenience of natural gas facilitates flexible responses

TOKYO GAS ANNUAL REPORT 2010to a wide range of demand structure, such as dispersed power generation, and natural gas also offers highheat efficiency. Clearly, natural gas has a significant range of competitive advantages. In this setting, we areseeing rapid increases in the importance of natural gas as a key source of energy.
It is our mission to expand the advanced use of natural gas in a wide range of fields. As outlined in our
medium-term management plan, we want to actively contribute to the emergence of a low-carbon society
through groupwide initiatives in the integrated energy business, with natural gas at its core.
Specific initiatives targeting the realization of a low-carbon society include developing and cultivating natural
gas demand, establishing community-based marketing systems, and expanding basic infrastructure. Throughthe focused application of management resources to these three points, in particular, we are making steadyprogress.

“Our efforts to promote the advanced use of natural gas will center on the proposal of optimal energy solutions, principally cogeneration systems, and on
expanded sales of the “ENE-FARM” residential fuel cell. We will also work to
make further progress in the development of smart energy networks.”
Thorough Market Development, Centered on Advanced Use of Natural Gas
In the industrial sector, which accounts for more than 40% of our gas sales volume, there is still a substantial
amount of heat demand that is being met by fossil fuels other than natural gas. This means that there is significant potential left for the switch to natural gas. In response to this demand, we do not simply propose aswitch in fuel. We also propose high-value-added energy solutions that include the introduction of cogeneration systems andCumulative Unit Sales of “ENE-FARM”

other high-efficiency equipment. In this way, we are taking steps

Thousand units

to enhance convenience for customers.

50

In the residential sector, we are working to promote thespread of the latest appliances, including the “ENE-FARM”

40

residential fuel cell that was launched in 2009. In fiscal 2009,30

1,500 “ENE-FARM” fuel cells were sold, and in fiscal 2010,
we are planning sales of 2,500 units. As we strive to foster

20

the adoption of a new concept—an age in which energy is
generated at home—and to advance the introduction of “ENE-10

FARM,” we are aiming for cumulative total sales of 42,000 units
0

10/3(Results)

11/3

12/3

13/3
(Plan)

14/3

by the end of March 2014.
The introduction of a range of environmental regulations is currently being debated, and a growing number of commercial andindustrial customers are considering specific responses. We are approaching this accelerating trend as amajor business opportunity. As one facet of our energy services, for example, we are devoting resources tothe provision of energy-saving diagnoses. These include support for the preparation of reports to the national
government that are required under the Law Regarding the Rationalization of Energy Use, and the collection
and analysis of data regarding the energy usage of customers and the preparation of reports based on that
data. With these support services as a foothold, we are working to expand our energy services operations.
Moreover, to further enhance the value added of natural gas and promote its advanced use, we will undertake a full-scale initiative targeting the establishment of smart energy networks. These networks meetdemand for energy, including electricity and heat, with optimal combinations of energy sources. Combining
natural gas systems, centered on cogeneration systems, with other energy sources, such as renewableenergy and conventionally generated power, these systems provide local communities with networked
energy services. Fluctuations in demand for heat and electricity are accommodated through the network,
providing outstanding results in the reduction of energy consumption and CO2 emissions. In this way, smart
energy networks exemplify a next-generation energy supply. We will continue our ongoing efforts in technical

TO OUR SHAREHOLDERS AND INVESTORSdevelopment, which is the foundation for the growth of these operations. Meanwhile, to support concrete
progress toward commercialization, in May 2010 we began a demonstration project in Tokyo’s Arakawa
Ward. As we move forward with smart energy network development, we will steadily accumulate
know-how and move closer to commercialization.

“Through the completion of the LIFEVAL system, we have put in place the“structure” needed to enhance services. By adding the “spirit” of communitybased marketing to this “structure”, we will further enhance our brand valuesof security, safety, and trust.”
Implementing the Philosophy of Community-Based Marketing
One point that we are stressing is the establishment of community-based
marketing. Our direct contact with 10.63 million customers is a greatstrength and constitutes a tremendously important management asset for
the Company. With the objective of strengthening the service provided tocustomers, we reorganized and consolidated services that had previously
been dispersed and made a step-by-step transition to the Tokyo Gas LIFEVAL system. In October 2009, we completed the establishment of ourbases in 63 blocks.
In this way, we completed the “structure.” But by itself, that structure
has no meaning. Moving forward, we now need to add the “spirit” to the“structure.” Building relationships of trust is a task that is accomplishedthrough steady effort on a daily basis. Over more than 120 years, we havecultivated our brand values of security, safety, and trust by valuing our customers and supporting local communities. In the years ahead, we must further enhance those brand values.
On the foundation of the relationships of trust that we have cultivated, we will aggressively offer
high-value-added proposals in our daily contact with customers. These will include explanations of the advantages of the latest gas appliances, in terms not only of environmental friendliness but also of safety, ease ofuse, and contribution to comfortable lifestyles for customers.

“In response to growing demand, we will accelerate the construction of our
fourth LNG terminal and will implement thorough measures to acquire demandin the region extending for a 200 kilometer radius around Tokyo.”Strategic Infrastructure Development from a Medium- to Long-term Viewpoint
To meet growing demand for natural gas through the two specific initiatives described above, we must
reinforce the LNG value chain, which extends from gas fields to LNG terminals and pipelines, and finallyto customers.
With our three existing LNG terminals, our current supply capacity is about 17 to 18 billion m3 a year. We
are forecasting growth in demand, and it is possible that we will hit the upper limit of our supply capacity inthe second half of the 2010s.
We have considered construction plans for our fourth LNG terminal, the Hitachi LNG Terminal, in the port
district of the city of Hitachi in Ibaraki Prefecture, and for a high-pressure transmission pipeline connecting
the Hitachi LNG Terminal with the city of Moka in Tochigi Prefecture. Originally, we were planning for thestart of operations in the fiscal year ending March 31, 2018, but in December 2009 we decided to accelerate
those plans by two years.
Through the completion of this project, we will ensure supply stability in the Tokyo metropolitan area andalso increase our supply capacity in the northern Kanto area, centered on the area around the terminal andTOKYO GAS ANNUAL REPORT 2010

along the high-pressure transmission pipeline. In the region extending for a 200-kilometer radius around Tokyo,
we will be able to accelerate the advance use of natural gas, centered on industrial customers.
Furthermore, we are also considering the use of the Hitachi LNG Terminal as a shipping base for LNG
coastal tanker vessels. We have high expectations for the range of expansion possibilities that will becreated by the new terminal, such as the opportunity to expand our
supply area using pipelines, trucks, and coastal shipping.

Steady Progress in Implementing the Medium-Term
Management Plan
In addition to the three points outlined above, we are making favorable progress in implementing the measures outlined in the mediumterm management plan, even in an environment affected by thelengthening slump of the Japanese economy.
We have made progress in bolstering and expanding the LNG
value chain, especially in upstream business. In the area of upstream
interests, there is a natural hedging effect that moderates the pressure on gas business profits that results from the slide time lag during periods when gas resource costs are rising. Our interests in the
Darwin Project, which has reached its fifth year of operations, arecontributing to our profits, such as through the receipt of dividends.
We have already acquired interests in the Pluto Project. Construction work is proceeding favorably, and shipments are expected to start in the first half of 2011. In addition, in September 2009, we decided to invest in
the new Gorgon Project.
Furthermore, in March 2010 we signed a heads of agreement regarding participation in the Queensland
Curtis LNG Project in Australia. In this project, coal bed methane (CBM) will be converted on-site to LNG,
which will then be shipped. If this project is successful, Tokyo Gas will be the first Japanese energy company
to procure from and hold an interest in a CBM-derived LNG project. The Queensland Curtis LNG Projectwill be a milestone in expanding the range of choices thatGas Sales Volume and Number of Customers

we will have in future projects and in diversifying resource

Billion m3, 45MJ/m3

Millions

15

10.8

procurement.
In the future, we will continue to maintain an active presence in overseas operations, including the acquisition of inter-

12

10.5

9

10.2

well as its potential.

6

9.9

Results in Fiscal 2009 and Outlook for Fiscal 2010

3

9.6

0

0

ests, in order to expand the scale of the LNG value chain as

As described above, we have made steady progress with arange of initiatives, but our results reflect the continued slug-

07/3

08/3

Gas sales volume (left)

09/3
Residential
Industrial

10/3

11/3

gish business conditions.

(Plan)

In fiscal 2009, the number of customers rose 1.2%, orCommercial and others
Wholesale

120 thousand, to 10,630 thousand. However, the economic

Number of customers (right)

downturn resulted in reduced facility utilization by customers,
and the gas sales volume declined by 2.0% year on year,
to 13,666 million m3.

Due to the decline in gas sales volume and to lower gas unit prices under the gas rate adjustment system
stemming from the decline in crude oil prices, net sales were down ¥244.4 billion, to ¥1,415.7 billion. On theother hand, due to substantial improvement in the slide time lag, operating income rose ¥20.0 billion, to¥85.2 billion. As a result, we recorded lower sales but higher profits.
For fiscal 2010, we are forecasting gas sales volume of 14,460 million m3, an increase of 5.8%. Key reasons include higher demand as a result of the development of new demand and of improved business condi-

10

TO OUR SHAREHOLDERS AND INVESTORStions, as well as an increase in the amount of gas supplied to the Ohgishima Power Station, which started
operations in March 2010.
Due to the increase in gas sales volume, and to the effect of higher unit prices due to increased gas
resource costs, we are forecasting net sales of ¥1,551.0 billion, an increase of ¥135.3 billion. In profits, as aresult of improvement in actuarial differences associated with

Cash Dividends and Total Payout Ratio

accounting for retirement benefits, which will offset the negative effect of higher gas resource costs, we are forecasting

¥

%

10

100

lion. In this way, we are forecasting higher sales and profits.

880“Our policy for return to shareholders is
to maintain a total payout ratio of 60% of
net income, with consideration for higher
dividends.“

6

60

4

40

2

20

operating income of ¥108.0 billion, an increase of ¥22.8 bil-

0

06/3

07/3

08/3

09/3

10/3

0

In providing a return of profits to shareholders, we increased
per-share dividends by ¥1, from ¥8 to ¥9. Factors behind thisCash dividends per share (left)

Total payout ratio (right)

decision included a decline in the risk that we expected when
we formulated the medium-term management plan and a forecast of stable future profits. Specifically, theprice of LNG, which had fluctuated significantly due to swings in crude oil prices, regained its stability. We
were also able to reduce the risk of fluctuations in pension actuarial differences in the future by changing ourpension fund investment to a portfolio centered on long-term bonds from fiscal 2010. In addition, we expect
to be able to absorb the increased expenses resulting from the acceleration of the construction of the Hitachi
LNG Terminal by restricting capital investment as well as overall investment and financing.
We remain committed to our policy of providing a 60% total payout ratio, including dividends and purchasesof treasury stock. Due to an absorption-type merger with a subsidiary, we have already purchased 14 million
shares of treasury stock in fiscal 2010. Including those shares, we have purchased and cancelled 19.56 million
shares of treasury stock, and as a result the total payout ratio reached 60.1%.

Maintaining the Trust of Customers, Remaining the Choice of Customers
I believe that companies are public entities that exist not for a specific group of stakeholders but for all stakeholders. This is especially true for Tokyo Gas, which conducts business operations that have a strong public
interest.
It goes without saying that it is important for the Company to gain the trust of the capital markets andrecord continual growth. To that end, it is essential to generate a high degree of customer satisfaction and toremain the choice of customers. As an energy company that supports consumer lifestyles as well as industrial
activity, this is an important social responsibility.
It is my job as chief executive to create high value-added, centered on the environment, and to demonstrateleadership in the transition to a low-carbon society. This is also corporate social responsibility that must be fulfilled by
Tokyo Gas. In this way, we will meet our social responsibilities to customers and local communities throughour daily operations. Moving forward, Tokyo Gas will strive to be a company that responds to the mandate ofits shareholders and will work to grow together with its shareholders and investors.
July 2010

President and Representative Director, Tsuyoshi Okamoto

TOKYO GAS ANNUAL REPORT 201011

Special Feature

Merging of Ecology andAchieving Sustainable Growth
Sustainable Growth

in a Low-Carbon Society
Growing calls for a transition to a low-carbon society on a global scale—Tokyo Gas is working to contribute to the transition to a low-carbon society
and to achieve sustained growth. To those ends, we are developing the
integrated energy business, with natural gas at its core.
Outlook for a Low-Carbon Society and the Growth Potential of Tokyo Gas
Social Demand for Realization of Low-Carbon Society
Key Points• Global target—Reduce CO2 emissions by 50% by 2050 from the1990 level• Domestic target—By 2050, reduce CO2 emissions by 80% from the 1990 level• Demand for natural gas—Forecast of 34% growth on global basis in comparison with 2005
Due to economic growth in emerging countries, energy demand is steadily increasing, andinitiatives to mitigate climate change have become a vitally important issue, not just forJapan but on a global scale. There is an ongoing search for energy with low CO2 emissions,such as nuclear power and renewable energy, but there remain a number of significant challenges, including construction leadtime and limit of supply amount

IEA Blue Map Scenario: 50% reduction in CO2 emissions by 2050

issues. In this setting, natural gas is

Billion tons

widely considered to be the source of60

Baseline CO2 emissions in 2050: 62 billion tons
CCS

energy that can make the most realistic and effective contribution to the

Clean energy, etc.

50

measures. Heating accounts for the
majority of energy demand, and thecertain to expand. Moreover, throughcogeneration systems and other tech-

40

30

20

nologies, natural gas will also play amore important role with theadvanced use of energy, including
electricity. Natural gas also has a keyrole in the International Energy
Agency (IEA) scenario calling for CO2
emissions to be reduced by 50%
by 2050.

12Special Feature

100Blue Map Scenario: 14 billion tons
(50% reduction in emissions in 2050)

Energy saving

use of natural gas to provide heat is

CO2 emissions

promotion of global warming counter-Industry and transformation
Power generation
Nuclear power
Renewable energy (solar power,
wind power, biomass fuel, etc.)
Power generation
efficiency & fuel switching
End-use fuel switching
End-use electricity efficiency
End-use fuel efficiency

Necessary reduction: 48 billion tons
Reduction potential of technology
under Blue Map Scenario

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Annually: 32 additional 1,000MW-class nuclear power plants, about 17,000
4MW-class wind power plants, addition of CCS to 35 500MW-classcoal-fired power plants.
Source: IEA Energy Technology Perspective 2008

Clean Energy, Natural Gas
Key Point• Natural gas: Lower lifecycle and combustion CO2 emissions than any other fossil fuelMethane, the primary ingredient of natural gas, has fewer carbon

Comparison of Emissions (Coal = 100)

atoms per molecule than other fossil fuels, such as petroleum or

CO2coal. As a result, the combustion of natural gas generates less
CO2 than the combustion of other fossil fuels. That is one reason80

why natural gas is a clean form of energy. Another is that CO2
which entails the gasification and caloric adjustment of LNG. And

100

Coal

Oil

60

emissions are also low during the city gas production process,

NOX

70

SOX

100

Coal

70

40 OilNatural Gas

0Natural Gas

100

Coal

Oil

Natural Gas

with pipelines connecting terminals and end-use regions, the city
gas supply infrastructure features extremely low energy loss during transmission. As a result,even when considering the entire lifecycle impact, it is clear that natural gas is an extremely
environmentally friendly form of energy.

High-Growth Market
Key Points• Largest economic region in Japan, accounting for about 40% of GDP• Only domestic region expected to enjoy continued population inflow
The service area of Tokyo Gas is centered on the Kanto region.

Breakdown of GDP of Japan by Major Area

This region has the highest concentration of energy demand in(Year ended March 31, 2008)

Japan, and industrial demand is expected to lead to continued

39.2

market growth in the years ahead. The Kanto region, in turn, iscentered on Tokyo, which boasts one of the largest economies ofany city in the world. In fact, the Kanto region alone accounts forabout 40% of Japan’s GDP. Overall, Japan’s population is declining, but Kanto is the only one region in Japan that is expected toenjoy a continued population inflow. Leveraging the geographicaladvantages of a large plain, we are aggressively extending pipe-

10.1

15.6

Total: ¥520.3 trillion

lines to outlying industrial areas. We are also building a new LNG

39.2% Tokyo area: Tokyo, Kanagawa, Saitama, Chiba, Ibaraki, Tochigi, Gunma,
Yamanashi, and Nagano prefectures

terminal, the Hitachi LNG Terminal, in northeast Kanto. In these

15.6% Osaka area: Osaka, Hyogo, Kyoto, Shiga, Nara, and Wakayama prefectures
10.1% Nagoya area: Aichi, Gifu, and Mie prefectures

ways, we are preparing to meet further demand growth.

Source: Cabinet Office, Government of Japan

Aiming for Further Growth
Key Points• Gas sales volume in the fiscal year ending March 31, 2014 up by 18% from the fiscal year ended March 31, 2009
• Target of reducing customer CO2 emissions by 4.5 million tons by 2020
Aiming to increase the value added of natural gas and to support

Outlook for Gas Sales Volume and Number of Customers

growth in its use, Tokyo Gas is implementing a medium-term

Billion m3, 45MJ/m3

management plan with the theme of “evolution and advance-

18

11.5

12

11.0

6

10.5

Millions

ment of integrated energy business.”
To accelerate business development, we will draw on ourstrengths—environmentally friendly natural gas, a high growthbusiness area, and our engineering capabilities. In these endeavors, we will give consideration to expanding the shift from otherfuels to natural gas; taking steps to foster advanced use of natural gas, such as stepping up the introduction of cogeneration
systems; and establishing next-generation energy systems,
such as smart energy networks. In these ways, we will strive tocontribute to society’s transition to a low-carbon society and toachieve sustained growth for the Company.

0

09/3

10/3

11/3

(Results)
Gas sales volume (left)

12/3

13/3

14/3

10.0

(Outlook)
Residential
Industrial

Commercial and others
Wholesale

Number of customers (right)

TOKYO GAS ANNUAL REPORT 201013

Feature 1
Fuel Switching and the Introduction of High-Efficiency Equipment
Energy Savings and CO2 Emission Reductions
from Fuel Switching
Natural gas is widely used in industry for such applications asheating, heat processing, drying, food processing, and air
conditioning. Industrial furnaces and boilers consume large
amounts of fuel, and the switch from heavy oil or kerosene tolow-environmental burden natural gas, combined with the
installation of high-efficiency equipment, is one of the mosteffective means of combating the problem of global warming.
Specifically, Tokyo Gas provides its industrial customers witha wide range of optimal systems, such as gas engines, gas
turbines, steam-turbine cogeneration systems, and boilers.
In particular, the introduction of regenerative burner systems in industrial furnaces facilitates both extremely high fuelRegenerative Burner System
This system efficiently recovers the high-temperature exhaust gas
from industrial furnaces and uses it to preheat the air utilized for
combustion. This system is drawing attention as an effectivemeans to save energy and reduce CO2 emissions.

efficiency and low NOx emissions, and in conjunction with aswitch to natural gas, these systems can make possible reductions of up to 50% in energy consumption and up to 55% in
CO2 emissions. The combination of regenerative burner sys-

CO2 Reduction Effect from Using Natural Gas
for Industrial Furnaces

CO2
Emissions100

tems and a switch to natural gas is drawing attention as ahighly effective environmental countermeasure in this field.

Expanding Gas Usage with Marketing that
Leverages Comprehensive Strengths from theCustomer’s Perspective

Effect of converting to natural gas(Converting from coal, oil, etc., to natural gas)

–25%

Tokyo Gas has high-level engineering skills that it acquired in
the development of its integrated energy business. In addition, the Company has the ability to propose total service

Total
–55%

Heavy oil A + Conventional burner

75

Natural gas + Conventional burner

solutions incorporating facility optimization and maintenance.
In today’s market, customer needs are not only increasing
but also growing more advanced and diverse, and by provid-

Effect of higher efficiency(Introduction of high-efficiency equipment
at the time of fuel conversion)–30%

ing high-value-added solutions that respond to these needs,
Tokyo Gas will strive to meet customer expectations,45

steadily seize growth opportunities, and contribute to the

Natural gas + High-efficiency burner

realization of a low-carbon society.

Provision of Value to Customers in Line with Facility Life Cycle

Understanding of the latest customer
needs / demands

Consultation utilizing technical /engineering capabilities• Proposal of optimal energy usage• Proposals utilizing energy-saving / newenergy-usage technologies• Finance services• Further sophistication in the safety ofgas appliances

14

Special Feature

Facility renewal

Needs / Demands

Proposal

Realizing
solutions tocustomerdemands

System selection
Design /Installation

Deepening
Ties with
Customers

Operation /MaintenanceOperational support / maintenance inline with customer demands• Monitoring of energy-saving diagnoses• Provision of operation / management
services• Risk management• Safety services (strengthening of
periodic gas facility safety checks)

Case Study: Furukawa Sky
Aluminum Corp., Fukaya Plant
LPG to Natural Gas—
The First Step in the Fuel Switch“It wasn’t simple at first.” That was the recollection ofOsamu Kawakami, a key member of the project team. The

From left: Kazuhiko Kobayashi (Tokyo Gas); Hiroyuki Fukui,
Osamu Kawakami, and Wataru Shiobara (Furukawa Sky Aluminum)

switch to natural gas at the Fukaya Plant of Furukawa Sky
replacement of the LPG facilities. At that time, there was no

Heavy Oil to Natural Gas—
Moving Ahead with a Full-Scale Fuel Switch

difference in the price of LPG and natural gas. Even though

In 2004, Furukawa Sky Aluminum began to implement a

there were no substantial cost advantages, however, Furu-

full-scale fuel switch at a melting furnace that had beenkawa Sky Aluminum decided to make the switch because

using heavy oil. Today, the fuel switch process has been

the company was committed to the introduction of clean

completed smoothly at seven melting furnaces. In addition,energy. “We wanted to pave the way for a switch fromregenerative burners have been introduced.

Aluminum, which got underway in 2003, began with theheavy oil in the future. However, there were challenging“We are seeing the effects in reduced energy consump-issues, such as installing pipelines over a considerable dis-tion and in lower CO2 emissions. Of course, the switch

tance and converting facilities to natural gas firing.” Tokyo

from heavy oil, which is subject to dramatic price fluctua-

Gas sent 450 engineers, and with Tokyo Gas and thetions, also has substantial cost advantages,” said general

Fukaya Plant working closely together, the switchover frommanager Hiroyuki Fukui. Osamu Kawakami and Wataru

LPG was completed in only a year, including the pipeline

Shiobara both reported that “the exhaust is cleaner, withinstallation.

decreases in SOx, from the sulfur in the heavy oil, as wellas in particulate emissions. In addition, the natural gas facilities are simpler, making maintenance and management
easier. There has been very little trouble.”
The company reports that cleaner exhaust gas is also
contributing to improved relationships with the local community. Tokyo Gas is proud to have been able to work
together on this with Furukawa Sky Aluminum, its valued
customer.

Principal gas facilities that were introduced•	Aluminum melting furnace•	Soaking furnace, heating
furnace• Heat treatment furnace• Steam boiler

Results
Progress in switch to natural gas:
80% of total fuel consumption
CO2 emission reduction:
30% reduction from previous level
Energy saving:
10% to 30% reduction from previous level
Aluminum Melting Furnace

Furukawa Sky Aluminum, Fukaya Plant
Furukawa Sky Aluminum, Japan’s leading maker of aluminum products, is moving ahead
with environmental initiatives targeting energy saving and CO 2 emission reductions,centered on a switch to natural gas and the introduction of high-efficiency equipment.
The Fukaya Plant is leading the way forward in those endeavors.

TOKYO GAS ANNUAL REPORT 201015

Feature 2
Solutions Services Centered on Natural Gas
The Environmental Friendliness of
Natural Gas Cogeneration Systems
As society pursues measures to reduce energy consump-

Comparison of Total Energy Efficiency
Conventional system*1
Primary energy (coal, petroleum, natural gas, etc.)tion and reduce CO2 emissions, the ideas of dispersed
power generation and waste heat usage through cogeneration systems will play a central role.
Unlike large-scale power generation systems, where theelectricity is transmitted over considerable distances to the

Thermalpower plant
Electricity 40

100

demand district, with cogeneration systems there is notransmission loss because the power is generated where it
is used. Moreover, power generation also creates heat,
which has generally been wasted because it was difficult to56

4

Difficult-to-use
waste heat

Total loss
(on-site use, transmission /distribution loss, etc.)

Natural gas cogeneration system*2
Primary energy (natural gas)use. With cogeneration systems, however, this waste heatcan be used effectively to meet heat demand, such as forheating and cooling as well as for hot water. Consequently,
these systems realize high energy efficiency and make it

LNG tank

City gas
Electricity 40
Heat usage 30

100

30

possible to reduce CO2 emissions by about 40% in compari-

Difficult-to-use
waste heatson with conventional systems. As of the end of March
2010, there were 1,948 cogeneration systems in operationin our service area, with a total power generation capacityof 1,534,000 kW (commercial use: 1,621 systems, 521,000
kW; industrial use: 327 systems, 1,012,000 kW).

More-Advanced Use and Area-Wide /Networked Energy Services
To further advance the use of environmentally friendly natural gas, Tokyo Gas will strive to introduce area-wide / networked energy usage and build optimized energy systems

Gas engine /gas turbine / fuel cell, etc.

*1	L HV standard (LHV = lower heating value: the amount of heat from the
combustion of the fuel, not including the latent heat of water vapor
condensation) The heat efficiency and total loss from thermal power plants
is calculated from the results of 9 electric power companies and electricity
wholesale companies for fiscal 2003 (Energy Efficiency Standards
Subcommittee of the Advisory Committee on Energy and Natural
Resources, September 2005)*2	Efficiency of natural gas cogeneration systems is an example using the
LHV standard.

Diagram of a District Heating and Cooling System
Hospital

Office building
Energy plantat the local community level. One example of these initiatives is district heating and cooling, in which Tokyo Gas has

Commercial
facilities

a history of more than 35 years. These systems contributeto lower energy consumption and reduce CO2 emissions
for an entire district. Currently, the use of these systems iscentered on redevelopment areas, such as Makuhari andHotel

Shinjuku.
Tokyo Gas does much more than just supply facilities
and energy. We are advancing energy service operations
and ESCO (energy service company) operations, which pro-

Economic Benefits of ESCO Operations

vide comprehensive support for reducing energy consump-

Benefits
to customers

tion, such as the necessary technology, human resources,
and financial resources. By increasing convenience andenhancing cost merits for customers, we will work to

ESCO
service charge

Utility bills

Benefits
to customers

promote the spread of natural gas.
Guarantee by
ESCO operators
Prior toimplementation of
ESCO operations

16

Special Feature

Utility bills

Utility bills

Duringimplementation of
ESCO operations

After
conclusion of
ESCO operations

Case Study:
Mitsui Memorial Hospital
Commemorating the Hospital’s 100th
Anniversary, Transitioning to Comfortable,
Economical, Environmentally Friendly Energy
Services on Behalf of Customers
Mitsui Memorial Hospital faced a problem with outdated
power facilities. To further enhance the hospital’s healthcare services by increasing the use of IT in hospital administration and introducing the latest sophisticated medical

Mitsui Memorial Hospital
The Mitsui Memorial Hospital was established in 1906.
This central hospital takes a comprehensive approach toequipment, additional power was needed. This was one
reason the hospital decided to rebuild its facilities. Dr. Toru
Mannen, who was honorary director at the time, said,

the provision of health care services that meet community
needs and are based on the patient’s perspective.

“More than anything else, we felt it was important toimprove the amenities for our patients.” He noted, “ForIn 2008, the first system was installed in the in-patient

example, patients are taken to the operating room wearing

wing. This system will also supply electricity, cold water,

only a single robe, so air conditioning is extremely impor-and steam to the outpatient wing, which is scheduled fortant. To achieve both a stable energy supply and enhanced

completion in 2010. This area-wide usage will further

amenities, we needed to switch to an efficient system that

increase efficiency, and we anticipate substantial reductions

did not waste energy.”

in energy consumption and CO2 emissions.

To meet these needs, Tokyo Gas provided energy services with a good balance across all areas, including cost,environmental friendliness, and comfort. Yutaka Kobayashi,

Effect of Introducing Energy Systemfrom the hospital’s Construction Department, said, “Withhospital administration costs increasing, we wanted toreduce energy costs as much as possible. That’s why we100%
Prior tointroduction

focused on the energy services of Tokyo Gas.” “Gas cogen-100%
Prior tointroduction

92.8%
After
introduction

88.5%
After
introduction

eration systems are the most efficient, and have an extensive track record. What’s more, they are environmentallyfriendly because they use waste heat. That’s why we chosenatural gas.”

Primary energy consumption

CO2 emissions volume

System Overview
City gas

Gas sales

Cold waterGas cogeneration system
Waste heat
hot water

Gas absorption hot and cold waterequipment that uses waste heat

Hot water

Gas absorption hot and cold water unit
Screw refrigeration machine
High-efficiency, small-size,
once-through steam boiler
Commercial
electric power
Fuel company

Electric power
Heavy fuel oil A

Power receiving andtransformer facilities
Oil tank

Emergency electric
power generator

Heat
exchanger
Heat
exchanger
Heat
exchanger

Steam

CoolingHeating

Steam

Hot water supply

High-voltage line

Electric power

Overview of New Energy Services
By combining the latest optimal systems, centered on gas cogeneration systems, high levels of cost savings and environmental
friendliness are achieved. We work to offer the optimal mix, including forms of energy other than gas for use in emergencies.
Now, the hospital can continue to provide health care services even in the event of a disaster.

TOKYO GAS ANNUAL REPORT 201017

Feature 3
Dialogue: Tokyo Gas and the Transition to a Low-Carbon Society
by about 25%. And in most cases, when the fuelis changed, high-efficiency equipment is installedat the same time, so reductions of up to 50%
can be achieved. That’s why we’re seeing a rapid
increase in the number of customers that wantto switch to natural gas, especially large industrial companies.
Nakagami

Does Tokyo Gas have the infrastruc-ture needed to handle that increase?
Maeda

Our pipeline network covers the Tokyo

metropolitan area, so we are basically ready inTokyo. But in the greater Kanto area, there arestill some regions where natural gas isn’t used

“ENE-FARM” residential fuel cellThis is a fuel cell cogeneration system that generates electricity from achemical reaction between hydrogen, which is separated from city gas,
and atmospheric oxygen. The waste heat from that process is used for
hot water and indoor heating.

because of a lack of pipeline infrastructure. We
consider it part of our mission to facilitate theuse of natural gas in those areas.
The first step we are going to take in that

Hidetoshi Nakagami, President of the Jyukankyo ResearchInstitute Inc., which is active in energy and environmental
issues, met with Tadaaki Maeda, Vice Chairman of Tokyo Gas.
They discussed the importance of natural gas in an energy
policy that targets the development of a low-carbon society
and the role that Tokyo Gas will play in the years ahead.

direction is to build the Hitachi LNG Terminal andput in a pipeline to northern Kanto. Now we aremoving ahead with the conversion to natural gas,principally in industrial areas. In outlying areas,
meanwhile, we plan on making full use of trucks
and coastal shipping to support growth in the

The Importance of Natural Gas

use of natural gas.

“Japan needs to consider a comprehensive energy policythat includes a shift to natural gas.”

Increasingly Sophisticated Use of Natural Gas

Nakagami This year, the Japanese government has“Technology can be used to resolve environmental problems without sacrificing comfortable lifestyles, with afocus on technologies that integrate cogeneration andrenewable energy with natural gas.”

revised the Basic Energy Plan, which outlines the overall

Maeda

direction of Japan’s energy policy. As you know, natural gas

opinions about environmental problems from the consum-

plays a key role in global warming countermeasures in

er’s point of view. What are your thoughts about energy

Europe and the United States, but the position of naturalsaving and environmental problems in housing-related areas,

gas in Japan has not been as clear in past years. Recently,

your field of specialty?

Maeda First, I would like to hear your thoughts about therole of natural gas in future energy policy.

For many years, you have analyzed and offeredhowever, there have been comprehensive deliberations on
a wide range of topics, including energy security, and as a

Nakagami

result, there is a renewed appreciation of the importance ofJapan lags far behind in the use of heat in housing. Indoora shift to natural gas.

heating is a good example. Overseas, central heating is a

In comparison with many other countries,

basic housing amenity, but in Japan individual room heating

18

Maeda Nuclear power and renewable energy have been

is still predominant. This is in contrast to hot water heating,drawing a lot of attention as ways to control CO2 emissions,which was centralized at a very early stage in Japan. Before

but a shift to natural gas is still seen as the most realistica move to central heating got underway, the global warm-and effective policy. Even with just a simple shift in fueling problem became a focus of attention. Consequently,

from oil to natural gas, it is possible to cut CO2 emissions

there was a point of view that we should reduce energy

Special Featureusage volume before

gas appliances. With renewable energy, such as solar

making qualitative

power generation and solar heating, output is unstable

improvements in indoor

due to fluctuations in natural conditions, while city gas

heating.

appliances can be counted on to work any time. Examplesof that compatibility include double power generation,

Hidetoshi Nakagami

Maeda

President, Jyukankyo
Research Institute Inc.

improvements in hous-

SOLAMO, where we combine solar-powered water heaters

ing have almostand high-efficiency, latent-heat-recovery water heaters.

Founded Jyukankyo ResearchInstitute in 1973. Is widely active
in such fields as energy and global

Qualitative

become sacrifices,haven’t they?

environmental issues as a leader
in energy-related problems,
especially in the field of housing.

which combines fuel cells and solar power generation, andNakagami

The times are certainly changing, aren’t they?

Consumers want to live environmentally friendly lifestyles,
NakagamiThat’sbut in many cases they don’t really know how to do so. As

Member of a number of advisory

right. If more progresssuch, it is very user friendly of Tokyo Gas to contact cus-councils. Serves as Chairperson,

had been made in cen-

tomers and offer them integrated systems. I believe cus-

Energy Efficiency and Conserva-

tral heating, we could

tomers want the Company to take the initiative in providing

Committee for Natural Resources

have realized healthier,integrated energy services.

and Energy, Ministry of Economy,

more comfortable life-

Trade and Industry. Professor,

styles, especially withMaeda

the aging of society,ing city gas to their customers on a continual basis, andand then discussed

they have close ties to local communities. As a result, thetion Subcommittee, AdvisoryTokyo Institute of Technology.

Gas companies have the responsibility of provid-

environmental problems. Moving forward, to improve envi-

customers in those communities trust the gas companies. I

ronmental friendliness while simultaneously providing

think we need to build on those relationships of trust. In addi-

highly functional housing, we will need to make effectivetion to services, suchuse of the heat that has been wasted at the point of poweras supplying gas, gas

generation. And that role will likely be filled by fuel cells andcompanies also need toother cogeneration systems. The rapid spread of thosefoster the spread oftechnologies should lead to the development of more com-

new systems by meet-fortable lifestyles.

ing customer needs inour role as suppliers of

Maeda Last year, we finally commercialized fuel cells forgas appliances.

the residential market, and their use has begun to spread.
At this point, they are only available for detached housing,but we are now moving ahead with the development of

Smart Energy
Networks

the next-generation model will resolve some of those“These issues extend
beyond electricity;
we need to build integrated networks thatincorporate heat. And
we need an open business model.”issues, right?

Maeda

products for multiple dwelling units (MDUs).
Nakagami There are numerous MDUs in the Tokyo Gas
service area, aren’t there? I understand that the installationof these units in MDUs poses some challenges, such as
space limitations and restrictive installation conditions, but

Tadaaki Maeda
Director, Vice Chairman,
Tokyo Gas
Joined company in 1970. Has
principally been in charge of technological and planning divisions.
Became executive vice president
in 2006, and assumed current
position in April 2010.

In Europe andthe United States, they are currently searching for ways to
Maeda Yes. We are also working on the development

move toward smart energy networks, such as the use ofof high-efficiency fuel cells, such as solid oxide fuel cells,

smart grids. What are your thoughts about this trend?

and on systems incorporating renewable energy. That’s aresult of our growing understanding of the extremely highNakagami I think the key points here are establishinglevel of compatibility between renewable energy and city

information networks that can handle real time demand-side

TOKYO GAS ANNUAL REPORT 201019

Feature 3
Dialogue: Tokyo Gas and the Transition to a Low-Carbon Society
information and working to optimize the demand–supply bal-systems, it will be possible to make further substantial

ance as much as possible. That is true for Japan, too, where

gains toward a low-carbon society. There is a need for poli-

the supply-side systems are extremely precise, but, surpris-cies coordinated with urban planning.

ingly, the systems can’t handle demand-side information.
Generally, the United States has taken the lead in pro-

Nakagami

In the past, with energy supply systems,

moting the idea of smart grids, so these grids are often

bigger meant more efficient. Now, however, when heatassociated with electricity networks, but it is necessary to

is used, overall energy efficiency can be raised by using

think about handling heat as well. In that sense, the term

combinations of smaller dispersed systems.

“smart energy network” is an extremely good way of thinking about this issue, and I hope it catches on. For example,

Maeda

the district heating and cooling system that we have seenties. A good example is Shinjuku, where a district heating

today is really an extremely large heat network. If it is com-and cooling system has been introduced. To make the mostbined with other systems, there will be whole range ofof these areas in the future, I think there is a need for ainteresting possibilities.

framework supporting the optimization of energy usage in

Large redevelopment areas present real opportuni-

that area. At that time, perhaps we will see the emergence
Maeda The majority of energy demand is accounted forof a new business model. For example, something like an

by heat, so the idea of a smart energy network that fosters

energy network operator could handle overall coordination

optimization, including not just electricity but also heat, is an

including electricity and heat, rather than having an electricidea whose time has come. For example, if renewable

power company handle everything on its own. Currently,

energy is introduced on a large scale and output fluctuation

we are working to deepen energy services, but in theadjustments are handled just with conventional, centralized

future I would like the Company to try these new types

power generation, then facilities costs will expand and heat-of businesses.

related optimization won’t be possible. For that reason, weare hearing calls for the “smart” control of heat and electric-

Toward a Hydrogen Society

ity through dispersed power sources, such as cogeneration,“When we move beyond a low-carbon society and onto ahydrogen society, the effectiveness of natural gas will
come into play to an even greater extent.”

even in Europe and the United States.
In some urban areas, there are limited places whererenewable energy is used, but if advances are made in

Maeda

heat networks that effectively utilize unused energy, suchbeyond the low-carbon society, what do you think about theas waste heat from garbage incinerators and cogeneration

possibilities of hydrogen?

From an extremely long-term perspective, looking

Smart Energy Network
Photovoltaic power
generation facilities

Large-scale cogeneration

Solar heatcollection facilities

GE

District heating andcooling facilities, etc.

Photovoltaic power
generation facilitiesGE
GE GEGE

Controlmanagement
system<Wide area>
Electric power interchange, etc.
Solar heatcollection facilities

Heat conduit
Heat use

Photovoltaic power
generation facilities

Information and telecommunications network<Specified area>
Heat interchange, etc.

Smart Energy Network
control management system

Factory

Commercial
building

Heat use

GE
GE
Solar heatcollection facilities

20

Special Feature

Cogeneration
systemElectric power network

Heat use

GE
Heat use

Large-scale redevelopment area

Nakagami Hydrogen is an extremely
clean form of energy, but it also poses
many challenges. Nonetheless, the technical challenges are likely to be overcome atsome point, so I believe that hydrogen has
strong potential over the long term.
The strengths of hydrogen can really beleveraged in fuel cells. It is true that there
are some problems with supply infrastructure, but fuel cell cars are also amazing.
Maeda In the Kanto region, we havemore than 100 filling stations for compressed natural gas (CNG) vehicles. If theuse of fuel cell cars expands to a certain
extent, the conversion of these CNG filling
stations to hydrogen filling stations would
not be all that difficult.
Nakagami You have a long-term road

The Shinjuku District Heating andCooling Center supplies indoor
heating and cooling to the Shinjuku
Shin-Toshin district.
Condensing turbine / turbo chiller
system with the world’s largest
capacity in a single unit.

map, and you’re making steady preparations, is that correct?

value chain, and securing long-term stable supplies of natural gas. In addition, they will lead to many possibilities in the

Maeda Yes. For now, the most efficient way to produce

future.

hydrogen is from natural gas, and we have the technology
to separate and collect CO2 in an efficient manner. In other

Expanding Overseas

words, this is both hydrogen production technology andsimultaneous CO2 separation technology. By collecting and“There is a need to develop superior technologies inemerging countries as well.”storing the CO2, it is possible to achieve zero emissions.

Maeda

Nakagami So this is technology that doesn’t emit CO2?

Nakagami

You should make sure that more people know about this.

introduction of systems like smart energy networks in

Finally, Tokyo Gas would like to ask your advice.
I believe there is a need for frameworks for the

emerging countries. Emerging countries are about to start
Maeda If we reach the point where hydrogen is used on abuilding various networks, and if they use the mostlarge scale in Japan, then hydrogen will be produced fromadvanced technology, they will be able to build amazing net-natural gas at gas fields, and the CO2 that is separated off inworks that are not seen even in developed countries. Tokyo

the production process will be sequestered back into theGas has extremely innovative next-generation technologies,

gas fields. At the same time, the pressure from the seques-so I would like to see you provide know-how and human

tration will further increase the efficiency with which natural

resources in this field.

gas can be extracted, so a virtuous cycle will be created, I
believe.

Maeda

We are receiving requests from overseas for tech-nical cooperation and investment. We would like to makeNakagami That’s quite interesting. If you are thinking

contributions overseas as well in a variety of ways, not only

about doing that, then upstream operations will be impor-in expanding the entire LNG value chain but also in fosteringtant, right?

the spread of smart energy networks.

Maeda That’s right. Upstream operations will be under-

Nakagamitaken with the principal objective of bolstering the LNG

in the future.

I look forward to seeing what you accomplish

TOKYO GAS ANNUAL REPORT 2010

21

TOKYO GAS AT A GLANCE
Years ended March 31

Sales Ratio / Operating Income Ratio
Year ended March 31, 2010

Gas Sales

66.7 %
83.7 %

Gas Appliance Sales

8.0 %
1.5 %

Installation Work

2.8 %
—%

Real Estate Rental

2.2 %
4.8 %

Other Business20.3 %
10.0 %

Gas Appliance Sales

Sales / Operating Income

We sell gas cooktops, water heaters, gas air conditioning systems
using hot water, “ENE-FARM” residential fuel cells, gas heatpump air conditioning systems, and other products. The sales aremainly handled by LIFEVAL, Enesta, and Enefit, which represent
the core of Tokyo Gas’ community-based marketing system.
(External sales ratio: 94.1%)¥ billion

The year under review saw increased sales of three newly consolidated
LIFEVAL companies as well as higher sales of alarms due to a regulation
requiring the installation of alarms, which comes into effect in June 2011.
As a result, both sales and operating income recorded gains, with sales increasing 3.0% year on year, to ¥126.0 billion, and operating income increasing 12.0%, to ¥2.3 billion.

200

150

Due to sluggish conditions in construction and to a decrease in new
housing starts, sales decreased 9.6% year on year, to ¥44.3 billion, while
operating loss improved ¥0.4 billion, to ¥0.6 billion. In the year underreview, we recorded lower sales and reduced the scale of the loss.

126.0

100

12

8

50

2.3

0

4

0

08

Installation Work
This segment carries out construction, such as the installation ofgas pipes and valves on the sites of customers in our service
area. (External sales ratio: 93.2%)

16

09

10

Sales / Operating Income¥ billion
120

12

80

8

44.3

40

0

4

0

–0.6
–40

–4

08

22

TOKYO GAS AT A GLANCE

09

10

Gas Sales

Sales / Operating Income

Tokyo Gas uses its three LNG terminals along the shores of Tokyo Bay to gasify
LNG, its main gas resource. The Company sells city gas to more than 10 million
customers, primarily in the Kanto region, through a pipeline network of about
57,000 km. (External sales ratio: 97.3%)¥ billion
1,600

400

1,200

1,045.5

The gas sales volume declined by 2.0% year on year, to 13,666 million m3.
Due to decreased unit prices under the gas rate adjustment system, sales fell by 16.9% year
on year, to ¥1,045.5 billion.

800

Operating income increased by 14.9% year on year, to ¥127.3 billion, due to a decrease in gas
resource costs resulting from lower LNG prices.

400

300

200

127.3
100

0

0

08

09

10

Gas Sales Volume by Sector
Million m3

Residential

Commercial
and Others 21.5 %25.1 %

6,000

4,500

39.9 %

Industrial

6,000

6,000

4,500

4,500

4,500

3,000

3,000

1,500

1,500

3,437
3,000

3,000

1,500

1,500

2,943

13.5 %

Wholesale
6,000

5,446

1,841

0

0

08

09

10

0

08

09

10

0

08

10

09

08

10

09

(Amounts less than one million m have been rounded to the nearest whole number.)3

Real Estate Rental

Sales / Operating Income

This segment is mainly involved in leasing, management, and related activities for the Shinjuku Park Tower and other office buildings.
The Group’s real estate rental activities are principally conducted by
Tokyo Gas Urban Development Co., Ltd., which accounts for over
90% of the segment’s sales. In addition, this subsidiary leases landin such areas as Ginza and Gofukubashi. (External sales ratio: 36.8%)¥ billion

While the GINZA gCUBE building, a commercial facility that was opened in
September 2008, contributed to sales throughout the year, this was notenough to offset the lower rents incurred due to the sluggish conditions in
the real estate market. Accordingly, sales fell 5.4% year on year, to ¥33.7 billion, and operating income was down 2.0% year on year, to ¥7.2 billion.

40

12

33.7
30

9

7.2
20

6

10

3

0

0

08

Other BusinessThis segment includes energy services, LPG, electric power, industrial gas, system integration, shipping, credit and leases, andfacility construction and engineering. (External sales ratio: 71.1%)

09

10

Sales / Operating Income¥ billion
400

40

317.8

Sales decreased 12.6% year on year, to ¥317.8 billion, due in part to
reduced resource costs in energy services and LPG.

300

In shipping, a new vessel was put into service, resulting in an increase indepreciation. However, this was offset by a return to profitability in electric
power operations due to decreased fuel expenses. Operating income
increased 12.8% year on year, to ¥15.2 billion.

200

30

20

15.2
100

10

0

0

08

09

10

TOKYO GAS ANNUAL REPORT 201023

Review of Operations
Core Business: Gas SalesLNG Value Chainof Tokyo Gas
Bayu-Undan gas field in the Timor Sea
Gas produced at this gas field is transported to theDarwin LNG Plant, liquified, and sold. This is theCompany’s first upstream project.

Highlights of Fiscal 2009
April 2009

One year of operations at Kawasaki Natural Gas
Power Generation
Kawasaki Natural Gas Power Generation, which started operations on April 1, 2008, completed its first year of operations.

September 2009
Made final investment decision for the Gorgon Project

October 2009
Completed the Tokyo Gas LIFEVAL system

December 2009

Acquisition of thermal power generation
operations in Mexico
Through a holding company, Tokyo Gas and Mitsui & Co., Ltd.,
concluded a contract for the acquisition of five thermal power
generation companies and a pipeline company. The amount of
the acquisition was US$1.2 billion (about ¥110.0 billion).

March 2010

Start of operations at Ohgishima Power Station
Ohgishima Power Co. completed the No. 1 unit at the
Ohgishima Power Station and began commercial operations.
Ohgishima Power’s investors include Tokyo Gas and Showa
Shell Sekiyu K.K.. The No. 2 unit also started commercial
operations in July 2010.

March 2010
Signed a heads of agreement regarding participation in the
Queensland Curtis LNG Project and the purchase of LNG
from the project. This is the world’s first coal bed methane(CBM) project.

24

Review of operations

Tokyo Gas is Japan’s largest city gas supplier,with 10.63 million customers. Our service area
encompasses the Tokyo metropolitan area andthe surrounding Kanto region, a market withhuge demand and high growth potential. As acity gas supplier, we do more than just deliver
gas to customers. Our operations extend fromparticipation in upstream LNG projects to thetransport of LNG by tanker, the regasificationof LNG to city gas at LNG terminals, the supplyof city gas through pipelines, and the sales ofgas appliances, as well as the implementationof safety initiatives at customer sites. Our establishment of an LNG value chain from upstream businesses to downstream businesses
makes us unique from other gas suppliers
around the world.

Natural Gas Resource Development / Procurement

Spotlight

Transportation

Production / Power Generation

LNG Procurement

City Gas Transport

Sales / Services

Implementing Initiatives to Ensure Stable Procurement
More than 95% of the city gas provided by Tokyo Gas issourced from LNG, and accordingly securing sources that

Position in the LNG value chain

can provide a stable, long-term supply of LNG is an issue of

Flexible, competitive resource procurement in linewith demand

the utmost importance for the Company. Centered on supply

Principal operating companies

sources that are geographically close to Japan and located inTokyo Gas Co., Ltd.

regions that are politically stable, Tokyo Gas has concluded

Segment

long-term LNG contracts for 10 projects in six countries and

Gas Sales

imports more than 10.0 million tons of LNG a year. We areTokyo Gas LNG Imports by Country of Origin

also taking steps to secure new procurement sources. In April

Thousand tons

2009, we began procurement from the Sakhalin II Project.

Years ended March 31

Moving forward, we will continue working to diversify ourCountry

2008

2009

2010

Malaysia

3,767

4,482

4,274

(42.5%)

LNG procurement sources, such as commencing new pro-

Australia

3,289

2,847

2,416

(24.0%)

curement from the Pluto and Gorgon Projects in Australia start-

Brunei

1,405

1,257

1,166

(11.6%)

ing from 2011 and thereafter. In LNG procurement contracts,

Indonesia

740

742

730

(7.3%)

Russia——505(5.0%)

we are also taking steps to facilitate flexible, competitive

Qatar

715

631

297

(3.0%)

Alaska

194

176

141

(1.4%)

Others

763

1,027

523

(5.2%)

Total

10,874

11,162

10,052(100%)

example, we are working to accommodate changes in destinations and to increase flexibility in regard to handling volumes.

Unconventional Natural Gas Procurement

Tokyo Gas Long-Term LNG Contracts

Recently, unconventional natural gas has been drawing
considerable attention. Tokyo Gas has been working to take

Sakhalin ■advantage of unconventional natural gas through efforts

Tokyo

■

resource procurement in line with demand fluctuations. For

geared toward expanding its options for LNG procurement,such as signing a heads of agreement for the Queensland

Qatar

Curtis LNG Project, which is highly anticipated as the world’s
first coal-bed methane (CBM) LNG project.

Brunei ■Malaysia ■■Indonesia
Pluto■
Gorgon ■ ■CBM is an unconventional natural gas like shale gas andtight sand gas. Natural gas is absorbed in the cleat of the coal
■ Darwin

NWS

New LNG project

bed. In the United States, commercial production began in■

Queensland Curtis

the 1980s and currently supplies about 10% of natural gas
consumption in the United States. In Australia, full-scale use

Existing LNG projectof this gas has gotten underway in recent years.

Spotlight

Upstream interests

Acquisition of Upstream Interests
In the acquisition of upstream interests, we are doing every-

Position in the LNG value chain

thing possible to control the risk associated with projects.

Competitive resource procurement through the acquisition of
upstream interests

For example, we are restricting acquisitions to projects that

Principal operating companies

have already completed the prospecting phase and therefore

TOKYO GAS AUSTRALIA PTY LTD, Tokyo Gas Darwin LNG Pty Ltd

have a high probability of starting operations and, at the

Segment

same time, are candidates for the Company’s LNG procure-

Other Businessment operations. Tokyo Gas holds about 3% of the Darwin
Project, 5% of Pluto, and 1% of Gorgon. Long-term LNG

Outline of Project Participation
Project

procurement contracts have been concluded with all of

Annual contract­ Inception Duration
ed quantityof contract(1,000 tons)

Contract
type

Project
participation(%)

Darwin

1,000

2006

17 years(–2022)

FOB

3.07

Pluto

1,500 –
1,750

2011

15 years

Ex-Ship, 5.0
FOB

Australia, an unconventional natural gas development proj-

Gorgon1,100(2014) 25 years

FOB

Queensland
Curtis LNG

1,200(2015) 20 years

Ex-Ship 1.25

the LNG value chain. The Darwin Project, which is already1.0

these projects. At the same time, we have also announced
that we are moving ahead with discussions regarding theacquisition of interests in the Queensland Curtis Project inect. In these ways, we continue to aggressively strengthen(Upstream)in operation, is demonstrating steady effects on earnings,

2.5

such as through the receipt of steady dividends.

(Midstream)

TOKYO GAS ANNUAL REPORT 201025

Spotlight

Transportation

Position in the LNG value chain
Decreasing cost by increasing FOB

Principal operating company
Tokyo LNG Tanker Co., Ltd.

Segment
Other Business

LNG Vessel “Energy Confidence”

One of the Largest Fleets in Japan

Efficiently Managing Our Fleet

In May 2009, the Energy Confidence was placed into ser-

The management of our fleet is handled in cooperation

vice, bringing our fleet to a total of seven vessels. Goingwith wholly owned subsidiary Tokyo LNG Tanker Co., Ltd.

forward, we plan to introduce another vessel in 2011. At

Moreover, in order to further promote efficient utilization,eight vessels, our fleet will be one of the largest among

we have entered into basic contracts with the Petronas

domestic electric power and gas companies, and by lever-Group (Malaysia LNG, Malaysia LNG Tiga, and Asean LNG

aging this fleet we will work to increase flexibility inTrading) which is a major LNG vendor, as well as Brunei

resource procurement. Furthermore, by engaging in flex-

LNG, Shell Eastern LNG, and the TEPCO Group, with theible procurement utilizing not only long-term contracts but

objective of joint use of LNG vessels.

also short-term contracts, we are planning to expand shipping operations, including the transport of LNG to thirdparties and the leasing of vessels to other companies.

Spotlight

Infrastructure Development

Ensuring both stable supply and safety

Basic Strategy
Investing in infrastructure to meet expanding demand

Principal operating company

Tokyo Gas receives about 10 million tons of LNG a year at three LNG

Tokyo Gas Co., Ltd.

terminals along the shores of Tokyo Bay. After LNG is received at the

Segment

terminals, it is regasiﬁed to natural gas using vaporizers and LPG is

Gas Sales

added to adjust the caloric value. The city gas is delivered to custom-

Position in the LNG value chain

ers through a pipeline network of about 57,000 km.

Focus on Future Demand Growth—Starting Construction on the Hitachi LNG Terminal
The Company’s LNG terminals are among the largest incity gas in a 200-kilometer radius around Kanto from 2010,

the world, and we continue to invest in our facilities inand accordingly we have planned to build our fourth LNG

order to enhance our ability to respond to growth interminal, the Hitachi LNG Terminal. In consideration ofdemand for natural gas and to further stabilize supply. In

growing social need for global warming countermeasures

November 2009, we commenced construction of the No.

and of strong regional demands, we have accelerated this

4 LNG storage tank at the Ohgishima LNG Terminal. In

plan and are targeting the start of operations in fiscal 2015.

addition, we are forecasting further growth in demand forTokyo Gas Sodegaura LNG Terminal

26

Review of operations

Natural Gas Resource Development / Procurement

Production / Power Generation

Transportation

Pipeline Maintenance Investment andFacility Investment Plan

City Gas Transport

Sales / Services

Facility Investment Plans (non-consolidated)
Billions of yen
FY2009Result

The high-pressure trunk pipelines circling the Tokyo metropolitan area and the three LNG terminals work together

FY2010
Outlook

FY2010–2014
Total

Gas Business Facilities

to support the reliable supply system of Tokyo Gas. In

LNG facilities

8.7

4.7

99.4

May 2010, construction was completed on Central Line II,

Other

5.3

6.2

24.8
124.2

Production facilities

14.0

10.9

south through the loop trunk lines, and has strengthened

Trunk line investment

19.4

12.9

70.6

the trunk line network. In addition, to acquire demand in

Other

59.2

58.1

272.9
343.5

which made Central Line complete, running north tothe period after 2015 and to expand our operations, weSupply facilities

78.6

71.0

will bolster our wide-area trunk infrastructure during theBusiness facilities

18.9

24.1

122.1

period covered by the medium-term management plan.

Subtotal

111.5

106.0

589.8

0.8

0.7

3.0

112.3

106.6

592.7

Incidental facilities
Total

Major Infrastructure Formation Plan
Ibaraki-Tochigi Line
Hitachi LNG Terminal (Plan)

Saito Line

Chiba-Kashima Line
Yokohama Line II
Ohgishima LNG
Terminal

New Negishi Line

Sodegaura LNG Terminal

Negishi LNG Terminal
Tokyo Gas high-pressure transmission pipelines, etc.
High-pressure transmission pipelines of other companies
Planned pipelines
Tokyo Gas Group service area

Demand Outlook and Facility Formation Plans (non-consolidated)
Billion m3

16
15.2 bil m3
14.9 bil m3

1514.1 bil m3
13.7 bil m3

1413.2 bil m3
13

12

Chiba-Kashima Line
Chuo Trunk Line
(2nd phase)
LNG vaporizers(Negishi LNG Terminal /Hitachi Works)

LNG vaporizer(Sodegaura
LNG Terminal)

LNG vaporizer(Ohgishima LNG
Terminal)

Shin Negishi Trunk LineLNG vaporizer(Negishi
LNG Terminal)

Yokohama Trunk Line
(2nd phase)
LNG vaporizer(Negishi LNG Terminal)
LNG tank(Ohgishima LNG Terminal)

11
FY2010FY2011FY2012FY2013

FY2014

TOKYO GAS ANNUAL REPORT 201027

SpotlightGas Sales (Residential Sector)

Position in the LNG value chain

Gas Sales Volume

Residential 25.1 %Maintaining and expanding the number of customers
through community-based marketing

3,437 million m3

Principal operating companies
LIFEVAL companies

Segment
Gas Sales, Gas Appliance Sales, and Installation Work

Basic Strategy

been in line with our expectations. For example, LIFEVALIn the residential market, we are working to provide

has had the effect of boosting sales of environment-

customers with the pleasant, comfortable lifestyles

friendly products launched in fiscal 2009, such as solarthat can be enjoyed with the use of city gas for such

power generation and “ENE-FARM.”

applications as hot water, heating, and cooking appli-

In order to compete with all-electric housing cam-ances. We are also working to offer new lifestylepaigns, which are being advanced by electric power com-value by developing products and services that meet

panies, we have been visiting customer homes anddiversifying customer needs. Furthermore, in October

explaining to them the pleasant, comfortable lifestyles

2009 we completed Tokyo Gas LIFEVAL community-that can be enjoyed with the use of gas. We are actively

based marketing systems. Leveraging theseapproaching those customers who are especially likely tosystems, we have been working to further enhanceswitch to all-electric and working to sustain andcommunications with each individual customer.

increase the demand for gas.

Building a Market for “ENE-FARM”
The “ENE-FARM” residential fuel cellthat we launched in May 2009 has
gotten off to a strong start, and wesold 1,500 units in fiscal 2009.
We are aiming to sell an additional
2,500 units in fiscal 2010, and ourplans call for an installed base of 42,000 units by the endof March 2014.
We are working on a sales initiative to have “ENEFARM” preinstalled in new residences by leveraging therelationships of trust that we have built with developers
and housing companies over many years. Sales to existing dwellings are handled primarily by Tokyo Gas LIFEVAL
companies. Additionally, in December 2009 we held the
Double Power Generation Campaign to promote the com-

Construction of Community-based Marketing
Systems through Tokyo Gas LIFEVALIn order to build close ties with our customers, we com-lishment of a low-carbon society, which is an issue ofmenced the step-by-step introduction of the community-

great social concern. We have also been working tobased marketing system, Tokyo Gas LIFEVAL, in April

steadily advance the research and development of next-

2008, and we completed the system in October 2009.

generation fuel cells in cooperation with fuel cell manufac-

The system currently consists of 45 companies and,turers. At the same time, we are working to reduce costs

excluding the wide-area markets, divides our service

by promoting standardized specifications and common

area in Tokyo, Kanagawa, Chiba, and Saitama prefectures

parts. Preparations for the introduction of these products

into 63 service blocks.

are underway, and we are aiming to launch them in the

LIFEVAL facilitates the provision of quick, one-stop
responses to the needs of customers that come to ourattention during our various business activities, such as
maintenance and sales of gas appliances, periodic gas
facility safety checks, and meter reading. Our results have28

bination of “ENE-FARM” and solar power generation.
Through such initiatives, we are contributing to the estab-

Review of operations

first half of the 2010s.

Natural Gas Resource Development / Procurement

Spotlight

Transportation

Production / Power Generation

City Gas Transport

Sales / Services

Gas Sales (Commercial and others, industrial, and wholesale sectors)

Position in the LNG value chain

Gas Sales Volume

Proposing tailor-made solutions that match diversified
customer needs

Commercial and Others 21.5 %Principal operating companies

Industrial 39.9 %2,943 million m3

Tokyo Gas Co., Ltd., ENERGY ADVANCE Co., Ltd.

5,446 million m3

Segment

Wholesale 13.5 %Gas Sales, Other Business

1,841 million m3

Basic Strategy

number of issues, including countering the shift to electrici-

In the energy market, we are seeing intensifying com-ty, strengthening marketing efforts, and increasing man-petition, principally from electrical power. In this set-agement efficiency. As a result, we have establishedting, Tokyo Gas is enhancing its integrated energy
business, focusing on commercial and industrial clients, who have increasingly diverse and sophisticatedenergy needs. In accordance with those needs, wecountermeasures targeting the resolution of these issues.
* Suzuchu: A brand of commercial gas appliances that make kitchens cooland comfortable by minimizing the heat from appliances through the use ofheat insulation and a concentrated air discharge structure.
Suzuchu is a registered trademark of Osaka Gas Co., Ltd.

strive not only to supply energy from a wide range ofsources, including gas, electric power, and heat, but

Developing Our Integrated Energy Businessalso to propose tailor-made, optimal combinations ofSocial demands for global

products and services on a one-stop basis. Further-warming countermeasuresmore, in addition to engaging in wholesale operations

are increasing. In this set-

geared toward peripheral gas suppliers, we areting, we are working to pro-

expanding the range of our integrated energy businessvide more customers withby aggressively working to capture demand, centerednatural gas, which is envi-

on the region extending for a 200-kilometer radiusronmentally friendly andaround Tokyo, where latent demand is expanding.

has the lowest CO2 emissions of any fossil fuel. In

Combating the Shift to Electricity

addition, we are making full

For commercial customers, we are proposing high-use of the Group’s­efficiency air conditioning and water heating systems.

advanced engineering capa-

In addition, we are working together with LIFEVAL tobilities as we strive to pro-

expand sales of Suzuchu*, which reduces the heat thatvide customers withis characteristic of commercial kitchens, and we have

optimal solutions that incor-

had steady success with these initiatives.

porate renewable energies,

Tokyo Gas is working to counter the use of electric-

such as solar power, solar­powered factories by industrial customers. To that end,

heat, wind power, and bio-

we are leveraging our engineering capabilities to make

mass; contribute to thesolid contributions toenvironment; and provide

the production pro-high levels of customer

cesses of customers.

satisfaction. In fiscal 2009,

At the same time,

we made progress in the

we are continuallydevelopment of an air con-providing services

ditioning/hot water systemwith reduced energy
consumption, lower
costs, and high levels

The owner of a yakitori restaurant
touches the surface of a Suzuchu
gas appliance to confirm that it has
not gotten hot.

of safety. In theseways, we are working to further differentiate our services.

Heat transfer system at theCompany’s Kumagaya Branch.
Solar heat from a solar heatcollector (front) installed on theroof of the Company’s Kumagaya
Branch is transmitted to a nearby
hotel (back) through heat transmission lines. This is the firstsystem in Japan that transmits
solar heat among private-sector
buildings with different owners.

that uses solar heating,
and we have commenced introduction and demonstration
project of these systems, both in the Company’s own facilities and in those of customers.
Furthermore, we are working in cooperation with

In wholesale operations, an important role is played by

ENERGY ADVANCE Co., Ltd., a wholly owned subsidiary.

the Gas Network Consortium (Gas Net 21), which is com-

Together, in line with the needs and specific conditions ofposed of 41 general gas suppliers (including Tokyo Gas but

customers, we provide customers with one-stop solutions

mainly comprising our wholesale gas customers). Throughfor facility operation and management, including other utili-

Gas Net 21 activities, we have been able to discuss aty services, such as water and air, in addition to energy.

TOKYO GAS ANNUAL REPORT 201029

Technology Development

Tokyo Gas has always maintained a focus on technicalStrategic Direction of Technology Development

development, and the Company has developed its

In technology development, we focus on three areas: (1) the

operations while repeatedly taking on the challenge ofcreation of heart-reverberating concepts and the developmentof products that give concrete form to the value created

new technologies. As we strive to respond rapidly andby those concepts, (2) the development of innovative environ-accurately to changes in the operating environment,

mental technologies that will contribute to the realization of

we are working to develop technologies that will open
up new energy frontiers.

a low-carbon society, and (3) technologies that support theoperational platforms for stable administration of gas operations and for realization of higher-level usage and cost reductions. In the fiscal year ended March 31, 2010, the Company
allocated about ¥9.2 billion to technology development.

The Technology Development Strategy of Tokyo Gas
Creation of Heart-Reverberating Concepts
and Development of Appealing Products

Development of Innovative
Environmental Technologies

Residential Sector

Innovative energy-saving technologies for advanced use of city gas• Development of technologies
related to understanding
customers• Development of “ENE-FARM”(polymer electrolyte fuel cell)• Development of SOFC
(solid oxide fuel cell)• Development of lifestylevalue-added products+do GRILLER for
enjoying cooking• Effectiveness and efficiency
verification• Quality-oriented
commercialization

Commercial and Industrial Sectors

Commercial Ventilation
Alarm Equipment• Customer support technologies
that contribute to retentionof existing customers anddevelopment of technologies
that increase the safety ofgas systems• Development of technologies
that utilize solar heat andbiomass.

Renewable Energy Technologies, Low-Carbon Technologies• Technologies to make full use of biomass• Technologies for systems combining solar
heat/solar batteries with gas systems“SOLAMO” gas hot
water system that alsouses solar heat. Installedon the railing of an MDU.

• CO2 separation, collection, transport,
and processing technologies• Technologies for the highly efficient
production and use of hydrogen• Technologies related to “Smart Energy
Network” composed of distributed
power sources

Hydrogen station

Technologies Supporting Our Operational Platforms• Production
Long-term facility maintenance, increased quality ofterminal operations, etc.

• Pipelines
Maintenance of security
levels and optimization of
security investment• Meters
Development ofservices using ultrasonicmeters, etc.

Major Outputs and Initiatives in Recent Years
Started general sales in May 2009 of residential polymer electrolyte fuel cell (PEFC) (sales name: “ENE-FARM”). Moving ahead
with development to further improve the product, targeting its use in MDUs.

Environmental Technologies

Development and demonstration testing of solid oxide fuel cell (SOFC) technologies.
Ongoing demonstration testing of CO2 separation and collection during the production of hydrogen.
Started sales in February 2010 of SOLAMO gas hot water system that also uses solar heat and is installed on the railings of MDUs.

Platform Technologies

30

Technology Development

Ongoing deepening, succession, and utilization of infrastructure construction technologies, maintenance management technologies, combustion engineering-related technologies, and gas quality management technologies, etc.

In-depth Report

The Story Behind the Development of “ENE-FARM,” the World’sFirst Residential Fuel Cell Cogeneration System“ENE-FARM” leverages new technologies to revolutionize energy usage in the home. But the regulatory
system had to be revised to accommodate this newtechnology. This section describes part of the story
behind the challenging development of “ENE-FARM.”

The Passion of the TechnicalDevelopment Team Made the
Impossible Happen

Toshiya Omura,
Fuel Cell Business
Development
Department

In confirming safety, another task
was to verify the safety of the fuelcells without an N2 purge. Inside
the fuel cell, the fuel processor iscomposed of extremely delicate

Verifying the Safety of an Entirely New Product,
Working to Get the Law Revised

catalyzers that reform city gas toIn the early stages of “ENE-FARM” development, the Elec-carbon monoxide that is created as a secondary product. In

tricity Business Act required fuel cells to have the samecommercial fuel cell systems, to prevent degradation fromsafety measures as large-scale power plants. In contrast

the residual unreacted gas inside the catalyzer, the inside iswith solar power generation facilities and other devices inpurged, typically with an inert gas. Nitrogen is often used forthe category of “Electrical Facilities for General Use,” large-

this purpose.

produce hydrogen and remove thescale power plants are required to have chief electricity

With “ENE-FARM,” however, if nitrogen were used, aengineers for supervision and to follow very strict safety

large amount would be consumed. “At an early stage ofstandards. If fuel cells were required to meet these samedevelopment, we saw that the only choice was to use city gas

standards, then there was little chance they would be

for purging,” said Hiroshi Fujiki, from the Product Develop-

adopted for residential use. Toshiya Omura, from the Fuelment Department. “That meant we needed to pay careful

Cell Business Development Department, said “We needed

attention to temperature. If city gas enters the fuel processor

to verify the safety of our fuel cells and then work to havewhen the processor is still hot, the gas will carbonize and sootthe laws and regulations revised.”

will clog the catalyzer. And if the temperature is too low, theFirst, it was necessary to correct the image of “ENE-gas will contract and outside air will be drawn in. The question

FARM” as a large-scale, dangerous device. Omura invitedwas, how much city gas should be used for purging, and how

members of the committees that evaluate safety standards

long after the fuel cell is stopped. The only way to find out

and staff from government offices to the test site, where

was through trial and error.”they could observe the quiet, safe operation of these
However, as entirely new devices, there were no standards

The Idea that It Was Dangerous Was Eliminatedwith a Simple Image—Two Butane Lightersfor verification methods. “We identified every dangerous

We had cleared the technical hurdles, but we still needed toevent that we could think of and tested them,” said Omura.

respond to concerns about filling the inside of the fuel proces-“We tested power failures and malfunctions when the fuelsor with combustible gas. In that regard, Toshiya Omura

cell was in operation or in the middle of the shut down pro-explained that the amount of heat in the residual gas in thecess. And we opened up holes in the cell stacks and thenunit would be equivalent to what was in “two disposable

operated the units. In these ways, we conducted tests thatbutane lighters, even with a device that has 10 times thewere certain to make the fuel cells break down.”

output of ‘ENE-FARM.’” This simple image became a break-devices. The next issue was to actually verify their safety.

through in obtaining understanding of the safety of the N2
purgeless system, and “ENE-FARM” was approved for the
category of “Electrical Facilities for General Use,” which does
not require the posting of a chief electricity engineer.

The Day that a World-Leading Technology became aWorld-First Product Known as “ENE-FARM”
In 2005, the first “ENE-FARM” was installed in the official
residence of the Prime Minister. Looking back, Toshiya
Omura said “I remember hearing the news and thinking, ‘weHiroshi Fujiki, Product Development Department

made it.’ I was very relieved.”

TOKYO GAS ANNUAL REPORT 201031

Corporate Governance

As an “energy frontier corporate group” that focuses on

Management StructureManagement Structure Designed for Objectivity and Swiftness

natural gas, Tokyo Gas has a management philosophy thataims at the realization of comfortable lifestyles and environ-Tokyo Gas takes a proactive stance in employing outside officers.
The Company has created a system featuring multiple auditing

mentally friendly cities. We work to ensure continued devel-and supervisory layers in its aim to achieve highly objective andopment while consistently earning the trust of customers,

transparent governance. In 2002, we reduced the maximum number of directors to raise the speed and effectiveness of manage-

shareholders, and society. Based on this philosophy, ourment decision-making. At the same time, we reinforced andfundamental concept of enhancing corporate governance isclarified the function for supervising business execution byintended to achieve a continuous increase in our corporate

employing independent outside directors. (As of June 30, 2010,

value by maximizing the value provided to all of our stake-the Board of Directors comprises three outside directors and eightinternal directors.) The Advisory Committee, established in 2005,

holders. We are also endeavoring to develop systems andis made up of three internal directors and three representatives

measures to further augment corporate governance, and arefrom outside directors and outside auditors. This structure aims to

implementing them with a commitment to management

ensure that the selection of director candidates is fair and appropriate. The committee also deliberates officer compensation inlegality, soundness, and transparency. Tokyo Gas continues

accordance with the Company’s basic policy (described below).

to emphasize the importance of accurate and prompt deci-

The five corporate auditors, three of whom are outside auditors,

sion making, efficient business operations, strengthening ofstrictly audit the legality and appropriateness of the performanceof duties of the directors. Furthermore, they proactively makeauditing and monitoring functions, and clarification of man-recommendations at Board of Directors, and Corporate Executive

agement and executive responsibilities.

Committee meetings to enhance the effectiveness of monitoring.
The Corporate Executive Committee meets once a week, inprinciple, to deliberate and make decisions on matters of management importance, ensuring accurate and speedy decision-making
and the effective execution of operations. The Company employs
an executive officer system (with 25 executive officers as ofJune 30, 2010), to execute operations in accordance with Boardof Directors’ resolutions. The system is designed to devolve

Initiatives to Strengthen Corporate GovernanceContinuous growth in corporate value

2000

Management
Strategy

Ensuring sound, transparent management

October 2002
Medium-term
management planfor 2003–2007:“Frontier 2007”

January 2006
Medium-term management
plan for 2006–2010: “Creation
and Cultivation of New
Natural Gas Markets”

Internal
Governance

Information
Disclosure

CORPORATE GOVERNANCE

January 2009
Medium-term management
plan for 2009–2013:“Evolution andAdvancement of Integrated
Energy Business”

April 2004–
Strategic business unit system(building of group management system,
and maximization of group corporate value)

Organizational
Structure

Management
Structure

32

2009

June 2002–
Management structure reform• Reduction of regular number of
directors (from 30 to 15)• Appointment of outside directors• Introduction of executive officer system• One-year term of office
June 2002–
Reinforcementof internal audit
structure

June 2001–
Start of overseas
IR activities

February 2005–
Establishment ofAdvisory Committee(consideration of
director candidates
and officer remuneration)

November 2002–
Reinforcement ofcompliance system• Establishment of Management
Ethics Committee• Establishment of ComplianceDepartment
April 2003–• Earlier publicationof business results• Introduction ofquarterly disclosure

June 2005–
Reform of officer remuneration system• Formulation and disclosure ofbasic policy• Abolition of retirement benefit
system, and other measures

April 2003–
Reinforcement of risk
management structure• Introduction ofEnterprise Risk
Management system
April 2004–
Consolidated
accounting for
all companies

April 2006–
April 2008–
Establishment of • Establishment of Risk
Internal Control
Management Committee
Promotion
Committee

July 2005–
Publication of
CSR Report

April 2008–
Reevaluation of IR organization• Establishment of
IR Department• Consolidation of risk
management function in
IR Department

authority and responsibility and foster the rapid execution ofWith regard to auditing, in addition to corporate auditors theoperations. Executive officers report on the status of execution toCompany has established the Internal Audit Department as an

directors and the Board of Directors, and these bodies supervise

internal audit organization. The department monitors the businessexecutive officers’ activities on this basis. To clarify the job respon-

activities in each segment of Tokyo Gas and its consolidated

sibilities of directors and executive officers, their terms of officesubsidiaries, as well as the state of the development and opera-

have been fixed at 1 year.

tion of internal control and risk management. To implement

To promote transparent management and a flexible and open

specialized audits efficiently, the Internal Audit Department hasorganization, in fiscal 2002 the Company established a Manage-

developed a structure of four groups, specializing in financial,ment Ethics Committee. We also formed in-house committees tooperational, information system, and compliance audits. In April

address issues that are important from a management perspec-

2009, an internal control group was established to evaluate thetive, such as compliance, risk management, customer satisfaction,effectiveness of internal control regarding financial reporting.

and safety. This structure facilitates the sharing of information
within the Group, as well as deliberation of and adjustments to the

Objective and Transparent Officer Remuneration

Group’s overall direction.

In fiscal 2005, Tokyo Gas restructured its officer remuneration
system and published details of the new system with the aim of

Toward an Effective Internal Control Systemfurther enhancing management objectivity and transparency as

Under our internal control system, the Board of Directors, which

well as clarifying the management responsibility for businessincludes three independent outside directors, determines theperformance.

basic policies for the development of the important business

1. Role of executive and remuneration

operations plans and the internal control systems and monitors

	The role demanded of executive is to seek to enhance short-,

the performance of the directors. In accordance with resolutions

medium-, and long-term corporate value, and executiveby the Board of Directors, the executive officers act to carry out

remuneration shall serve as an effective incentive for themto perform that role.

business operations as well as to develop and operate the internal
control system. In addition, we have established the Corporate

2. Level of remuneration

Executive Committee as a deliberative body to assist the Board

	The level of executive compensation shall be suitable for therole, responsibility, and performance of the executive.

of Directors. The committee deliberates provisions stemmingfrom Board of Directors resolutions and important management-

3. Performance-linked remuneration scheme

related issues.

	The performance-linked remuneration scheme is meant to

Corporate Governance Structure
Customers

Shareholders / Investors

Local Community
General Shareholders’ Meeting

Appointment

Appointment

ReportReport submission

AnswerAdvisory Committee2

ReportAppointment

Board of Directors1
Inquiry

Audit

Board of Corporate
Auditors3
Collaboration

Report submission

Management Ethics Committee
ReportCollaboration

Collaboration

Internal Audit Dept.

Independent Auditors

MonitorPresident (Corporate
Executive Committee4)
Approval

Deliberation
and report

Customer Satisfaction Promotion Committee
Investment Evaluation Committee
Environmental Committee

Settlement and monitor

Report submission

CSR Promotion Committee
Risk Management Committee

Audit

Other In-House Committees

Audit

Add to agenda and report

Strategic Business Units / Support Units(each unit, subsidiaries & affiliates)

General Shareholders’ Meeting

1
2
3
4

Safety Committee

Decision and risk monitoring

Stakeholders

Tokyo Gas Co., Ltd.

Business Operations

Board of Directors: 11 directors (3 outside directors, and 8 internal directors)
Advisory Committee: 3 representatives from outside directors and outside auditors, Chairman, Vice Chairman, and President
Board of Corporate Auditors: 5 corporate auditors (3 outside auditors, and 2 internal auditors)C orporate Executive Committee: President, 3 Executive Vice Presidents, 9 senior executive officers(3 of the representative directors also serve as President and Executive Vice Presidents.)

TOKYO GAS ANNUAL REPORT 201033

Total Remuneration for Directors and Corporate Auditors (Fiscal 2009)
Thousands of
U.S. dollars
Type ofremuneration

Millions of yen
Type ofremuneration
Total
remuneration

Base

BonusesTotal
remuneration

Base

Bonuses

¥430
74

¥374
74

¥56
—

$4,623795$4,021
795

$602
—

64

58

6

688

623

64

Remuneration for ten directors (excluding outside directors)
Remuneration for three corporate auditors (excluding outside auditors)
Remuneration for seven outside officers (outside directors and outside
auditors)Compensation for Independent Auditors (Fiscal 2009)
Millions of yen

Thousands of U.S.
dollars

¥326
7
¥333

$3,50575$3,580

Remuneration for auditing services
Remuneration for non-auditing services
Total

firmly motivate the executives to execute management strate-

operations, all under the responsibility of unit managers. The aim

gies, and is also meant to reflect their performance clearly onof this cooperative approach is to maximize our Group potential

their remuneration.

and further strengthen our competitiveness.

4. Share-purchase guideline

shareholder in management and improve shareholder value

Risk Management
Enterprise Risk Management System Responds to andDiscloses Information on Growing Risks

over the long term.

In fiscal 2003, the Company established a groupwide Enterprise	The establishment of the share-purchase guideline is meant tofirmly motivate the executives to reflect the perspective of a

5. Assurance objectivity and transparency

Risk Management (ERM) system, which includes risk manage-	The Company shall assure objectivity and transparency ofment regulations and documented rules concerning major risks

remuneration by establishing the “Advisory Committee” com­that require management intervention.

prising outside directors, outside corporate auditors, and the

The IR Department’s Risk Management Group was estab-Company’s directors to govern the system of remuneration.

lished to promote overall risk management, and approximately
110 Risk Management Promotion Officers have been deployed

Concentrating Group Effort to Survive in the Faceof Competitionin Tokyo Gas and its consolidated subsidiaries, and in this way

With the deregulation of the energy industry, Tokyo Gas now

year, we review risks, evaluate fluctuations in the importance of

faces escalating competition from both inside and outside therisks, and assess the implementation and improvement status ofindustry. In April 2004, we introduced the “Strategic Businesscountermeasures. This system facilitates the steady implemen-

Unit” (SBU) system, which is designed to focus all of thetation of the ERM-PDCA (Plan-Do-Check-Act) cycle.

ERM is promoted. Under this risk management system, every

resources of the Tokyo Gas Group on the task of surviving and

Furthermore, to improve the level of ERM, in fiscal 2008, thesucceeding in an increasingly competitive environment. Under

Risk Management Committee was established to review risks,

this structure, Tokyo Gas corporate divisions are linked withbuild up the ERM system, and periodically assess and evaluateGroup companies to form business units in each business area.

its operational status. The committee reports to the Corporate

The divisions and companies work closely together on tasks

Executive Committee and the Board of Directors and secures

ranging from the formulation of business strategies to thethe necessary approvals.

allocation of management resources and the management ofMajor Risks Requiring Management Intervention
Accidents and disasters

Resource procurement supply interruption risk, Natural disaster risk, City gas and electricity production/supply disruption,
Ensuring the safety of city gas and quality problems affecting gas equipment, Damage due to reputation resulting from city
gas accidents caused by other gas companies

Market risksMarket price and interest rate fluctuation risks

Risks accompanying businessexecution
Risks related to information
management and system operation
Risks related to corporate social
responsibility

34

CORPORATE GOVERNANCE

Risks faced by existing business (Change in procurement costs, Decline in gas sales volume due to weather fluctuations,
Decline in demand due to intensified competition, Demand risk, Delay in the development of new technology, and Changes
in laws, regulatory systems, or energy policies of the national governments and local governments), Delayed cultivation of
new markets, Inability to recover investments
Outflows of personal information, Failure or malfunction of IT backbone systems, Interruption of communication withcall centers
Response to new environmental regulations, Compliance violations, Inadequate customer satisfaction or responses
to customer needs

As a result of the ERM system, we can identify and clarify

activities for each unit. These include development of compli-

the latest major risks that reflect changes in the management

ance promotion systems, encouraging awareness and educa-

environment, and we can provide appropriate disclosure of risktional campaigns about the code of conduct, compliance risk

information to the capital markets and other stakeholders. Also,

reduction measures, maintenance of advisory systems, and theas a result of periodic monitoring through the Corporate Execu-

broad-based distribution of information within and beyond thetive Committee and Board of Directors’ meetings, we canTokyo Gas Group companies.

respond appropriately to risks that are becoming more diverse,
complex, and sophisticated.

To cultivate an understanding of compliance, we promote a
thorough awareness of ongoing activities related to our code of
conduct that was revised in 2004. We also are moving forward

Crisis Management Responsibility as a Public Company

with a compliance casebook designed for applying the code ofBecause the Company provides public services that comprise a

conduct to various problems in the workplace, so as to achieve

lifeline, for many years we have also had a crisis management

the permeation of compliance.

system that serves as a response system in case that a risk-

Compliance risk countermeasures include internal and exter-

related event actually occurs. Specifically, we have formulated

nal advisory systems. By operating these systems effectively,

Emergency Response Organization Regulations. In case of any

we are endeavoring to ensure that compliance-related problems

type of crisis, the Emergency Response Organization responds

are discovered and resolved quickly so that our corporate self-

to the situation immediately in accordance with the Emergency

regulatory processes will continue to function effectively. The

Response Organization Regulations. Possible crises include

Compliance Audit Group also works steadily to mitigate risks bymajor natural disasters, such as earthquakes, or production or

implementing follow-up audits to verify progress in tackling con-supply disruptions arising from major accidents at pipelines orcerns identified at first auditing.

terminals, as well as influenza, terrorism, failures in mission-criti-

We monitor the effectiveness of Group compliance promo-

cal IT systems, and compliance problems. Periodic training istion activities by conducting regular compliance awareness sur-conducted in relation to major risk response measures. The

veys of all employees. The results of these surveys are

Company has also formulated a Business Continuity Plan (BCP)

reflected in initiatives for the following years.

outlining its responses in the event of a major earthquake ofan outbreak of influenza. This plan is in place to reinforce theDisclosure
Enhancement of IR Activities

Company’s risk management system.

Top management takes an active role in Tokyo Gas IR activities,

the magnitude assumed by Japan’s Cabinet Office, as well as

disclosing such broad-ranging information as management

Compliance
Promoting Compliancestrategies, progress, and performance and engaging in interac-

Our stance is reflected in three basic policies calling for the fos-management’s thoughts with investors in this way can help

tering of compliance awareness, the cooperation of each work-

close the gap between our real corporate value and the market

place with compliance efforts based on the Group policy, andassessment of the Company. In particular, during the period fol-the establishment of compliance PDCA cycles.

lowing the announcement of our financial results, we engage intive communication with investors. We believe that discussing

We have established the Management Ethics Committee,

IR activities including visits by top management to institutional

chaired by the President. This committee discusses at the man-investors in Japan and overseas. Briefings and individual meet-agement level basic compliance policies and all aspects of com-

ings are also used as opportunities for wide-ranging discussions.

pliance initiatives by the Group, monitors the implementation ofcompliance-related measures, and confirms activity programsfrom the following year and thereafter. We have also established the Compliance Department to lead compliance-related

Compliance Structure
Board of Directors
President

Corporate Auditors

ReportManagement Ethics Committee
Chairman: President
Members: Head of divisions / departments, Directors in charge

ReportInternal Audit Dept.

ReportCompliance Dept.
Instruction / report

Support / report

Each division / business unit

Compliance Committee

Each department of Tokyo Gas
Compliance audit(risk understanding)

Consultation / notification

Subsidiaries & affiliates

Report / consultation

Report / consultation

Employee

TOKYO GAS ANNUAL REPORT 201035

Board of Directors and Corporate Auditors

April 1967

Director, Chairman

Director, Vice Chairman

Mitsunori Torihara

Tadaaki Maeda

Joined the Company

April 1970

April 2004	Representative Director, Executive Vice President,
Chief Executive of Corporate Communication Div.
and in charge of Compliance Dept.

Resources Div. and in charge of Internal Audit Dept.
April 2006	Representative Director, Executive Vice President andChief Executive of Strategic Planning Div.

April 2006	President, Representative Director, and Executive President
April 2010

Director and Chairman of the Board

Joined the Company

June 2004	Director, Senior Executive Officer, Chief Executive of Energy

April 2007	Representative Director, Executive Vice President, Chief Executive ofEnergy Production Div., and in charge of Environmental Affairs Dept.
April 2010

April 1970

Representative Director, President

Representative Director

Tsuyoshi Okamoto

Shigeru Muraki

Joined the Company

July 1972

April 2007	Representative Director, Executive Vice President, and in charge ofCompliance Dept., and Internal Audit Dept.

and General Manager of Volume Sales Dept. of Energy Solutions Div.
June 2007	Director, Senior Executive Officer and Chief Executive of Energy
Solutions Div. and General Manager of Volume Sales Dept. of Energy

April 2009	Representative Director, Executive Vice President, and in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
and Compliance Dept.

Joined the Company

April 2007	Senior Executive Officer, Chief Executive of Energy Solutions Div.

Personnel Dept., Secretary Dept., General Administration Dept.,

April 2010

Director and Vice Chairman

Solution Div.
April 2010	Representative Director, Executive Vice President, Chief Executive ofEnergy Solutions Div. and General Manager of Volume Sales Dept. ofPresident, Representative Director, and Executive President

Energy Solution Div.

April 1972

Representative Director

Director

Toshiyuki Kanisawa

Tsutomu Oya
April 1975

Joined the Company

June 2007	Director, Senior Executive Officer, and Chief Executive of Residential

Joined the Company

April 2006	Senior Executive Officer and Chief Executive of Energy Resources Div.
June 2009	Director, Senior Executive Officer and Chief Executive of Energy

Sales Promotion Div.

Resources Div.

April 2009	Director, Senior Executive Officer, and Chief Executive of Housing

April 2010	Director and Chief Executive of Energy Production Div., and in charge

Development Div.

of Environmental Affairs Dept.

April 2010	Representative Director, Executive Vice President, in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
and Compliance Dept.

April 1974

Director

Director

Michiaki Hirose

Mikio Itazawa

Joined the Company

April 1974

April 2009	Senior Executive Officer and in charge of Corporate Planning Dept.
and Affiliated Companies Dept.
June 2009	Director, Senior Executive Officer and in charge of Corporate

Maintenance Div.
April 2004	Executive Officer and General Manager of Pipeline Dept. of Pipeline

Planning Dept., Corporate Communications Dept., and AffiliatedCompanies Dept.

Network Div.
April 2007

April 2010	Director, In charge of Corporate Planning Dept., Project Management
Dept., Corporate Communication Dept., and Affiliated Companies Dept.

Joined the Company

June 2003	General Manager of West Pipeline Business Dept. of Pipeline andSenior Executive Officer and Division Manager of Pipeline Network Div.

June 2010	Director, Senior Executive Officer and Division Manager of Pipeline
Network Div.

Auditors

Outside Auditors

Yasunori Takakuwa

Shoji Mori	(Vice Chairman, Institute for International Socio-Economics Studies)

Kunihiro Mori

Yukio Masuda	(Standing Consultant, Mitsubishi Corporation)
Masayuki Osawa	(Outside Auditor, PACIFIC CONVENTION PLAZA YOKOHAMA)36

CORPORATE GOVERNANCE

Message from Outside Directors

Outside Director

Outside Director

Outside Director

Katsuhiko Honda

Sanae Inada

Yukio Sato

Current position

Current position

Current position

Advisor, Japan Tobacco Inc.

Attorney

Vice Chairman, The Japan Institute of International Affairs

June 2007

June 2007

Director of the Company

Director of the Company

June 2010

Director of the Company

As an outside director, I look at management

The gas industry faces not only a global

In Japan, the concept of “corporate gover-

and operational initiatives from an impartial

economic slowdown but also fierce competi-

nance” was originally imported, and Japaneseperspective. I am deeply impressed by thetion among forms of energy, and Tokyo Gas

society faces the challenge of how best to sys-

straightforward and steady efforts of managers

itself has many challenges in responding totematize and implement corporate governanceand employees to enhance the Company’s

electricity-related campaigns. The Company

practices. I think that there are three key points

enterprise value, as well as by the high ethicalshould strongly emphasize the outstandingfor companies that conduct business opera-

and moral standards that are evident in theenvironmental friendliness of natural gas,

tions in society: following rules, self control,

execution of business activities.

as well as the fact that Tokyo Gas is a veryand self-awareness regarding the corporate

Tokyo Gas is a “public utility” that provides

environmentally friendly company. I also thinkpresence in society. For Tokyo Gas, which issocial infrastructure, but I believe that the pub-that the Company needs to further enhancea public enterprise that has responsibility forlic interest aspect of a company’s operations is

the corporate image.

stability and safety in the lives of the public,

not intrinsic to the company itself but rather is

In the midst of today’s intense competition,

granted to the company by the customers whothere may be some concerns and disorientation

In addition, to respond appropriately to the

support it. The Company has made customer

in worksites. It is important for executives torequests of customers and society as well as

satisfaction its number one priority, and moving

demonstrate strong leadership and clear vision

those of shareholders and investors, I think it

forward I would like to see the Company fur-in order to foster a strong feeling of trust

is important not to neglect the enhancement

ther enhance service, with all Group employees

among employees.

of transparency in business activities. Moreworking together under the leadership of thethese are especially important points.

Further, the Company should implement new

than anything else, it is important to pay careful

operational development, with consideration forattention to outside opinion. Of course, it goes

As the Company works to move beyond theglobal initiatives. I would like to see the Compa-

without saying that it is also important to havedramatic changes in the current operating envi-

ny concentrate the capabilities of All Tokyo Gas,a solid grasp on international developments

ronment while anticipating future changes, I will

including affiliated companies, without beingthat is reflected in decision-making and to

do my best to make a contribution to sustaining

limited by existing concepts, and aim to be amaintain a focus on preparedness.

and enhancing the Company’s enterprise value.

global, integrated energy enterprise.

new president.

Executive Officers
President

Tsuyoshi Okamoto

Executive Vice Presidents

Shigeru Muraki
Toshiyuki Kanisawa
Hirokazu Hayashi

Senior Executive Officers

Tsutomu Oya
Division Manager of Energy Production Div., In charge of Environment Dept.
Michiaki Hirose	In charge of Corporate Planning Dept., Project Management Dept., Corporate Communication Dept., andAffiliated Companies Dept.
Mikio Itazawa
Division Manager of Pipeline Network Div.
Norikazu Hoshino
Dispatched to the Japan Gas Association
Kazuo Yoshino
In charge of Investor Relations Dept., Finance & Managerial Accounting Dept., and Accounting Dept.
Hisao Watanabe
Division Manager of Technology Development Div. and Information Technology Div.
Manabu Fukumoto	In charge of Purchasing Dept., Real Estate Management Dept., Major Site Development Dept., andInternal Audit Dept.
Matsuhiko Hataba
Division Manager of Residential Sales Promotion Div.
Koichi Aonuma
Division Manager of Housing Development Div.
Yutaka Kunigo
Division Manager of Energy Resources Div.

Executive Officers

Akio Maekawa
Masahiro Mikami
Hiroaki Kubota
Hidefumi Takahashi
Hideaki Obana
Hiroaki Kobayashi
Yoshihiro Tanabe
Fumio Murazeki
Takashi Uchida
Hideaki Arai
Satoru Yasuoka

Division Manager of Energy Solution Div., and General Manager of Volume Sales Div.
In charge of Personnel Dept., Secretary Dept., General Administration Dept., and Compliance Dept.
Division Manager of Regional Development Marketing Div.

Coordinator, Energy Solution Div.
General Manager of General Administration Dept.
General Manager of Energy Production Dept., Energy Production Div.
General Manager of Kanagawa service branch, Residential Sales Promotion Div.
General Manager of Corporate Communications Dept.
General Manager of Customer Safety Dept., Residential Sales Promotion Div.
Deputy Chief Executive of Energy Solution Div. and General Manager of Energy Sales & Service Planning Dept.
General Manager of Residential Sales Planning Dept., Residential Sales Promotion Div.
General Manager of Corporate Planning Dept.
General Manager of Pipeline Dept. Pipeline Network Div.
General Manager of Gas Resources Dept. Energy Resources Div.

TOKYO GAS ANNUAL REPORT 201037

Corporate Social Responsibility
Tokyo Gas Group CSR
The Tokyo Gas Group has declared its commitment to promoting CSR management that facilitates
the realization of its CSR objectives and its public mission. These objectives are achieved throughthe Group’s daily business activities. On that basis, we will continue to work earnestly in suchareas as corporate governance, compliance, and risk management. As a public institution, we will
strive to earn the continued trust of our stakeholders. Specifically, the Group’s number one priorities will be to continue to advance “safety and disaster prevention,” “environmental initiatives,”and “building partnerships” as its focus CSR activities and to establish relationships of trust withlocal communities. In these ways, we will endeavor to make an ongoing contribution to society
through our daily business activities.

Becoming a Corporate Group that is Continually Trusted and Preferred by Customers and Society

Promotion of CSR Management in All Tokyo Gas Initiatives

Safety andDisaster Prevention

Environmental
Initiatives

Further increase safety
and reinforce disasterprevention measures

Diverse approaches tobecoming a top runner inenvironmental management

Partnerships
Building partnerships
with stakeholders

Business Activities of All Tokyo Gas
LNG Value Chain
Management Philosophy and Corporate Code of Conduct
Management Philosophy and Corporate Code of Conduct
Management Philosophy
As an integrated energy company, the Tokyo Gas Group shall make an active contribution to pleasant living and thedevelopment of environmentally friendly society, and also pursue ongoing advancement together with the rest ofsociety, as a corporate group that earns and maintains the trust of its customers, shareholders and communities
through its various activities.

Corporate Code of Conduct
1. We will continue to grow while maintaining awareness of our company’s public mission and social responsibilities.
2. We shall provide quality products and services, and endeavor always to improve customer satisfaction.
3. We will hold ourselves to high ethical standards, and fairly and transparently conduct corporate activities whileobserving both the letter and the spirit of related laws and ordinances.
4. We will contribute to alleviating global environmental problems as a top runner in environmental management.
5. We will remain keenly aware of our obligations to be a good corporate citizen and work towards the bettermentof society by contributing to community activities.
6. We will pursue continual innovation to promote a cost-effective business approach that is both flexible and resilient.
7. We will aspire to build organizations that are based upon the full exercise of, and respect for the talents, desires,and creativity of each and every employee.

38

Corporate Social Responsibility

Safety and Disaster Prevention
Our Responsibility
Our customers have provided valuable feedback in regard to the use of gas, such as “I would like you to develop safe
gas appliances,” “I want you to figure out a way to prevent careless mistakes in using gas appliances,” and “Afteryour work is done, I would like you to explain what you did.” At the Tokyo Gas Group, we have three key themes inpromoting the safe use of gas. The first is promoting the utilization of facilities that decrease the likelihood of accidents, gas leaks, or damage and of functions to control such incidents (tangible countermeasures). The second is fostering knowledge of correct usage and implementing periodic inspections (intangible countermeasures). The third isestablishing an emergency response system for use in the unlikely event of a gas leak (emergency response countermeasures). To foster prompt gas supply in the event of an earthquake or other natural disaster, we are implementing“prevention,” “emergency,” and “restoration” initiatives. We continue working to minimize the influence of such an
event on the lives of our customers.

Initiatives
To promote the early replacement of water heaters and bathtub water heaters that have not been equipped withincomplete combustion avoidance devices, since January 2007 we have instituted a “replacement promotion campaign,” which incorporates special visits, free inspections, and replacement support. As of the end of March 2010, we
had invested about ¥5.5 billion and replaced about 180,000 devices out of a total of 300,000 that need replacement. In
particular, we have replaced about 74% of small water heaters that lack incomplete combustion avoidance devices andabout 62% of CF devices*. The campaign has ended, but we continue to provide support for replacement. Throughsuch opportunities as “periodic gas facility safety checks” and “gas valve opening,” we will continue working toward
the reduction of these appliances. At the same time, we will endeavor to provide accurate information about thesafety, environmental friendliness, and convenience of gas, and to implement enhanced communications so that wecan best meet the needs of our customers.
In gas supply, in January 2007 there was an accident in the city of Kitami in Hokkaido. We continue moving forward
aggressively with the necessary measures, aiming to replace about 1,200 km of gray cast-iron pipes and galvanized gas
pipes. In fiscal 2009, we invested ¥11.1 billion and replaced 166 km of pipe. There are still about 800 km of these graycast-iron pipes and galvanized gas pipes that need to be replaced, and we plan to complete the replacement work by fiscal 2015. Moreover, the replacement of aged galvanized gas pipes in buildings that is important in terms of public safety
is a key safety initiative. We are aiming to finish this task by fiscal 2015, and with the understanding of customers weare striving to advance this deadline as much as possible. In fiscal 2009, we spent about ¥1.8 billion on these measures.
* C F devices: Gas appliances that use indoor air for combustion and emit exhaust through an exhaust duct with the aid of natural ventilation.

TOPICS
SUPREME (Super-dense Real-time Monitoring of Earthquakes)
Under the SUPREME

Security Command CenterIn fiscal 2009, with the objective of decreasing block sizes

initiative, which began

in order to minimize the area in which supply is interrupted,

in July 2001, we have

we increased the number of blocks from 101 to 136. In thisinstalled earthquake

way, we are taking steps to facilitate the restoration of gas

sensors (SI sensors)service as rapidly as possible after an interruption. In thein all district supply

future, Tokyo Gas will continue to move ahead with block size

governors (regulators)

reductions, with a goal of completing this task by the fiscal

in approximately 4,000 locations throughout our supply area.

year ending March 31, 2013 and establishing a system with

With one SI sensor in about every square kilometer, thisabout 170 blocks. In this way, we will aim for even more

earthquake damage prevention system has a high level of

rapid restoration of service in times of disaster.

sensor density. It is unparalleled anywhere in the world.
Under SUPREME, our service area is divided into “blocks” ofa certain size. In the event of a major earthquake, gas supply

Earthquake
sensor (SIsensor)will be continued to areas that have not suffered damage to
gas facilities. In areas in which gas facilities have suffered
substantial damage, gas supply can be rapidly cut off on a
block by block basis, making it possible to prevent fires andother secondary damage.

Distribution of earthquake sensors(red dots: Tokyo Gas SI sensors; blue frameworks: blocks)

TOKYO GAS ANNUAL REPORT 201039

Environmental Initiatives
Our Responsibility
Our environmental philosophy is as follows. The Tokyo Gas Group will promote more positive ways of energy use tocontribute to the protection of regional and global environments as well as to the sustainable development of society.
Our environmental policies are to (1) reduce the environmental impact of customers’ energy use, (2) reduce the total
environmental impact of Tokyo Gas’ business activities, (3) strengthen environmental partnerships with local and international communities, and (4) promote environment-related technology R&D programs.

Initiatives
Targeting the realization of a low-carbon and resource-recycling society and the conservation of biodiversity, the Tokyo
Gas Group has formulated environmental protection guidelines for six areas, such as global warming prevention. On
that basis, the Group is moving forward with the implementation of specific initiatives.
For example, we will continue working in an active and sustained manner to prevent global warming by promoting
the use of environmentally friendly natural gas and by providing equipment and systems with high efficiency and low
environmental impact. In comparison with the 2005 levels, we will strive to reduce CO2 emissions at customer sites by
3 million tons by the fiscal year ending March 31, 2016 and by 4.5 million tons by the fiscal year ending March 31, 2021.
In the development of a recycling-oriented society, the Tokyo Gas Group will take a comprehensive approach to
reducing environmental burden by implementing efficient, effective environmental management activities; by reducing, reusing, and recycling waste in our operational activities; and by aggressively promoting green purchasing. In addition, targeting the establishment of a society that coexists with nature, we recognize the importance of the benefits of
biodiversity, and we are working to track and analyze the influence of our operating activities on biodiversity. Moreover, from a CSR perspective, we are also promoting activities that contribute to the conservation of biodiversity inways that are unrelated to our business activities.

TOPICSPower Generation Initiatives

Overseas Environmental Cooperation

Ohgishima Power

Since October 2004, Tokyo Gas has participated in power gen-Kawasaki Natural
Gas Power
Generation

eration operations in Bajio, Mexico, which is 260 km northwest of Mexico City, the capital of Mexico. The Bajio power
plant is an IPP (Independent Power Producer) natural gas
combined cycle plant (Tokyo Gas: 49%). Power is supplied to
Mexico’s federal electricity commission—Comision Federal
de Electricidad—and to customers in the surrounding area.
In addition, in June 2010, in cooperation with Mitsui & Co.,
we completed acquisition of five Mexican thermal power gen-In electric power, Kawasaki Natural Gas Power Generation

eration companies as well as a pipeline company. As a result,Co., Ltd. (Tokyo Gas: 49%, two 420 MW units) began

we have reinforced our foothold in power generation opera-

commercial operation in April 2008. Ohgishima Power Co.,tions in Mexico. These are gas-fired, combined cycle IPP

Ltd. (Tokyo Gas: 75%, three 407 MW units) began commer-

power plants, with an aggregate total generating capacity ofcial operation of its first unit in March 2010 and its second

2,233 MW (Tokyo Gas: 30%). Power will be supplied underunit in July 2010. Each of these has the latest gas turbine

25-year term contracts with the Comision Federal de Electric-

combined-cycle power generation facilities, with peak

idad. Through these projects, Tokyo Gas will have total gener-

efficiency of 58% (low heating value (LHV) standard / grossating capacity of about 960 MW in Mexico and will play a role

generating efficiency). In these ways, we are working toin the stable supply of power in Mexico.

support the efficient supply of energy.
In addition, Agatsuma Bio Power Co., Ltd. (Tokyo Gas:
4.44%) is a biomass power generation enterprise using woodchips as fuel. Commercial operation is scheduled to start in
fiscal 2010. Agatsuma Bio Power is expected to reduce CO2
emissions by 60,000 tons*1 through the generation of 85
MWh*2 of electricity a year.
*1	Calculated in comparison to an average of 0.69 kg CO2 /kWh forthermal power generation, for which Agatsuma Bio Power’s
operations will be a substitute.
*2	13.6 MW power generation facility

40

Corporate Social Responsibility

Thermal power generation facilities acquired in June 2010
(Rio Bravo II / III / IV)Building Partnerships
Our Responsibility
Tokyo Gas conducts business operations that have a strong public welfare element, and the Group has a social mission. Tokyo Gas endeavors to move forward in tandem with its stakeholders, including not only shareholders but also
customers, employees, suppliers and partners, and local communities. Contributing to the development of society is
one of our most important tasks. Accordingly, we continue our sincere efforts to build, sustain, and develop relationships with all of our stakeholders.

Initiatives
By enhancing communications in capital markets through our IR activities, we are working to secure managementsoundness and transparency, to reflect the expectations of capital markets in our management, and to improve theunderstanding of and the trust in the Tokyo Gas Group.
In our relationships with customers, in order to ensure that All Tokyo Gas continues to be the preferred choice, we
emphasize “whether the customer is satisfied” rather than “what we provide to the customer.” In accordance withthis approach, we have identified the customer satisfaction (CS) mindset as the fundamental stance of All Tokyo Gas
and have documented it in our code of conduct. Moving forward, we will continue working to be a customer-focusedGroup by thoroughly communicating this fundamental stance to everyone involved with All Tokyo Gas.
For our employees, we are striving to enhance their motivation and to create “workplaces that are easy to work in”
and in which employees can exercise their abilities to the fullest extent. Accordingly, we have established a variety ofsystems and are devoting resources to education so that the systems are used effectively. Furthermore, we are moving ahead with initiatives in the area of healthy, safe work environments.
In our relationships with suppliers and partners, we are taking steps to fulfill our public welfare and social missions,such as formulating action guidelines for purchasing activities and working to build relationships of trust.
In addition, our relationships with local communities involve working toward the realization of a society that is
pleasant and comfortable to live in and striving to resolve issues related to our daily lives. In these ways, we are implementing activities that make the most of our strengths.

TOPICSTokyo Gas Environment Support Fund
Providing support
for Inbanuma waterquality improvement
activities through theInba Yasai Ikada noKai, an NPO.

Overseas Environmental Cooperation
Since 1993, Tokyo Gas has been
actively involved in the Donguri(Acorn) Project, working together with
the Donguri (Acorn) Club, a non-profit
organization (NPO), and with local
administations. In the midst of a trend

Environmental education activities at the
Donguri (Acorn) School

toward a re-appreciation of the importance of forests andnatural woodlands, this project serves as a countermeasure to
global warming while facilitating experience-based education.
With a grant from Tokyo Gas to the Japan Environment Asso-

The project encourages participants to think about the natural

ciation, this fund was established in December 2007 in com-environment through a cycle of activities—gathering acorns,

memoration of Tokyo Gas reaching the milestone of 10

planting seedlings, and caring for trees.

million customers in September 2007. Through the fund, we

Since 2005, experience-based environmental educational

have provided ongoing support for non-profit, private-sector

activities have been conducted at Nagano Tokyo Gas Forest

organizations that engage in environmental conservationin Kitasaku-gun, Nagano Prefecture, offering participants theactivities. The objective of this support has been to express

opportunity to learn about the relationship between their daily

our gratitude to a wide range of local communities while atlives and the forest. At the Donguri (Acorn) School, forest man-the same time contributing to the resolution of regional andagement activities are combined with a range of experience-

global environmental problems and to the realization of a sus-

based nature programs in spring, summer, and fall.

tainable society.

In the fiscal year ended March 31, 2010, Donguri (Acorn)

In the fiscal year ending March 31, 2011, applications

School sessions were held in spring, summer, and fall, and awere received from 58 organizations and a total of ¥10 million

total of about 200 participants gathered and experienced ais to be provided to 14 recipients. Since the fiscal year ended

range of activities. These included animal tracking, where

March 31, 2009, a cumulative total of ¥30 million has been

they walked through the forest while looking for animal signs,

provided to 40 organizations.

and carpentry work using thinned wood.

TOKYO GAS ANNUAL REPORT 201041

On-Site IR Report
This section provides responses to questions from investors and explains policies that are important in the
conduct of management.
Q1 How does Tokyo Gas structure its rates?
The Company’s gas rate system is divided into the following three categories.
Service agreement	In cases in which Tokyo Gas supplies gas through the pipelines to meet general demand, the rateschedule is “regulated” under the service agreement used to require the approval of the Minister of
Economy, Trade and Industry (METI). Under the amendments to the Gas Utility Industry Law in 1999,
however, it became possible to change these rates simply by notifying the Minister, provided thatthese changes do not adversely affect any customers.
Optional agreement	Tokyo Gas is permitted to offer rates and service terms other than those outlined in the above service
agreement. This enables the Company to make efficient use of its gas production and supply facilities
and to improve its management efficiency. These agreements must be reported to the Minister, andthe selection of this option is up to the customer.
Large-volume supply	Under the Gas Utility Industry Law, the conditions for gas rate setting and market entry for service
providers in the large-volume market are being gradually deregulated. Effective from April 2004,
customers who used 500,000 m3 or more qualified as large-volume customers. Moreover, from
April 2007, the designation point for large-volume customers shifted to 100,000 m3 or more.
“Regulated” rates are calculated using a total cost principle*1. A simplified version of this calculation is given below.
Operating cost, etc.

+

Fair return

Cost of gas resources*2
Depreciation
Personnel expenses
Non-operating expenses
Overhead
Income taxes–

Deductions, etc.

Calculated using the ratebase
system, which involves multiplying
fixed-asset investments, etc., by
the appropriate ratio of fair return=

Total fair cost

Profit from gas appliance sales, etc.
Profit from real estate business, etc.

Represents an appropriate profit
added to an appropriate cost underefficient management*1	Total cost principle: For a specific period (1 to 3 years), a fair return is added to the necessary and appropriate costs for the relevant period and gas rates are
set on that basis (total cost). In this way, rates are calculated in accordance with METI rules.
*2	Fluctuations in foreign exchange rates or crude oil prices are reflected in the meter rate every month in accordance with the gas resource cost adjustment
system. Consequently, the impacts of such fluctuations on revenue and expenditure will be neutral in the medium to long term.

Q2 What is the gas rate adjustment system?
The price of LNG is significantly influenced by crude oilcost fluctuations). The system is intended to increase rate

prices and exchange rate fluctuations. Consequently, thetransparency and to clarify the efforts of suppliers togas resource costs borne by city gas suppliers are substan-increase management efficiency.

tially influenced by changes in these areas. The gas rate

Under this system, the impact of fluctuations in gas re-adjustment system was introduced to promptly adjust gas

source procurement costs on the revenues and expenditures

rates*1 to reflect such exogenous factors (gas resourceof gas companies is neutral over the medium to long term*2.

*1	In general, gas rates comprise the base rate + specific unit price (unit rate x gas usage volume), and under the gas rate adjustment system, fluctuations inresource costs are reflected in the unit rate component of gas rates by adjustment amount.
*2	There is a time lag between the payment for gas resources and the reflection of the gas resource costs in gas rates. Consequently, in a single fiscal year,
there can be under-recovery or over-recovery in relation to gas resource costs stemming from fluctuations in crude oil prices and exchange rates.

C (Mar.–May)

3 month moving average(¥/t)(¥/Month)Upperlimit 160%

B (Feb.–Apr.)
Standard averagegas resource costUpper
limit 160%

C (Aug.)86,1006,318

B (Jul.)A (Jan.–Mar.)A (Jun.)53,810

5,398

1

2

3

4

5

6

7

8

Average gas resource cost (left)
Standard residential gas rates at monthly usage volume of 34m3 (45MJ/m3) (right)
The portion of the fluctuation in gas resource costs that exceeds 160% of the standard average gas resource cost is
not subject to gas rate adjustment.

42

On-site ir report

9

month

Q3 What processes are used by Tokyo Gas when making investment decisions?
Since fiscal 2003, Tokyo Gas has made decisions on new

Executive Committee or the Board of Directors. Derivative

businesses, the continuation of businesses, and exits fromtransactions are subject to market risk management rules.

businesses through Tokyo Gas Economic Profit (TEP), andCorporate Executive Committee meetings are held eachdecisions on investments through Net Present Value (NPV)week and are attended by executives at the senior execu-

and Internal Rate of Return (IRR). These three indicatorstive officer level and above. Final decisions on important

are used as common standards throughout the Tokyo Gas

management issues are made after in-depth discussion, in-Group. TEP is an original evaluation method for ensuring

cluding deliberations by the Investment Evaluation Commit-that the amount of profit exceeds the cost of capital.

tee in the case of investment decisions. To follow theThe Investment Evaluation Committee assesses plans

results and monitor projects in which investments havethat involve investment, equity participation, or debt guaran-

been made, Tokyo Gas evaluates the situation regularly intees on the basis of risks and returns. The results of these

the Investment Evaluation Committee and reports findings

deliberations are reflected in decisions at the Corporate

at the Corporate Executive Committee.

Q4 What is your relationship with Tokyo Electric Power Company (TEPCO)?
Tokyo Gas and TEPCO source about 70% of the total vol-TEPCO has moved into the gas market, and Tokyo Gas

ume of their LNG purchases from joint LNG projects andand TEPCO are engaged in the competition for gas demand.

are joint participants in projects based on upstream inter-

Also, in the residential sector, the competition with all-ests. Joint purchasing strengthens our bargaining power,­electric systems has intensified. As a result of in-depth devel-

since we can contract for large volumes.
Two of our three LNG terminals, the Negishi and Sode-

opment focusing on major sub-users and initiatives to build
close relationships with customers, centered on LIFEVAL,

gaura LNG Terminals, are operated jointly with TEPCO. This

which we completed the establishment of in fiscal 2009, weallows us to reduce capital investment and operating costs.

are working to hold the percentage of newly built houses

We can also improve operating rates through load levelingwith all-electric systems in our service area to a minimum.

based on differences between peak demand patterns forTokyo Gas responds to various forms of competition byelectric power and gas. These advantages are reflected ingoing beyond the supply of individual energy products, such

lower production costs per unit of gas.
At the marketing level, however, Tokyo Gas and TEPCO
are competitors. In the commercial and industrial sectors,

as gas and electric power. Our ultimate goal is to provide
our customers with optimal value by responding to theirreal needs, including their energy service needs.

TOKYO GAS ANNUAL REPORT 2010

43

Q5 What is the definition of the “Energy Service Business”?
In the energy service business, energy service providers

subsidiary, ENERGY ADVANCE Co., Ltd. The company oper-

build and own facilities such as cogeneration systems, andates very efficiently by capitalizing on the LNG procurement

provide one-stop energy services, such as electricity andsystems and advanced engineering capabilities of the Tokyo

heat. This type of service is drawing attention on account

Gas Group, making the most of the high value added thatof its major advantages for customers. These include easecan be achieved with cogeneration systems. It targets envi-of implementation stemming from lack of need for a largeronmentally concerned customers, especially in the Kanto re-initial investment, a high level of environmental perfor-

gion, where demand is high. This company’s energy services,mance, and reduced energy costs. Also, this is a field withwhich were introduced in 2003, have achieved the leading

growing appeal as a business due to improvements in sys-

position in the industry, with 332 contracts at the end of

tem efficiency.

March 2010.

In 2002, Tokyo Gas moved to expand its involvement in
the energy service business by establishing a wholly owned

Q6 What do you see as the role of the power generation business within the integrated energy business?
Tokyo Gas has established its power generation businessCurrently, we have four power plants in operation, or

as a multi-energy supply measure to provide all forms ofplanned (refer to the table below), with our share of gener-

energy that customers require in a one-stop manner. We

ating capacity of 1,300 MW.

intend to achieve an optimal mix with facilities such as

Moreover, from a standpoint of developing renewablecogeneration systems.

energy, we installed a wind farm with a capacity of 1,990

Furthermore, we believe our power generation business

kW inside our Sodegaura LNG Terminal in October 2005.

has a number of strengths.

We are also constructing a wood chip biomass electric

1	It allows for competitive fuel procurement backed by ourpower plant with a capacity of 13,600 kW in Agatsuma-gun,bargaining power.

Gunma Prefecture, with the objective of starting operations

2	Power plants are located close to demand areas utilizing

in fiscal 2010.

existing infrastructure such as LNG terminals.
3	Synergy effects with the gas business are possible,
such as improved terminal utilization rates and one-stop
services.
Tokyo Gas Baypower Co., Ltd.

	100 MWIn operation since October 2003

Tokyo Gas Yokosuka Power Co., Ltd.

	240 MWIn operation since June 2006

Kawasaki Natural Gas Power Generation Co., Ltd.
Ohgishima Power Co., Ltd.

840 MW(420 MW x 2 units)
	1,220 MW(407 MW x 3 units)

In operation since April 2008
Unit No. 1 in operation
since March 2010
Unit No. 2 in operation since July 2010.
The timing for the commencement of
Unit No. 3 commercial operation has notbeen determined.

44

On-site ir reportFINANCIAL SECTION

Contents
46

TWELVE-YEAR SUMMARY

48

MANAGEMENT’S DISCUSSION AND ANALYSIS

54

BUSINESS RISKS56

CONSOLIDATED BALANCE SHEETS

58

CONSOLIDATED STATEMENTS OF INCOME

59	CONSOLIDATED STATEMENTS OF CHANGES IN NETASSETS
60

CONSOLIDATED STATEMENTS OF CASH FLOWS

61	NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
72

INDEPENDENT AUDITORS’ REPORT73	CONSOLIDATED SUBSIDIARIESAND EQUITY-METHOD AFFILIATES74

INVESTOR INFORMATION

For purposes of presentation, in this annual report, all amounts less than one
billion yen or one million yen have been rounded down, and hundredths of apercentage point have been rounded to the nearest whole number.
In addition, all graphs and tables represent fiscal years ended March 31 of therespective years.

TOKYO GAS ANNUAL REPORT 201045

Twelve-Year SummaryYears ended March 31

Millions of yen, except per share amounts

2010

2009

2008

2007

2006

¥1,415,718¥1,660,162¥1,487,496¥1,376,958¥1,266,501

1,045,535

1,257,574

1,087,044

999,521910,320

126,088

122,363132,236

135,407

130,825

For the Years
Net sales
Gas sales
Gas appliance sales
Installation work

44,36049,09457,32559,22959,746

Real estate rental

33,71035,63735,16934,03434,187

Other business

317,819

363,783

320,361

285,407

252,595

Operating income

85,22965,20470,048

162,315

112,345

Net income

53,781

41,70842,487

100,699

62,114

Depreciation*

146,117

141,083

142,421

133,142

136,376

Capital expenditures**148,186

145,929

138,006

124,556

119,435

Free cash flow

51,71236,862

46,902

109,285

79,057

Amounts per shareof common stock (Yen)
Net income

¥

19.86

¥

15.63

¥

15.94

¥

37.50

¥

23.48

—

15.37

15.50

35.69

21.70

301.58284.72289.49293.11

270.46

9.00

8.00

8.00

8.00

7.00

¥1,840,972¥1,764,185¥1,703,651¥1,692,635¥1,693,898

Interest-bearing debt

555,919593,230

558,716

525,467

559,911

Total net assets

826,291

784,616

780,455

806,045

—

—

—

—

—

728,231

Operating income to net sales

6.0%

3.9%

4.7%

11.8%

8.9%

Net income to net sales

3.8%

2.5%

2.9%

7.3%

4.9%

ROE

6.8%

5.4%

5.4%

13.2%

9.0%

Diluted net income
Net assets
Cash dividends applicable	  to the year

At Year-End
Total assets

Total shareholders’ equity

Ratios

ROA

3.0%

2.4%

2.5%

5.9%

3.7%

Equity ratio

44.2%

43.8%

45.1%

47.0%

43.0%

Notes: 1 Segment sales include intra-group transactions.
		
2 Free cash flow = net income + depreciation* – capital expenditures**			 * including amortization of long-term prepayments
			 ** purchases of tangible fixed assets + purchases of intangible fixed assets + long-term prepayments		3	Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new accounting standard for presentationof net assets (“Accounting Standard for Presentation of Net Assets in the Balance Sheet and its Implementation Guidance” issued
by the Business Accounting Deliberation Council on December 9, 2005).
		
4	From the year ended March 31, 2010, diluted net income per share is not presented in the above table because there are no residual securities fromthe beginning of the fiscal year.

46

FINANCIAL SECTION

2005

2004

2003

2002

2001

2000

1999

¥1,190,783¥1,151,824¥1,127,633¥1,097,589¥1,086,770¥ 992,255¥ 997,766

834,658

831,114

792,453

750,438

740,731

672,069

674,996

135,108

133,873

142,635

149,203

146,516

127,916

133,925

64,794

68,03370,56871,337

71,90768,651

68,817

34,70135,44336,34637,55137,60137,841

37,616

234,720

172,160

158,326

156,011

159,577

158,819

155,044

145,349

152,287

123,294

110,607

103,659

69,23372,302¥

84,04744,78759,201

51,911

27,595

26,69817,764140,271

146,895

141,027

145,564

150,374

140,306

143,009107,529

107,441

111,988

105,296111,397

124,975

151,126

116,789

84,241

88,24092,17866,57242,029

9,647

31.47

¥

16.44

¥

21.18

¥

18.47

¥

9.82

¥

9.50

¥

6.32

28.24

14.98

19.11

16.66

9.13

8.84

5.94

244.73221.53208.65200.75

196.72172.33149.98

7.00

7.00

6.00

6.00

6.00

5.00

5.00

¥1,668,734¥1,666,828¥1,676,064¥1,702,712¥1,797,669¥1,805,086¥1,707,446

624,105

682,744731,301

775,894

870,347

957,085

911,901

—

—

—

—

—

—

—

648,766

598,453

579,706

564,077552,790484,239

421,443

12.2%

13.2%

10.9%

10.1%

9.5%

7.0%

7.2%

7.1%

3.9%

5.3%

4.7%

2.5%

2.7%

1.8%

13.5%

7.6%

10.4%

9.3%

5.3%

5.9%

4.2%

5.0%

2.7%

3.5%

3.0%

1.5%

1.5%

1.0%

38.9%

35.9%

34.6%

33.1%

30.8%

26.8%

24.7%

TOKYO GAS ANNUAL REPORT 2010

47

MANAGEMENT’S DISCUSSION AND ANALYSIS

Summary
In the fiscal year ended March 31, 2010, gas sales volume was down 2.0%, to 13,666 million m3, due in part tothe extended business recession.
The gas sales volume was down, and as a result of a decline in LNG prices, gas unit prices decreased under the gas rateadjustment system. Consequently, net sales were down 14.7%, to ¥1,415.7 billion. However, operating expenses also decreased,leading to a 30.7% rise in operating income, to ¥85.2 billion. Moreover, due to such factors as foreign exchange gains fromoverseas subsidiaries, ordinary income rose 43.2%, to ¥83.5 billion. Net income was up 28.9%, to ¥53.7 billion, the firstincrease in net income in three years.
In regard to the provision of dividends to shareholders, there is no change to our policy of a total payout ratioof 60%. From the fiscal year ended March 31, 2010, we decided to increase the per share dividend by ¥1.00,
resulting in dividends of ¥9.00 for the year.
Operating Environment in the Year Under Review
Influence of Economic Conditions
In the fiscal year ended March 31, 2010, there were signs
that the global economic downturn—which was triggeredby the financial market crisis in the United States—was
improving. Nonetheless, the Japanese economy was affectedby ongoing adverse factors, such as sluggish consumer
spending and stagnant capital expenditures, and the future
course of business conditions remained difficult to predict.
In this setting, energy demand was sluggish under the
influence of restrained consumption and contracting corporate activity, and consequently city gas, the Group’s corebusiness, was adversely affected. In the second half of the
fiscal year, gas sales recovered in nearly all areas of theindustrial sector, but sales did not return to the levels seenprior to the financial crisis. Other sectors, such as residential
and commercial, were also influenced by the sluggish
business environment.
Influence of Fluctuating Oil Prices and Foreign Exchange Rates on
the Company’s Operations
The purchase price of LNG, which accounts for the majority of
the resources used in the Group’s core city gas business, islinked to the Japan Customs-cleared Crude price (hereafterJCC). Under the gas rate adjustment system, the Company’s
gas resource costs are reflected in sales, and the Company’s
revenues and operating expenses are significantly influenced
by fluctuations in crude oil prices.
In the second half of the year under review, the JCC wasat a high level, in the US$70 to US$80 per barrel range, but
for the full fiscal year, it was US$69.38 per barrel, down
US$21.13 year on year. In foreign exchange rates, the yen
remained at a high level, and for the full fiscal year the average yen–dollar exchange rate was ¥92.89, reflecting yen appreciation of ¥7.82 compared with the previous fiscal year.
As a result, the year’s trends in crude oil prices and foreign exchange rates had the effect of reducing the Company’s LNG purchase price and contributing to declines insales and gas resource costs.

Prices of Crude Oil and LNG
US$/MMBtu

US$/barrel

15

100

12

80

9

60

6

40

3

20

0

0

09/4 5

6

7

8

9

10 11

12 10/1 2

All Japan LNG prices (Trade statistics) (left)
JCC prices (Trade statistics) (right)

48

FINANCIAL SECTION

3

Yen–Dollar Exchange Rate
Yen/US$
100

95

90

85

80

09/4 5

6

7

8

9

10 11

12 10/1 2

3

Analysis of the City Gas Business
Sales down in residential, commercial, and industrial
sectors. Slight increase in wholesale sector.
Residential Sector
Due to the growing use of high-efficiency equipment and to
an increase in multiple dwelling units with high levels of
air-tightness and heat insulation, demand for hot water andindoor heating declined. In addition, due to an expanding
focus on energy saving and economizing, residential demand
was down 0.9%, or 31 million m3, to 3,437 million m3.
Commercial and Other Sectors
On account of the recession, building occupancy rates were
down and customers implemented energy-saving initiatives,
leading to lower utilization of existing facilities. As a result,commercial demand declined 4.5%, or 92 million m3.
However, public and medical-related demand was up 2.4%,
or 23 million m3, due to new customers. As a result, commercial demand overall was down 2.3%, or 68 million m3,
to 2,943 million m3.
Industrial Sector
In the second half of the fiscal year, there were signs ofimproving business conditions in some industries, but due
to decreased utilization of existing facilities in the first half,industrial demand was down 3.1%, or 177 million m3, year
on year, to 5,446 million m3. Through November 2009, gassales volume in industrial sector was down year on year for
14 consecutive months, but from December demand once
again began to increase.
Wholesale Sector
Wholesale supplies to other gas utilities were basicallyunchanged from the previous year, at 1,841 million m3,
up 1 million m3.
Consequently, overall gas sales volume was down 2.0%,
or 276 million m3, to 13,666 million m3.

Analysis of Segments

Gas Sales Volume by Sector

Gas Sales Segment
Gas sales declined 16.9%, or ¥212.0 billion, to ¥1,045.5
billion, due to a decline in gas sales volume and to lower
gas unit prices under the gas rate adjustment system.
However, accompanying lower crude oil prices and theappreciation of the yen, gas resource costs decreased, andconsequently operating income rose 14.9%, or ¥16.5 billion,to ¥127.3 billion. As a result, we recorded lower sales andhigher profits in this segment.

Million m3, 45MJ/m3
16,00012,000

8,000

4,000

Gas Appliance Sales Segment
New housing starts were sluggish, and demand for
consumer durables was weak. Nonetheless, due to suchfactors as increased sales from three newly consolidated
LIFEVAL companies and the move to mandatory installationof alarms, sales increased 3.0%, or ¥3.7 billion, year on
year, to ¥126.0 billion. Operating income was up 12.0%,
or ¥0.3 billion, year on year, to ¥2.3 billion.

0

06/3

07/3

Residential
Industrial

08/3

09/3

10/3

Commercial and others
Wholesale

Analysis of Income and expenses
Tokyo Gas recorded lower sales and higher profits forthe first time in 10 years.
In the fiscal year ended March 31, 2010, gas sales decreased 16.9%, or ¥212.0 billion, to ¥1,045.5 billion, due tolower gas unit prices under the gas rate adjustment
system and to a 2.0% decline in gas sales volume. As aresult, total net sales decreased 14.7%, or ¥244.4 billion,
from the previous year, to ¥1,415.7 billion.
The retirement benefits accounting actuarial difference
burden increased in the year under review, and miscellaneous salaries of ¥32.0 billion were recorded. Nonetheless,with contributions from lower crude oil prices and theappreciation of the yen, gas resource costs were down
¥255.0 billion. Consequently, operating expenses declined
16.6%, or ¥264.5 billion, to ¥1,330.4 billion. As a result,operating income increased 30.7%, or ¥20.0 billion, year on
year, to ¥85.2 billion.
Ordinary income was up 43.2%, or ¥25.2 billion,to ¥83.5 billion, due in part to foreign exchange gains fromoverseas subsidiaries.
There were no extraordinary items in the year underreview, and net income posted a year-on-year gain of
28.9%, or ¥12.0 billion, to ¥53.7 billion.

Net Income and Net Income per Share

Installation Work Segment
Sales declined 9.6%, or ¥4.7 billion, year on year, to ¥44.3
billion, due to a decline in the number of new constructions.
Operating expenses decreased due to the application of thepercentage of completion method to construction works
from the fiscal year ended March 31, 2010 and to cost
reductions. As a result, operating loss was ¥0.6 billion, an
improvement of ¥0.4 billion year on year.
Real Estate Rental Segment
Due in part to a decline in lease income from Shinjuku Park
Tower, sales declined 5.4%, or ¥1.9 billion, to ¥33.7 billion.
Consequently, operating income was also down 2.0%,
or ¥0.2 billion, to ¥7.2 billion.
Other Business Segment
Sales in other business decreased 12.6%, or ¥45.9 billion,to ¥317.8 billion. This decrease was attributable to declines
in sales prices accompanying lower fuel expenses andresources costs in energy services, LPG/industry gas sales,and electric power operations. However, due in part to thedecline in fuel expenses and resources costs, operating
income rose 12.8%, or ¥1.8 billion, to ¥15.2 billion.
Business Results by Segment (¥ million)¥ billion

¥

120

40

90

30

Sales
2010

2009

2008

1,045,535

1,257,574

1,087,044

Gas Appliance Sales

126,088

122,363

132,326

Installation Work44,36049,09457,325

Real Estate Rental

33,71035,63735,169Other Business

317,819

363,783

320,361
1,632,228

Years ended March 31

60

20

30

10

0

0

06/3

07/3

Net income (left)

08/3

09/3

Gas Sales

1,567,513

1,828,452

Elimination or Corporate(151,795)(168,290)(144,731)

Consolidation

1,415,718

1,660,162

1,487,496

Total

10/3

Net income per share (right)

TOKYO GAS ANNUAL REPORT 201049

Operating Income (Loss)
Years ended March 31

2010

2009

2008

127,352

110,857

111,663

Gas Appliance Sales

2,335

2,086

2,909

Installation Work(650)

(1,099)828

Real Estate Rental

7,292

7,442

7,963

Gas Sales

15,21013,482

12,768151,539

132,768

136,133

Elimination or Corporate(66,310)(67,563)(66,084)

Consolidation

85,22965,20470,048Other Business
Total

Note: Segment sales and operating income include intra-group transactions.

Contribution to Net Sales by Segment
2010

2009

Gas Sales

66.7%

68.8%

–2.1 point

Gas Appliance Sales

8.0%

6.7%

+1.3 point

Installation Work

2.8%

2.7%

+0.1 point

Real Estate Rental

2.2%

1.9%

+0.3 point

Other Business

20.3%

19.9%

+0.4 point

ChangeFinancial Position and Liquidity
AssetsTotal assets increased ¥76.8 billion, or 4.4%, year on year,to ¥1,840.9 billion. Total property, plant and equipment
declined ¥2.0 billion, to ¥1,108.8 billion. Total intangible
assets amounted to ¥27.9 billion, an increase of ¥1.9 billion.
In investments and other assets, investment securities increased ¥29.9 billion, to ¥139.0 billion, due to higher stock
prices stemming from a rebound in the stock market andfrom new purchases of securities. Overall, total investments
and other assets rose ¥53.2 billion, to ¥268.3 billion.
Total current assets were up ¥23.6 billion, to ¥435.7
billion. Raw materials and supplies decreased ¥19.5 billion,
but cash and deposits increased ¥40.4 billion.
Liabilities
Total liabilities rose ¥35.1 billion, to ¥1,014.6 billion.
Long-term loans payable declined ¥21.1 billion, but provision
for retirement benefits increased ¥30.2 billion. Total
non-current liabilities rose ¥21.1 billion, to ¥654.3 billion.
Total current liabilities rose ¥14.0 billion, to ¥360.3 billion,
due to an increase of ¥31.6 billion in notes and accounts
payable–trade.
Net Assets
Total net assets increased ¥41.6 billion, to ¥826.2 billion.
Total shareholders’ equity was up ¥26.8 billion, to ¥799.3
billion, due to net income of ¥53.7 billion, which exceededcash dividends paid of ¥21.7 billion. In valuation and translation adjustments, valuation difference on available-for-salesecurities was up ¥8.7 billion. Consequently, total valuationand translation adjustments rose ¥14.7 billion, to ¥14.5 billion.
Minority interests were up ¥0.2 billion, to ¥12.4 billion.
Changes in Treasury Stock
In the fiscal year ended March 31, 2010, the Company
made open market purchases of treasury stock totaling¥4.9 billion (13.81 million shares), all of which were cancelled during the fiscal year. Consequently, treasury stock
declined ¥0.4 billion, to ¥1.9 billion.

Equity Ratio
Retained earnings increased due to the recording of net
income, and valuation difference on available-for-sale securities rose. Consequently, total shareholders’ equity was up¥41.5 billion, to ¥813.8 billion. Total assets increased ¥76.8
billion, to ¥1,840.9 billion, and as a result, the equity ratio increased 0.4 point, to 44.2%.
Interest-Bearing Debt
In the fiscal year ended March 31, 2010, due to the redemption of bonds payable at maturity and to the repayment oflong-term loans payable, interest-bearing debt declined
6.3%, or ¥37.3 billion, to ¥555.9 billion. As a result, the D/E
ratio declined 0.09, to 0.68.
Credit Ratings
To secure financial flexibility in regard to liquidity on handand capital policy, and to secure access to financial resources through the capital markets, the Company believes that
it is necessary to maintain its credit rating at a certain level.
Tokyo Gas has acquired ratings from Standard & Poor’s(S&P), Moody’s, and Rating and Investment Information Inc.
(R&I), a rating agency in Japan. As of March 31, 2010, theratings were as follows.
S&P
AA	(Very strong capacity to meet obligations.
Difference from the highest rating,AAA, is small.)
Moody’s Aa1	(High creditworthiness and very low credit
risk. One of the higher rankings forlong-term obligations.)
R&I
AA+	(Very high creditworthiness, excellent
factors.)
Capital Expenditures and Depreciation
Capital expenditures rose 1.5%, or ¥2.2 billion, to ¥148.1
billion. This increase was principally attributable to higher
investment in manufacturing facilities, such as for LNG
tanks, and in administrative facilities, such as in IT systemdevelopment. Depreciation rose 3.6%, or ¥5.1 billion,to ¥146.1 billion.

Total Equity and Equity Ratio¥ billion

%

1,000

50

800

40

600

30

400

20

200

10

0

0

06/3

07/3

Total equity (left)

08/3

09/3

10/3

Equity ratio (right)

Interest-bearing Debt and D/E Ratio¥ billion

Times

600

1.2

500

1.0

400

0.8

300

0.6

200

0.4

100

0.2

0

0

06/3

07/3

08/3

Interest-bearing debt (left)

50

FINANCIAL SECTION

09/3

10/3

D/E ratio (right)

Cash Flows
Cash Flows from Operating Activities
Net cash provided by operating activities increased ¥134.6
billion from the previous year, to ¥294.1 billion. In addition
to income before income taxes of ¥83.5 billion, up ¥15.5
billion from the previous fiscal year; increase in provision
for retirement benefits was ¥30.1 billion, up ¥23.0 billion;
decrease in notes and accounts receivable–trade was¥15.4 billion, up ¥12.9 billion; and increase in notes andaccounts payable–trade was ¥29.4 billion, up ¥23.4 billion.
These were the major factors contributing to the increasein cash flows from operating activities.
Cash Flows from Investment Activities
Net cash used in investment activities in the fiscal year under review was ¥177.2 billion, compared with ¥163.5 billion
in the previous fiscal year. This change was attributable tothe following factors. The total of purchase of property,
plant and equipment and purchase of intangible assets rose
¥4.7 billion, to ¥145.4 billion, and payments of long-termloans receivable rose ¥8.9 billion, to ¥17.8 billion.
Cash Flows from Financing Activities
Net cash used in financing activities in the fiscal year underreview was ¥69.3 billion, compared with net cash provided
by financing activities of ¥30.9 billion in the previous year.
Proceeds from issuance of bonds was ¥30.0 billion, andproceeds from long-term loans payable was ¥13.0 billion.
However, redemption of bonds was ¥60.2 billion, repaymentof long-term loans payable was ¥29.2 billion, and cash
dividends paid was ¥21.6 billion.
Operating Cash Flow
Aiming to aggressively invest in the gas business to prepare
for future demand growth, Tokyo Gas has made operating
cash flow a key management indicator and has disclosed its
allocation policy. Operating cash flow is calculated by adding
depreciation to net income. Operating cash flow for the
fiscal year ended March 31, 2010 amounted to ¥199.8
billion, a year-on-year increase of ¥17.1 billion. The higher
figure reflects an increase of ¥12.0 billion in net income,and an increase of ¥5.1 billion in depreciation.
Total Payout Ratio
Tokyo Gas has set an objective of a 60% total payout ratio
as an indicator of its commitment to shareholder returns.
We define this new indicator as the ratio of the sum of theincome distributed as dividends funded by net income in FY
n and share repurchasing in FY n+1 to the net income in FY n.
The Company plans dividends of ¥9.0 per share for the
fiscal year ended March 31, 2010, and share repurchases of¥8.0 billion in the fiscal year ending March 31, 2011. As aresult, the total payout ratio for the fiscal year ended March
31, 2010 was 60.1%.
In regard to dividends, from the fiscal year ended March
31, 2010, we increased dividends by ¥1.0 per share, to¥9.0 per share. In the future, our priority is to maintainstable dividends, with consideration for gradual increases
over the long term and without reducing dividends.
In regard to share repurchases, our basic principle is tocancel the shares. In the fiscal year ended March 31, 2010,
the 13.81 million shares acquired were cancelled in January
2010. The 19,568 thousand shares repurchased in the fiscal
year ending March 31, 2011 were cancelled in June 2010,
and consequently, the number of shares after thecancellation was 2,684,193,295 shares.

Millions of yen

2010

2009

2008

Net cash provided byoperating activities

294,110

159,561

182,204

Net cash used in investment
activities(177,290)(163,575)(155,365)

Net cash provided by(used in) financing activities(69,375)

30,932(25,189)

Key Management Indicators
ROA and ROE improve due to higher net income
ROA
The average balance of total assets increased, but net
income rose 28.9%, to ¥53.7 billion, and as a result ROA
improved 0.6 point, to 3.0%.
ROE
The average balance of total equity increased, but net
income rose 28.9%, to ¥53.7 billion, and as a result ROE
improved 1.4 point, to 6.8%.
TEP
Our goal is to generate profit in excess of capital costs.
This is reflected in our adoption of Tokyo Gas Economic
Profit (TEP: Net operating profit after tax prior to interest
payments minus the cost of capital) as one of our main
management indicators.
In the fiscal year ended March 31, 2010, improvement ingross profits on gas due to the influence of improvement in
the slide time lag was higher than the increase in miscellaneous expenses, such as amortization of retirement benefits accounting actuarial differences, and Net Operating
Profit After Tax Prior to Interest Payments (NOPAT) increased ¥21.5 billion year on year, to ¥62.7 billion. However,the Weighted Average Cost of Capital (WACC) fell from
3.4% to 3.2%, and as a result the cost of capital declined¥1.9 billion, to ¥44.1 billion. Consequently, TEP improved¥23.4 billion, to ¥18.6 billion.

ROA and ROE
%
16

12

8

4

0

06/3
ROA

07/3

08/3

09/3

10/3

ROE

ROA = Net income / total assets(average of positions at start and end of fiscal year)
ROE = Net income / total equity(average of positions at start and end of fiscal year)

TOKYO GAS ANNUAL REPORT 2010

51

TEP
¥ billion
60
50
40
30
20
10
0
–10

06/3

07/3

08/3

09/3

10/3

TEP = NOPAT – cost of capital (Invested capital x WACC)NOPAT: Net operating profit after tax prior to interest payments

Forecast
Forecasting higher sales and profits in the fiscal year
ending March 31, 2011
In the fiscal year ending March 31, 2011, we expect consolidated sales to increase ¥135.3 billion, or 9.6%, to ¥1,551.0
billion; operating income to increase ¥22.8 billion, or 26.7%,
to ¥108.0 billion; and net income to increase ¥11.3 billion, or
20.9%, to ¥65.0 billion.
In the fiscal year ended March 31, 2010, ordinary income
amounted to ¥83.5 billion, but in the fiscal year ending
March 31, 2011, we are forecasting a year-on-year increaseof ¥18.5 billion, or 22.1%, to ¥102.0 billion. Principal factors
include the non-consolidated ordinary income of Tokyo Gas(+¥26.1 billion), the ordinary income of consolidated subsidiaries (–¥3.6 billion), and internal offset, etc. (–¥4.0 billion).
On a non-consolidated basis, Tokyo Gas is expected torecord an increase of ¥26.1 billion in ordinary income incomparison with the fiscal year ended March 31, 2010.

Gas sales volume and sales revenues are both projected toincrease, but we expect the gross profits on gas to declineby ¥23.0 billion because the increase in gas resource costs
is expected to exceed the increase in sales revenues.
Among the principal factors, we project that the increase ingas sales volume and differences in customer composition
will increase profits by ¥5.3 billion, while under-recovery ofgas resource costs due to the slide time lag under the gas
rate adjustment system is expected to decrease profitsby ¥30.4 billion. Investment to steadily implement theCompany’s key policies under the medium-term management plan will increase operating expenses by ¥9.0 billion,
but due to retirement benefits accounting actuarial
differences and other salary expenses, fixed expenses areprojected to decrease ¥42.2 billion.
The ordinary income for consolidated subsidiaries is
projected to decline by ¥3.6 billion due primarily to lower
foreign exchange gain of overseas subsidiaries.

External Risks Affecting Business Activities
Gas Resource Purchase Price Fluctuation Risk
City gas supplied by Tokyo Gas is produced mainly fromimported LNG. Since contracts are denominated in U.S.
dollars, earnings are at risk from fluctuations in the yen–dollar exchange rate. Also, the dollar-denominated LNG
prices are linked to crude oil prices on a sliding scale,
which exposes the Company to risk from changes in theinternational market price for crude oil.
Fluctuations in the cost of gas resources are passed on togas rates after at most five months under the “gas rateadjustment system.” Accordingly, in a single fiscal year there
can be under-recovery or over-recovery. However, over the
medium to long term, the effect on income is minimal.
The extent to which fluctuations in exchange rates andcrude oil prices will affect gross profit in the fiscal year
ending March 31, 2011 is as follows.

Ordinary Income Plan for Fiscal Year Ending March 31, 2011: Analysis of Factors (Year on Year)
Results in Fiscal Year
Ended March 31, 2010
¥83.5 billion

Forecast for Fiscal YearEnding March 31, 2011
¥102.0 billion

Difference+¥18.5 billion

Decline in gross profits on gas: –¥23.0 billion• Higher gas sales volume / Customer composition:+¥5.3 billion (of which, atmospheric temperature effect: –¥1.1 billion)• Slide time lag: –¥30.4 billion (of which, special gas rate measures:–¥4.1 billion; gas rate adjustment change: –¥12.5 billion)• Other: +¥2.1 billion

Tokyo Gas
(non-consolidated)+¥26.1 billion

Consolidated subsidiaries–¥3.6 billion
Internal offset, etc.
–¥4.0 billion

52

FINANCIAL SECTION

Lower operating expenses: +¥42.2 billion• Higher general expenses: –¥9.0 billion(of which, consignment expenses: –¥3.7 billion; demand
development expenses: –¥3.2 billion, etc.)• Lower personnel expense: +¥53.9 billion(of which, improvement in pension actuarial difference:+¥51.8 billion; workforce reduction: +¥2.1 billion, etc.)
Miscellaneous operating income / Incidental income /Non-operating income: +¥6.9 billion• Miscellaneous operating income: +¥1.0 billion(higher terminal usage fees, etc.)• Incidental income: +¥0.8 billion(higher income from LNG sales: +¥0.9 billion, etc.)• Non-operating: +¥5.1 billion (lower expenses for environmental
consideration: +¥3.0 billion; increase in dividends received fromaffiliated companies: +¥2.7 billion, etc.)
Affiliated company dividends-received eliminations:–¥3.5 billion, etc.

Exchange rate	Approximately ¥0.9 billion down (up) withdepreciation (appreciation) of ¥1/dollar
Crude oil price	Approximately ¥0.9 billion down (up) withan increase (decrease) in crude oil priceof US$1/barrel
In the fiscal year ended March 31, 2010, the average exchange rate was ¥92.89 to one dollar, and the crude oil priceaveraged US$69.38 per barrel. Forecasts for the fiscal year
ending March 31, 2011 are based on an exchange rate of¥95 to one dollar and an average crude oil price of US$80
per barrel.
In regard to the risk of fluctuations in the gas resource
purchase price, although there can be under-recovery orover-recovery in a single fiscal year under the gas rate adjustment system, the Company hedges a certain portion ofthis risk through LNG swaps. In regard to foreign exchange
rate fluctuations, meanwhile, the Company hedges a certain
portion of the risk through forward exchange contracts.
Temperature Fluctuation Risk
Temperatures affect the volume of city gas sales, which account for around 70% of consolidated sales. In the residential sector, gas is used mainly for water heating and indoor
heating. Mild winter weather can erode revenues andincome by reducing the volume of gas sold. In the commercial sector, gas is mainly used for air conditioning systems,
so if temperatures are low in the summer or high in thewinter, the gas sales volume will likely decrease.
The average temperatures in the fiscal year ended March
31, 2010 were 22.4˚C in the first half of the year, 10.7˚C in
the second half, and 16.5˚C for the whole year. Forecasts
for the fiscal year ending March 31, 2011 are based on anaverage of 16.8˚C for the whole year.
To control the risk of temperature-related fluctuations inearnings, the Company hedges a certain portion of that risk
through weather derivatives.

Stock Price Fluctuation Risk
The equities held by Tokyo Gas are primarily those of its
necessary business partners, which are held with the objective of fostering mutual growth. Among them, equities ofpublicly listed companies are subject to market risk. TokyoGas has established management policies and rules andregularly reviews the necessity of equity holdings and theirasset valuations for handling of such equities.

Monthly Gas Sales Volume for the Fiscal Year Ended
March 31, 2010 (non-consolidated)
Million m3, 45MJ/m3
1,500
1,200
900
600
300
0

09/4 5

6

7

Residential
Industrial

8

9

10 11

12 10/1 2

3

Commercial and others
Wholesale

Impact of 1°C Temperature Rise on Overall Gas Sales Volume

Rate of change

Summer (June–September)

0.0%

Winter (December–March)–2.2%

Intervening months (April, May, October, November)–1.7%

Annual–1.4%

Interest Rate Fluctuation Risk
The Company’s interest-bearing liabilities mostly carry longterm, fixed interest rates, so there is only a very small interest rate fluctuation risk during the term of an obligation.
However, there may be fluctuation risk when loans are refinanced.

TOKYO GAS ANNUAL REPORT 201053

Business Risks

Described below are items in the annual Yuho securities report concerning the Company‘s business results
and financial condition that could have a significant influence on investor decisions. Forward-looking
statements are based on the judgments of the Group as of the end of the fiscal year (March 31, 2010).

1. Accidents and Disasters(1) Resource procurement supply interruption risk
Because Tokyo Gas relies on imports for the majority of its
natural gas and other city gas resources, supplier country
risk, accidents at fields or LNG liquefaction plants, accidents
involving LNG vessels in transit, or other situations preventing the procurement of gas resources may disrupt the supplyof natural gas. The Company strives to disperse procurement risks, thereby ensuring its ability to procure LNG in astable and flexible manner, through supply diversification.
These efforts include importing LNG from six countries andthrough 10 projects and flexibly allocating its own LNG ships.
(2) Natural disaster risk
Tokyo Gas engages in facility-dependent businesses
because city gas production and supply facilities are thefoundation of its business. The Company therefore enforces
measures to minimize the aftermath of natural disasters.
Some such measures include provisions to produce andsupply city gas even in the event of large-scale earthquakesof a magnitude equivalent to the Great Hanshin-Awaji
Earthquake, preparation of a business continuity plan (BCP)
that takes into account large-scale earthquakes such as are
assumed by Japan’s Cabinet Office, the improvement ofcontingency plans, and regular drills for natural disasters
including earthquakes and typhoons. Despite such measures, major natural disasters may cause damage to LNG
terminals and other production facilities or pipelines andother supply facilities and disrupt the supply of city gas.
Costs accompanying recovery efforts could affect revenues.
(3) C ity gas and electricity production / supply accidents or supply
disruption
The production and supply of city gas and electricity that isessential to the life of customers and industry is core to theCompany’s business activities. For this reason, Tokyo Gas is
implementing measures to prevent accidents and supplyside impairments through the systematic implementationof various security measures, preparation of a BCP, andexecution of regular drills. However, large-scale leakage,
explosions, or supply difficulties in the process of city gas
production or supply could result not only in direct damages
but also in tangible and intangible losses, including social
responsibility. Remedying power supply impairments may
result in additional losses.
(4) E nsuring the safety of city gas and quality problems affecting
gas equipment
Tokyo Gas has a responsibility to ensure the safe supply ofcity gas. Accordingly, the Company has in place safetymeasures that include reinforcing periodic customer safety
checks, increasing the number of categories included inchecks, and encouraging upgrades to safer appliances.
Tokyo Gas sells gas appliances and other equipment under
the Tokyo Gas brand through consolidated subsidiaries andrelated companies and promotes the development of gas
appliances with enhanced safety features. Nevertheless,costs accompanying responses to accidents caused by city gas
supply, appliances, or other equipment could affect future
earnings, and other direct and indirect losses could result.

54

FINANCIAL SECTION(5) Damage to reputation resulting from city gas accidents causedby other gas companies
Accidents involving city gas supply by other gas companies
could have a serious effect on the reputation of the city gas
industry as a whole. This could result in tangible andintangible losses.

2. Market Risks(1) Market price and interest rate fluctuation risks
Tokyo Gas might incur losses in the event of fluctuations inmarket prices of Company-owned real estate, stocks,
pension assets, or other assets. In addition, interest rate
fluctuations could raise the Company’s interest burden.
However, as most of its interest-bearing debts are
long-term, fixed-rate debts, Tokyo Gas expects the impact
of interest rate fluctuations to be minimal.

3. Risks Accompanying Business Execution(1) Risks faced by existing business
A. Changes in procurement costs

Changes in terms of contracts and negotiations with
suppliers of LNG, from which city gas is produced, may
affect profitability. Also, as LNG and crude oil prices arelinked, and as crude oil sales contracts are denominated in
U.S. dollars, changes in crude oil prices and fluctuations inyen–dollar exchange rates can impact profitability.
Furthermore, if demand increases more than the amountprocured through LNG projects based on long-term contracts, or trouble occurs at a shipping terminal or duringtransportation, or there are delays of LNG supply by new
projects, revenues may be affected by the cost of procuring
spot LNG.
On the other hand, under the provisions for adjusting gas
rates to reflect resource costs, fluctuations in gas resource
prices are reflected in rates within five months at maximum.
However, if such fluctuations exceed 160% of the standard
resource price, the excess amount cannot be collected.
In the event that such changes are reflected in gas rates
beyond the fiscal term, the bottom line may be affectedduring the following fiscal term as a result of the underrecovery or over-recovery of gas resource costs.
B. Decline in gas sales volume due to weather fluctuations

As sales of city gas accounts for approximately 70% ofGroup sales, particularly hot summer and unseasonably
warm winter weather can reduce residential sales of gas
used to supply hot water and heating, as well as commercial sales of gas to air condition buildings, thereby affecting
revenues.
C. Decline in demand due to intensified competition

Tokyo Gas strives aggressively to enhance its sales activities through such measures as introducing gas appliancesthat are environmentally conscious, efficient and convenient. Nevertheless, the Company may face falling demandowing to increasing competition with electric utilities andmajor companies entering into the gas business, as well as
possible loss of LNG competitiveness against other energy
sources due to crude oil price fluctuation. Such factors may
affect revenues.

D. Decline in existing demand

Decreased facility utilization due to economic recession,
advancement of energy conservation activities, changes inindustry structure, or other factors may result in a partial
decrease in existing gas demand in the industrial and commercial sectors. Also, smaller families, changes in lifestyles,
the penetration of energy-saving appliances, and otherfactors may reduce demand from the residential sector.
E. Delay in the development of new technology

Although the Group is developing new products andtechnologies with enhanced environmental designs and ahigh level of safety, it may not be able to develop anddeliver these products and technologies in a timely manner.
This situation could cause competitiveness to fall incomparison with other forms of energy, and affect theGroup’s execution of business.
F. Changes in laws, regulatory systems, or energy policies of
the national governments or local governments

Tokyo Gas manages its operations in compliance with the
Gas Utility Industry Law, the Companies Act, the Financial
Instruments and Exchange Act, and other laws, regulations,and institutions, as well as the energy policies of thenational and local governments. Any revisions to theselaws, regulations, institutions, or policies that prove
detrimental to the Tokyo Gas Group may affect businessperformance.
(2) Delayed cultivation of new markets
As described in its medium-term management plan, theCompany is cultivating new markets by promoting the
adoption of the “ENE-FARM” residential fuel cell and newenergy systems incorporating solar light and heat. However,subsequent changes in the operating environment, including changes in energy policy by national or local governments, could delay this cultivation, compel a change inbusiness strategy and prevent the recovery of investment.
(3) Inability to recover investments
Tokyo Gas makes large ongoing investments in keepingwith the goal of “advancing and developing the integrated
energy business strategy” expressed in its medium-term
management plan. The Company evaluates profitability andrisks of all investments, capital contributions, loans, anddebt guarantees at the Investment Evaluation Committee,
and makes investment decisions based on a conclusionfrom the committee while consulting with the management
council and the Board of Directors’ meeting, if necessary,from a standpoint of comprehensive management judgment. The targets of these investments include construction of pipelines and reinforcement of foundations for stablesupply through the construction of LNG terminals and otherfacilities, the electric power and energy service businesses,
development of gas fields overseas, the LNG transportbusiness, and IT and other elements required for ongoing
business, as well as investment related to the use ofowned real estate. Changes in the economic situation could
render it impossible to recover these investments or tobenefit from their intended effects, consequently affecting
the Company’s balance of payments.

4. Risks Related to Information Management andSystem Operation(1) Outflows of personal information
To conduct its business as a public utility, Tokyo Gas collects
and manages personal information on its customers. The
Company has implemented measures to prevent leakage of
personal information by constructing a groupwide information security system, conducting training on information
security, and voluntarily monitoring such information. The
Group also performs internal audits to ensure proper
construction and operational status. Outflows of customers’
personal information despite these efforts may result in
direct costs to remedy the situation, as well as tangible andintangible losses, including damage to the trust of customers and other parties, with more serious consequences thanfor other companies.
(2) Failure or malfunctioning of IT backbone systems
Because the Group relies on IT systems for customer
service and the calculation of gas rates, it has implemented
measures to minimize the impact on operations of unexpected events. Tokyo Gas employs a robust data centerwith superior fault resilience and disaster tolerance. The
Company also prepares and implements various security
measures and regular drills to ensure stable operation of thesystems. The shutdown or malfunction of these systems
could delay customer response, as well as cause tangible
and intangible losses, such as reputational loss.
However, such IT system malfunctions are unlikely tohave any serious impact on the production and supply ofcity gas because the IT system for adjusting the production
and supply of city gas has its independent security measures in place. These include a backup system and wirelessnetwork operated by the Group.
(3) Interruption of communication with call centers
Most communications between Tokyo Gas and its customers take place via call centers. Interruptions to telephoneservice to call centers would disrupt service to customers
over wide areas, and could incur serious tangible and intangible losses, including damage to the Tokyo Gas Group’s
brand image.

5. Risks Related to Corporate Social Responsibility(1) Response to new environmental regulations
The need to comply with new environmental laws oradditional obligations to improve the environment might
affect business operations, and it could affect revenues.
(2) Compliance violations
As compliance is fundamental to its operations, the Grouphas established the Management Ethics Committee,
chaired by the president. This committee sets out the basic
policies under which the Group executes actions to improve
compliance, and internal audits confirm the Group’s compliance with laws and regulations and corporate ethics. Any
violations of laws, rules, and regulations or inappropriate
responses to information disclosure that contravene corporate ethics that occur despite these efforts may result in
direct costs to remedy the situation, as well as in tangible
and intangible losses, including social sanctions.
(3) Inadequate customer satisfaction or responses to customer needs
The Group considers customer satisfaction a key management priority. Accordingly, the Group is pursuing a CS improvement program under the basic policies set out by a
CS improvement committee chaired by the president.
Inadequate customer satisfaction or inappropriate customer
service may result in declining corporate competitivenessand in tangible and intangible losses, including damage to
the Tokyo Gas Group’s brand image.
TOKYO GAS ANNUAL REPORT 201055

Consolidated Balance Sheets
March 31, 2010 and 2009ASSETS

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥ 186,467¥ 193,613$ 2,005,021

475,932

490,809

5,117,548

Noncurrent assets
Property, plant and equipment (Note 10)
		 Production facilities
		 Distribution facilities (Note 3)
		 Service and maintenance facilities (Note 3)

59,16960,510636,225

		 Other facilities (Notes 3 and 14)

295,494

297,643

3,177,354

		 Inactive facilities
		 Construction in progress			 Total property, plant and equipment

742

316

7,978

91,037

67,957

978,892

1,108,843

1,110,852

11,923,043

Intangible assets
		 Goodwill

1,460

1,233

15,698		 Other (Note 14)

26,517

24,816285,129

			 Total intangible assets

27,97726,049300,827

		 Investment securities (Notes 3, 4 and 5)

139,052

109,173

1,495,182

		 Long-term loans receivable (Note 3)

40,996

24,839440,817

		 Deferred tax assets (Note 9)

53,087

46,212570,827

		 Other

36,35035,847

390,860

		 Allowance for doubtful accounts(1,130)(906)(12,150)

Investments and other assets

268,357

215,166

2,885,559

1,405,178

1,352,068

15,109,440

Cash and deposits (Notes 3, 4 and 12)

107,391

66,905

1,154,741

Notes and accounts receivable – trade (Note 4)

156,398

166,542

1,681,698

Lease receivables and lease investment assets (Note 14)25,88825,594

278,365

Merchandise and finished goods

3,291

3,807

35,387Work in process

16,38843

176,215

Raw materials and supplies

37,412

56,905402,279

Deferred tax assets (Note 9)

16,606

13,461

178,559

Other (Note 3)

73,03479,431

785,311

(619)

(574)

(6,655)

			 Total investments and other assets
			 Total noncurrent assets
Current assets

Allowance for doubtful accounts
		 Total current assets
Total assets
Accompanying notes are an integral part of these financial statements.

56

FINANCIAL SECTION

435,794

412,117

4,685,956¥1,840,972¥1,764,185$19,795,397

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥ 301,491¥ 291,490$ 3,241,838

186,681

207,741

2,007,322

4,448

3,654

47,827130,903

100,734

1,407,559

3,597

3,555

38,677

LIABILITIES AND NET ASSETS
Noncurrent liabilities
Bonds payable (Notes 4 and 6)
Long-term loans payable (Notes 3, 4 and 6)
Deferred tax liabilities (Note 9)
Provision for retirement benefits (Note 8)
Provision for gas holder repairs

184

1,450

1,978

27,012

24,597

290,451

654,319

633,223

7,035,688

Current portion of noncurrent liabilities (Notes 3, 4 and 6)

53,456

88,169574,795

Notes and accounts payable – trade (Note 4)

134,946

103,319

1,451,032

Short-term loans payable (Note 6)

11,3485,910

122,021

Income taxes payable

34,94534,894

375,752

Provision for safety measures
Other
		 Total noncurrent liabilities
Current liabilities

Deferred tax liabilities (Note 9)
Other (Note 3)

2

86

114,048

1,351,139

360,362

346,3453,874,860

1,014,681

979,568

10,910,548

141,844

141,844

1,525,204

		 Total current liabilities
		 Total liabilities

8
125,656

Net assets (Note 11)
Shareholders’ equity
		 Capital stock*
		 Legal capital surplus

2,065

2,065

22,204

		 Retained earnings

657,387

631,045

7,068,677

		 Treasury stock**		 Total shareholders’ equity(1,986)(2,361)(21,354)799,310772,594

8,594,731

20,175

11,466

216,935

Valuation and translation adjustments
		 Valuation difference on available-for-sale securities
		 Deferred gains or losses on hedges

1,690

920

18,172

		 Foreign currency translation adjustment(7,290)(12,615)(78,387)

		 Total valuation and translation adjustments

14,575(228)

156,720

12,404

12,250133,376

Minority interests

826,291

784,616

8,884,849¥1,840,972¥1,764,185$19,795,397

		 Total net assets
Total liabilities and net assets* C apital stock
Common stock
Authorized: 6,500,000,000 shares
Issued: 2,703,761,295 shares as of March 31, 2010 / 2,717,571,295 shares as of March 31, 2009** Treasury stock: 5,062,893 shares as of March 31, 2010 / 4,884,659 shares as of March 31, 2009TOKYO GAS ANNUAL REPORT 201057

Consolidated Statements of Income
Years ended March 31, 2010 and 2009

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥1,415,718¥1,660,162$15,222,774

Cost of sales

854,231

1,139,791

9,185,279

Gross profit

561,487

520,371

6,037,494

403,671

381,177

4,340,548

Net sales (Note 13)

Selling, general and administrative expenses
Supply and sales expenses

72,58673,989780,494

		 Total selling, general and administrative expenses

476,257

455,166

5,121,043

Operating income

85,22965,204916,440

Interest income

1,112

1,089

11,956

Dividends income

1,091

1,675

11,731Equity in earnings of affiliates

3,796

5,529

40,817

Foreign exchange gains

6,175

1,380

66,397

Miscellaneous income

8,450

6,000

90,86020,626

15,675

221,784

General and administrative expenses

Non-operating income

		 Total non-operating income
Non-operating expenses
Interest expenses

10,303

10,869110,784

Adjustments of charges for construction of distribution facilities

3,186

3,257

34,258

Expenses for environmental consideration

3,097

991

33,301

Miscellaneous expenses

5,747

7,423

61,795

		 Total non-operating expenses

22,33622,542

240,172

Ordinary income

83,51958,337

898,053

—

7,846

—

—

1,570

—

Gain on transfer of business

—

1,359

—

		 Total extraordinary income—

10,775——Extraordinary income
Gain on adjustment for changes of “Accounting Standard
for Lease Transactions”
	Gain on transfer of benefit obligation relating to employees’
pension fund

Extraordinary losses

—

1,076

		 Total extraordinary losses

—

1,076

—

Income before income taxes

83,51968,037

898,053

Loss on valuation of investment securities

Income taxes – current

43,41927,630466,870

Income taxes – deferred(14,552)(2,366)(156,473)

		 Total income taxes

28,86625,264

310,387

871

1,064

9,365

Minority interests in income
Net income¥

53,781¥

41,708$578,290

Yen

U.S. dollars

2010

2009

2010

¥19.86¥15.63

$0.21

—

15.37

—

9.00

8.00

0.09

Amounts per share of common stock
Net income
Diluted net income
Cash dividends applicable to the year
Accompanying notes are an integral part of these financial statements.

58

FINANCIAL SECTION

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2010 and 2009

Shareholders’ equity
Capital stock		 Balance at the end of previous period
		 Changes of items during the period				 Total changes of items during the period
		 Balance at the end of period
Legal capital surplus
		 Balance at the end of previous period
		 Changes of items during the period				 Total changes of items during the period
		 Balance at the end of period
Retained earnings
		 Balance at the end of previous period
		 Changes at the beginning of current year due to application of PITF No.18
		 Changes of items during the period
			 Dividends from surplus
			 Net income
			 Disposal of treasury stock			 Retirement of treasury stock
			 Change of scope of consolidation				 Total changes of items during the period
		 Balance at the end of period
Treasury stock		 Balance at the end of previous period
		 Changes of items during the period
			 Purchase of treasury stock			 Disposal of treasury stock			 Retirement of treasury stock				 Total changes of items during the period
		 Balance at the end of period
Total shareholders’ equity
		 Balance at the end of previous period
		 Changes at the beginning of current year due to application of PITF No.18
		 Changes of items during the period
			 Dividends from surplus
			 Net income
			 Purchase of treasury stock			 Disposal of treasury stock			 Retirement of treasury stock
			 Change of scope of consolidation				 Total changes of items during the period
		 Balance at the end of period
Valuation and translation adjustments
Valuation difference on available-for-sale securities
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Deferred gains or losses on hedges
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Foreign currency translation adjustment
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Total valuation and translation adjustments
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Minority interests
		 Balance at the end of previous period
		 Changes of items during the period
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period
Total net assets
		 Balance at the end of previous period
		 Changes at the beginning of current year due to application of PITF No.18
		 Changes of items during the period
			 Dividends from surplus
			 Net income
			 Purchase of treasury stock			 Disposal of treasury stock
			 Change of scope of consolidation
			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of period

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥141,844¥141,844$1,525,204—
141,844—
141,844—
1,525,204

2,065

2,065

22,204

—
2,065

—
2,065

—
22,204

631,045—

634,116
94

6,785,430—(21,701)53,781(21)(5,418)(298)
26,342
657,387(21,200)
41,708(11,710)(11,622)(340)(3,165)631,045(233,344)
578,290(225)(58,258)(3,204)(283,247)
7,068,677(2,361)(42,774)(25,387)(5,149)
105
5,418
374
(1,986)(10,462)
39,252
11,62240,413(2,361)(55,365)
1,129
58,258
4,021(21,354)772,594—735,25194

8,307,462—(21,701)53,781(5,149)84—(298)
26,716
799,310(21,200)
41,708(10,462)
27,542—(340)
37,247
772,594(233,344)
578,290(55,365)903—(3,204)287,268
8,594,731

11,466

31,917

123,290

8,709
8,709
20,175(20,451)(20,451)
11,466

93,64593,645
216,935

920

424

9,892

769
769
1,690

496
496
920

8,268
8,268
18,172(12,615)

1,479(135,645)

5,324
5,324
(7,290)(14,094)(14,094)(12,615)

57,24757,247(78,387)(228)

33,820(2,451)14,80314,803
14,575(34,048)(34,048)(228)

159,172
159,172
156,720

12,25011,382

131,720

154
154
12,404867
867
12,2501,655
1,655
133,376784,616—

780,45594

8,436,731—(21,701)53,781(5,149)84(298)
14,957
41,674¥826,291(21,200)
41,708(10,462)
27,542(340)(33,180)
4,066¥784,616(233,344)
578,290(55,365)903(3,204)
160,827
448,107$8,884,849

Accompanying notes are an integral part of these financial statements.

TOKYO GAS ANNUAL REPORT 201059

Consolidated Statements of Cash Flows
Years ended March 31, 2010 and 2009

Net cash provided by (used in) operating activities
Income before income taxes
Depreciation and amortization
Amortization of goodwill
Amortization of long-term prepaid expenses
Loss on retirement of property, plant and equipment
Increase (decrease) in provision for retirement benefits
Decrease (increase) in prepaid pension costs
Increase (decrease) in provision for safety measures
Interest and dividends income
Interest expenses
Equity in (earnings) losses of affiliates
Decrease (increase) in notes and accounts receivable – trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable – trade
Increase (decrease) in accrued consumption taxes
Decrease (increase) in accounts receivable – other
Loss (gain) on transfer of business
Gain on adjustment for changes of “Accounting Standard
for Lease Transactions”
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
		 Net cash provided by (used in) operating activities
Net cash provided by (used in) investment activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of investment securities
Proceeds from sales and redemption of securities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from transfer of business
Purchase of long-term prepaid expenses
Proceeds from sales of noncurrent assets
Payments of long-term loans receivableCollection of long-term loans receivable
Net decrease (increase) in short-term loans receivable
Other, net
		 Net cash provided by (used in) investment activities
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Repayments of lease obligations
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Procceds from stock issuance to minority shareholders
Repayments to minority shareholders
Proceeds from sales of treasury stock
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
		 Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents from newly consolidated subsidiary
Decrease in cash and cash equivalents resulting from exclusionof subsidiaries from consolidation
Cash and cash equivalents at end of year (Note 12)
Accompanying notes are an integral part of these financial statements.

60

FINANCIAL SECTION

Millions of yen

Thousands of
U.S. dollars (Note 1)

2010

2009

2010

¥ 83,519
142,110
573
4,007
3,239
30,168—(1,266)(2,204)
10,303(3,796)
15,41919,74029,482
5,106(6,830)—¥ 68,037
136,899
610
4,184
3,561
7,177
9,027
(1,507)(2,764)
10,869(5,529)2,585(21,111)6,005
233(12,186)(1,359)$898,053
1,528,064
6,161
43,08634,827324,387—(13,612)(23,698)
110,784(40,817)
165,795
212,258
317,01054,903(73,440)——(7,846)—

9,807
339,380
6,249(10,755)(40,763)
294,110(10,823)
186,0633,421(10,850)(19,073)
159,561

105,451
3,649,247
67,193(115,645)(438,311)
3,162,473(8,181)
6,625(13,462)794(136,511)(8,964)
1,680(1,599)735(17,814)
1,712
1,168
(3,471)(177,290)(6,085)
5,575(15,091)
1,388(133,629)(7,120)382(1,479)828(8,996)
1,505(1,031)
176(163,575)(87,967)
71,236(144,752)
8,537(1,467,860)(96,387)
18,064(17,193)
7,903(191,548)
18,40812,559(37,322)(1,906,344)

4,931
(640)
13,066(29,279)
30,000(60,200)
758
(907)
84
(5,149)(21,695)(345)(69,375)
1,064
48,50964,009349(2,468)(5)
81,185(31,249)
20,000(4,888)——235(10,462)(21,208)(205)
30,932(6,570)20,34743,706
1

53,021(6,881)
140,494(314,827)
322,580(647,311)
8,150(9,752)
903(55,365)(233,279)(3,709)(745,967)
11,440521,602688,268
3,752

—

(45)

—

¥ 112,868¥ 64,009$ 1,213,634

Notes to Consolidated Financial Statements
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2010 and 2009

1. Basis of Presenting Consolidated Financial
Statements
Tokyo Gas Co., Ltd. (the “Company”) and its consolidated
subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act (formerly, theSecurities and Exchange Law) and its related accounting
regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are
different in certain respects as to application and disclosure
requirements from International Financial ReportingStandards. The Company, as a regulated company, also
follows the Ordinance for Accounting of Gas Business for
preparing such financial statements.
The accompanying consolidated financial statements
were prepared in accordance with the above-mentioned
principles, and a translation was prepared of these consolidated financial statements as filed with the appropriate
Local Finance Bureau of the Ministry of Finance and as
required by the Financial Instruments and Exchange Act.
However, the financial statements, excluding the notes toconsolidated financial statements, are not restructured.
Furthermore, the information presented herein does notnecessarily constitute all of the information included in theJapanese version of the consolidated financial statements
filed as per the Financial Instruments and Exchange Act.
Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a
rate of ¥93 per U.S. dollar, the prevailing exchange rate on
March 31, 2010. These conversions should not be construed as representations that the Japanese yen amounts
have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

2. Significant Accounting Policies(1) Consolidation — The consolidated financial statements
include the accounts of the Company and all of its significant subsidiaries. For the years ended March 31, 2010 and2009, 61 and 57 subsidiaries, respectively, were consolidated. All significant inter-company transactions andaccount balances are eliminated in consolidation.
In the elimination of investments in subsidiaries, the assets
and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are recorded based on theirfair value at the time the Company acquired control of therespective subsidiary.
The following six companies were newly establishedand added to the scope of consolidation from the current
fiscal year:
			 Tokyo Gas Lifeval Chiba Co., Ltd.
			 Tokyo Gas Gorgon Pty Ltd
			 Tokyo Gas Pipeline Co., Ltd.
			 Tokyo Gas Lifeval Minami-Setagaya Co., Ltd.
			 Tokyo Gas Lifeval Higashi-Ohta Co., Ltd.
			 TGE (SHANGHAI) LNG ENGINEERING CO., LTD.
In addition, Tokyo Gas Techno-Service Co., Ltd., andTokyo Gas Plant Tech Co., Ltd., were removed from thescope of consolidation, owing to their respective absorption
mergers into Tokyo Gas Building Service Co., Ltd. (whichchanged its name to Tokyo Gas Facility Service Co., Ltd.,
following the merger) and Tokyo Gas Engineering Co., Ltd.
The Company’s major unconsolidated subsidiaries
include Ohgishima Power Co., Ltd.

Unconsolidated subsidiaries were not included in thescope of the consolidation because total assets, net sales,
the amount of net income/loss equivalent to the portion of
the Company’s interests, and the amount of retained earnings, etc., equivalent to the portion of the Company’s
interests were small and lacking in qualitative significance,
and therefore they do not have a significant impact on the
consolidated financial statements.
(2) Equity method — Significant investments in unconsolidated subsidiaries and affiliates over which the Company
has the ability to exercise significant influence with regardto ­operating and financial policies of the investees areaccounted for by the equity method. Four affiliated companies were accounted for using the equity method for thetwo years ended March 31, 2010 and 2009.
The unconsolidated subsidiaries and affiliates not accounted
for by the equity method were excluded from the scope of
application of equity methods, due to the immaterial effectof the Company’s total interest on their net income/loss andretained earnings on the consolidated financial statements
and were totally insignificant.
(3) Accounting period of consolidated subsidiaries —Although the Company’s fiscal year ends on March 31, thefollowing companies end their year on December 31:
			 TOKYO GAS AUSTRALIA PTY LTD
			 Tokyo Gas International Holdings B.V.
			 Tokyo Gas Bajio B.V.
			 Tokyo Gas Darwin LNG Pty Ltd
			 TOKYO GAS–MITSUI & CO. HOLDINGS SDN. BHD.
			 Tokyo Gas Pluto Pty Ltd
			 Tokyo Gas Gorgon Pty Ltd
			 TGE (SHANGHAI) LNG ENGINEERING CO., LTD.
All significant adjustments considered necessary during
the period from December 31 to the consolidated fiscal
year-end have been made with consolidation.
(4) Property, plant and equipment — For property, plantand equipment, the acquisition cost is shown. However, inthe case of acquisition expenses of the Company and its
consolidated subsidiaries that have been subsidized by thenational government, etc., the amount of such subsidiaries
are offset against the acquisition cost of the corresponding
asset (reduction entry).
Primarily, the declining-balance method of depreciation isapplied, based on the estimated useful life of the asset.
However, the straight-line method is applied for certain
buildings (excluding ancillary equipment). Accumulated
depreciation on property, plant and equipment is deducted
directly from the balances of the corresponding assets.
In the accompanying consolidated financial statements,
accumulated depreciation on property, plant and equipment
amounted to ¥3,028,281 million (US$32,562,161 thousand)and ¥2,915,715 million as of March 31, 2010 and 2009,
respectively.
The total amount of impairment loss is directly deductedfrom the amount shown for the respective asset.
(5) Intangible fixed assets — the straight-line method isapplied. For software used by the Company and its consolidated subsidiaries, the straight-line method is applied basedon the period of useful life within the Company and its
consolidated subsidiaries.

TOKYO GAS ANNUAL REPORT 201061

(6) Accounting for certain lease transactions — Financeleases that do not involve transfer of ownership were previously accounted for based on standards for ordinary rental
transactions. From the preceding fiscal year, however, the“Accounting Standard for Lease Transactions” is applied,
and the accounting method is as per ordinary sale and purchase transactions.
When the Company is the lessee, those finance leasetransactions that do not transfer ownership and commenced on or before March 31, 2008 are accounted forbased on standards for ordinary rental transactions.
(7) Goodwill — Goodwill and negative goodwill are amortized on a straight-line basis within 20 years (mainly 10 years).
(8) Cash and cash equivalents — Cash and cash equivalents include cash on hand, readily-available deposits andshort-term highly-liquid investments with maturities notexceeding three months at the time of purchase, which arereadily convertible to known amounts of cash such thatthey present insignificant risk of change.
(9) Securities — The Company and its consolidated subsidiaries classify their securities under the following three
categories, in accordance with the Japanese AccountingStandard for Financial Instruments.
(a) Debt securities intended to be held to maturity (hereafter, “held-to-maturity debt securities”) are stated atamortized cost.
(b) Equity securities issued by unconsolidated subsidiaries
and affiliated companies that are not accounted forusing the equity method are stated at moving-averagecost.
(c) Other securities with fair value, which are defined as
securities other than held-to-maturity debt securities,
equity securities issued by unconsolidated subsidiaries and affiliated companies, and securities held for
trading purposes, are stated at fair value at the yearend, if their fair values are readily available. The
difference between acquisition costs and book valuesof these securities are reported, net of applicabletaxes, as a separate component of net assets. The
cost of securities sold is determined based on themoving average method. Other securities with no fairvalues are stated at moving-average cost.
If the fair value of held-to-maturity debt securities, equity
securities issued by unconsolidated subsidiaries and affiliated companies, and other securities declines significantly,
and the decline is not considered recoverable, such securities are stated at fair value and the difference between fairvalue and the carrying amount is recognized as loss in the
period of the decline.
(10) Financial instruments — The Company and its consolidated subsidiaries raise funds as necessary, reflecting theirplans for facility investment in their mainstay gas business,and invest temporary surpluses in highly stable financial
assets. The Company may procure funds through short-termbond issuance and other measures. The Company and its
consolidated subsidiaries use derivative financial instruments
to hedge the below-mentioned risks, but do not use derivative
financial instruments for speculative trading purposes.

62

FINANCIAL SECTION

Trade notes and accounts receivable, which are operatingreceivables, entail credit risks on the part of customers.
A control system is in place to check periodically the outstanding balances for each transaction partner. Investment
securities are subject to market price fluctuation risk, so theCompany regularly monitors market prices and issuers’
financial conditions. Certain borrowings bear floating rates
of interest and are therefore subject to interest rate fluctuation risk. Derivative transactions (interest rate swaps) areused to hedge this risk on a portion of these borrowings.
The Company and its consolidated subsidiaries execute
various derivative financial transactions to hedge risks offoreign exchange rate fluctuations, fluctuations in prices ofraw materials, interest rate fluctuations and the effects ofchanges in temperature. The Company and its consolidated
subsidiaries manage the credit risk inherent in such transactions by executing them with creditworthy financial
institu­tions. Also, the use of derivative financial instruments
is based on internal policies and procedures for risk control.
For information on methods of accounting for derivativetransactions, please refer to Note 2. (11) Derivatives.
(11) Derivatives — Derivatives are stated at fair value atthe year-end. The Company and its consolidated subsidiaries use hedging accounting, provided that the conditions of
the accounting were applicable to the rules.
Regarding forward exchange contracts and foreign
currency swap contracts that fulfilled certain conditions,the hedged foreign currencies receivable and payable arerecorded using the Japanese yen amount of the contracted
forward rate or swap rate. Regarding interest rate swap
contracts that fulfilled certain conditions, the net amount tobe paid or received under the interest rate swap contract is
added to or deducted from the interest on the liabilities forwhich the swap contract was executed.
(12) Inventories — Inventory values are based on themoving-average cost method. Balance sheet values arecalculated using the book value reduction method based on
declining profitability.
(13) Revenue from completed works, cost ofcompleted works and partly finished works — With
regard to accounting standards for subcontracted works
and partly finished works, effective from the fiscal year
under review the Company has adopted the “AccountingStandards Con­cerning Construction Contracts” and the“Application Guidelines for Accounting Standards
Concerning Construc­tion Contracts.” Accordingly, beginning with construction contracts initiated during the fiscal
year under review, the percentage of completion method isapplied to construction works for which substantial progress toward certain results is recognizable by the end of the
fiscal year under review. The completed contract method isapplied to other construction works. The impact of thischange on the income or losses was minimal.
In the past, partly finished works were posted as othercurrent assets in accordance with the provisions of theOrdinance for Accounting of Gas Business. However, as aresult of the change in the nature of that accounting, in linewith the adoption of the above-mentioned standards, partly
finished works are now posted as work in process.
Partly finished works included in other current assets asof the end of the preceding fiscal year was ¥15,984 million.

(14) Allowance for doubtful accounts — For normal
receivables, an allowance for doubtful accounts is provided
using the historical experienced default ratio. For specificreceivables such as bankruptcy/rehabilitation claims, anallowance for doubtful accounts is provided for the estimatedamounts considered to be uncollectible after reviewing
individual collectability.
(15) Provision for retirement benefits — The Company
and its consolidated subsidiaries provide an unfunded lumpsum payment plan and a funded pension plan as retirement
benefit schemes. The Company and certain consolidated
subsidiaries provide defined benefit plans and defined
contribution plans. Retirement benefits under these plans
are determined based on the level of wages and salaries,
length of service and certain other factors.
The Company and its consolidated subsidiaries determine benefit obligations and expenses for reserve forretirement benefits based on the amounts actuariallycalculated using certain assumptions.
Provision for retirement benefits is provided based on theestimated amounts of projected benefit obligations and thefair value of the plan assets.
The estimated amount of all retirement benefits to be
paid at the future retirement date is assumed as generating
equally to each service year using the estimated number of
total service years. Past service costs are mainly charged toincome when incurred, and actuarial gains and losses arecharged to income mainly in the fiscal year following theyear in which they arise.
“Partial Amendments to Accounting Standard for Retire­
ment Benefits (Part 3)” is applied from the fiscal year underreview. However, this application had no effect on operating income, ordinary income and income before income
taxes. The balance of actuarial differences arising from theapplication of this accounting standard that is to be amortized stands at a negative ¥8,344 million (a decrease inretirement benefit expenses in the following fiscal year).
(16) Provision for gas holder repairs — The Company
and certain consolidated subsidiaries provide for periodic
repairs of gas holders by estimating future expendituresand charging them to income in equal annual amounts. The
difference between the actual expenditure and the amountprovided is charged to income in the year repairs are completed.
(17) Provision for safety measures — The Company provides for expenses necessary to secure safety for gas
consumers by estimating the total amount of such expenses
that are expected to be incurred after the year-end date.

(19) Income taxes — Income taxes comprise corporation
tax, inhabitants’ taxes and enterprise tax (excluding enterprise taxes based on “amount of net sales,” “amount ofadded value” and “amount of capital”). The Company andits consolidated subsidiaries recognize tax effects of temporary differences between the financial statement basis
and the tax basis of assets and liabilities. The Company andits consolidated subsidiaries do not recognize deferred tax
assets that are not expected to reduce future income taxes.
(20) Enterprise tax — In the case of companies engaged
in gas businesses, enterprise tax that is levied, not on taxable income but on net sales, is accounted for in “Selling,
general and administrative expenses.” Enterprise taxes
based on “amount of added value” and “amount of capital”
are also included in “Selling, general and administrative
expenses.”In the accompanying consolidated statements of income,enterprise tax included in “Selling, general and administrative expenses” amounted to ¥14,539 million (US$156,333
thousand) and ¥17,447 million for the years ended March
31, 2010 and 2009, respectively.
(21) Research and development expenses — Research anddevelopment expenses are charged to income as incurred. In
the accompanying consolidated statements of income, researchand development expenses included in “Selling, general andadministrative expenses” and “Cost of sales” amounted to¥9,232 million (US$99,268 thousand) and ¥9,164 million forthe years ended March 31, 2010 and 2009, respectively.
(22) Amounts per share of common stock — Basic net
income per share is computed based on the net income
available for distribution to common shareholders and theweighted-average number of common shares outstanding
for the period. Diluted net income per share reflects thepotential dilution that could occur if convertible bonds wereconverted into common stocks. However, from the year
ended March 31, 2010, as the Company has no residual
securities, this calculation has been omitted.
Cash dividends per share have been presented on an
accrual basis and include dividends approved or to beapproved after the balance sheet dates, but they areapplicable to the year then ended.
(23) Reclassifications — Certain prior year amounts havebeen reclassified to conform to the fiscal year ended March
31, 2010 presentation. These changes had no impact onpreviously reported results of operations.

3. Pledged Assets(18) Translation of financial statements denominated inforeign currency — The Company’s receivables and payables denominated in foreign currencies are translated into
Japanese yen at the year-end rates, and foreign exchange
gains or losses are charged to current income/expense.
Assets and liabilities of the foreign subsidiaries are translated
into Japanese yen at the exchange rates prevailing at theiryear-end date. Profit and loss accounts for the year are translated into Japanese yen at the exchange rates prevailingat their year-end date as well. Differences in yen amounts
arising from the use of different rates are presented as“Foreign currency translation adjustment” and “Minority
interests” in net assets.

Pledged assets at March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Distribution facilities
Service andmaintenance facilities
Other facilities¥ 6,535¥ 6,494$ 70,268

13

13

139

10,37011,794

111,505

Investment securities
Long-term loans
receivable
Cash and deposits

350

355

3,763

35

36

376

1,760

1,907

18,924

Other current assets

5

—

53

¥19,071¥20,603$205,064

TOKYO GAS ANNUAL REPORT 201063

Liabilities secured by the above assets at March 31, 2010
and 2009 were as follows:

Long-term loans
payable (including
current portion of
noncurrent liabilities)
Other current liabilities

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥8,071
56¥8,127¥9,58456¥9,641$86,784602$87,387

5. Securities
Acquisition costs, book values and fair values of securities
with available fair values at March 31, 2010 and 2009 were as
follows:(A) Held-to-maturity debt securities

4. Financial Instruments

Millions of yen

Thousands of
U.S. dollars

2009

2010

Securities with fair value exceeding book value:¥45¥34
Book value

$483

2010

35

494

¥—

$ 10

Millions of yen

Thousands of
U.S. dollars

2009

2010

Securities with fair value not exceeding book value:¥—¥10
Book value

$—

46
¥ 1

Fair value

Effective from the fiscal year under review, the Company andits consolidated subsidiaries have adopted the “AccountingStandard for Financial Instruments” and the “Guidance on
Disclosures about Fair Value of Financial Instruments.” Thetable below shows the book values of financial instruments
as listed in the consolidated balance sheets dated March 31,
2010, along with the fair values of these instruments andthe differences between their fair values and book values.

Difference

2010

Fair value

—

9

—

Difference

¥—

¥—

$—

Millions of yen

At March 31, 2010

Book value

Fair value

Difference(1) Bonds payable(2) Long-term loans payable¥321,491
220,060¥336,354
224,155¥(14,862)(4,094)

Thousands of U.S. dollars

At March 31, 2010

(1) Bonds payable(2) Long-term loans payable

Book value

Fair value

Difference$3,456,892 $3,616,709 $(159,806)
2,366,236 2,410,268(44,021)

Note: including items due within one year(B) Available-for-sale securities with fair value
Millions of yen

2009

Securities with book value exceeding acquisition cost:¥ 9,148
Acquisition cost
31,386

Book value¥22,237

Difference

Millions of yen

Method of calculating the fair value of financial instruments,
and items related to securities and derivative transactions(1) Bonds payable—the fair value is calculated by discounting to their present value the total amount of principal
and interest on bonds issued by the Company and consolidated subsidiaries by an interest rate that takes into
account the period remaining and credit risk.
(2) Long-term loans payable—the fair value is calculated bydiscounting to their present value the total amount ofprincipal and interest by the assumed interest rate on
new borrowings of the same type.
The items of which estimated fair value was deemed to be
extremely difficult are not included in the above table. Also, theitems described below are not included in the above table.
As the terms for cash and deposits (consolidated balance
sheet book value of ¥107,391 million (US$1,154,741 thousand)),notes and accounts receivable–trade (consolidated balance
sheet book value of ¥156,398 million (US$1,681,698 thousand)) and notes and accounts payable–trade (consolidatedbalance sheet book value of ¥134,946 million (US$1,451,032
thousand)) are settled in a short time, their fair values andbook values are nearly identical. For information about invest­
ment securities (consolidated balance sheet book value of¥69,423 million (US$746,483 thousand)) and derivative transac­
tions (consolidated balance sheet book value of ¥3,254 million(US$34,989 thousand) (receivables)), please refer to Note
5. Securities and Note 7. Derivative Transactions, respectively.
Most financial receivables and securities with maturities
are redeemed in a short period (within one year).
The maturity amounts of bonds payable, long-term loans
and other interest-bearing debt maturating after the balance
sheet date are indicated in Note 6. Short-Term Loans
Payable, Bonds Payable and Long-Term Loans Payable.
64

FINANCIAL SECTION

2009

Securities with book value not exceedingacquisition cost:¥16,581
Acquisition cost
12,660Book value¥ (3,921)

Difference(C) Available-for-sale securities
Millions of yen

Thousands of
U.S. dollars

2010

2010

Securities with book value exceeding acquisition cost:¥23,571 $253,451
Acquisition cost
57,438617,612¥33,867$364,161

Millions of yen

Thousands of
U.S. dollars

2010

2010

Book value
Difference

Securities with book value not exceedingacquisition cost:¥12,218 $131,376
Acquisition cost
Book value
Difference

11,939128,376¥$ (2,989)(278)

Available-for-sale securities not included in the abovetable amounted to ¥35,368 million (US$380,301 thousand)and ¥24,742 million at March 31, 2010 and 2009, respectively. Investments in unconsolidated subsidiaries andaffiliated companies amounted to ¥44,267 million(US$475,989 thousand) and ¥40,324 million for the years
ended March 31, 2010 and 2009, respectively. These items
do not have market value and determining their estimatedfair value was deemed to be extremely difficult and therefore, they are not included in the above table.

6. Short-Term Loans Payable, Bonds Payable and Long-Term Loans Payable
The average annual interest rates for short-term loans payable at March 31, 2010 and 2009 were 0.6% and 0.7%,
respectively.
Bonds payable and long-term loans payable at March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Due in 2016 at a rate of 4.0%

¥ 27,700¥ 27,700$ 297,849

Due in 2018 at a rate of 2.625%

40,00040,000430,107

Due in 2009 at a rate of 1.68%—

30,000—Due in 2009 at a rate of 1.73%—

30,000—Due in 2010 at a rate of 2.01%

20,00020,000215,053

Due in 2011 at a rate of 1.39%

30,00030,000322,580

Due in 2012 at a rate of 1.35%

20,00020,000215,053

Due in 2023 at a rate of 1.01%

20,00020,000215,053

Due in 2013 at a rate of 1.41%

30,00030,000322,580

Due in 2014 at a rate of 1.59%

20,00020,000215,053

Due in 2024 at a rate of 2.29%

10,00010,000107,526

Due in 2025 at a rate of 2.14%

10,00010,000107,526

Due in 2015 at a rate of 4.1%

13,80013,800148,387

Due in 2027 at a rate of 2.29%

19,99619,996215,010Due in 2015 at a rate of 1.4%

9,995

9,994

107,473

Due in 2015 at a rate of 1.658%

20,00020,000215,053

30,000—322,580

8,071

9,584

86,784211,989

226,2442,279,451

541,552

587,320

5,823,139

Domestic unsecured bonds

Due in 2019 at a rate of 1.405%
Loans from banks, insurance companies and government agencies
due through 2020 at rates of 0.53% to 5.35%:
SecuredUnsecured

Less: amounts due within one year

53,37988,087573,967¥488,173¥499,232$5,249,172

The annual maturities of bonds payable and long-termloans payable at March 31, 2010 were as follows:
Millions of yen

Thousands of
U.S. dollars

2011¥ 53,379$ 573,967

2012

47,964

515,7412013

42,996462,322

2014

38,320412,0432015

45,938493,956

2016 and thereafter

312,960

3,365,161¥541,560$5,823,225

Note: T he Company has a specific commitment line contract with themain correspondent financial institution of ¥30,000 million(US$322,580 thousand) in total.

TOKYO GAS ANNUAL REPORT 201065

7. Derivative Transactions
Contract amounts, fair values and recognized gains on the commodity derivatives except those accounted for using hedge
accounting and weather derivatives at March 31, 2010 and 2009 were as follows:
Millions of yen
Contract amounts
Of which,longer thanTotal
one year

At March 31, 2010

Commodity derivatives
Weather derivatives¥4,438600¥5,038¥——¥—Fair value

Recognized
gains(losses)

¥745
—
¥745

¥745
—
¥745

Thousands of U.S. dollars
Contract amounts
Of which,longer thanTotal
one year

At March 31, 2010

Commodity derivatives
Weather derivatives$47,720
6,451$54,172

Fair value

Recognized
gains(losses)$8,010—$8,010$8,010—$8,010$——$—Millions of yen

At March 31, 2009

Commodity derivatives
Weather derivatives

Contract amounts
Of which,longer thanTotal
one year¥8,876600¥9,476¥8,876—¥8,876

Fair value

Recognized
gains(losses)¥(1,279) ¥(1,279)——¥(1,279) ¥(1,279)

The table below indicates hedge accounting methods, main items hedged, contract amounts and fair values as of March
31, 2010, on derivatives transactions to which hedge accounting is applied.
Millions of yen

At March 31, 2010

Contract amounts

Hedge accounting method

Main items hedged

Exchange forward contracts
Deferral hedge accounting	Deferral hedge accounting on exchange
forward contracts, others

Accounts payable–trade
Accounts payable–trade

Total

Of which, longer than
one year

Fair value¥ 1,007

¥

921

¥

(67)

15,790¥16,798¥—
921(Note 2)
¥ —Commodity derivatives
Deferral hedge accounting

Accounts payable–trade¥23,643¥23,643¥¥——¥1,651¥1,651

Interest rate swaps
Deferral hedge accounting
Exceptional accounting

Bonds and long-term loans payable
Long-term loans payable¥10,512
10,472¥20,984¥10,5128,414¥18,926¥ 959(Note 2)¥ —Thousands of U.S. dollars

At March 31, 2010

Contract amounts

Hedge accounting method

Main items hedged

Exchange forward contracts
Deferral hedge accounting	Deferral hedge accounting on exchange
forward contracts, others

Accounts payable–trade
Accounts payable–trade

Total

Of which, longer than
one year

Fair value$ 10,827

$

9,903

$

169,784$180,623

$
$

—
9,903

$

(720)

(Note 2)—

Commodity derivatives
Deferral hedge accounting

Accounts payable–trade$254,225$254,225$$——$17,752$17,752

Interest rate swaps
Deferral hedge accounting
Exceptional accounting

Bonds and long-term loans payable
Long-term loans payable$113,032
112,602$225,634$113,032
90,473$203,505$10,311(Note 2)$—

(Note 1) F air values of exchange forward contracts, commodity derivatives and interest rate swaps are calculated at the rates indicated by the financial
institutions handling these transactions for the Company. Contract amounts of commodity derivatives are solely nominal values, and are not indicative of
the magnitude of market risk or credit risk concerning derivatives transactions. Contract amounts of weather derivatives are stated at the maximum
receivable or payable amounts under the contracts. Fair values of weather derivatives are not stated, as their fair values cannot be calculated.
(Note 2) A s the accounting for exchange forward contracts employing deferral hedge accounting and interest rate swaps employing exceptional accounting are
included in the fair values of the hedged items (accounts payable–trade and long-term loans payable).

66

FINANCIAL SECTION

8. Provision for Retirement Benefits
Provision for retirement benefits included in the liabilities section of the consolidated balance sheets as of March 31, 2010
and 2009 were as follows:
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation
Unrecognized prior service costs
Unrecognized actuarial differences
Less: Fair value of pension assets
Prepaid pension costs
Provision for retirement benefits

2010

2009

2010

¥ 340,792
1,723
16,832(228,447)—¥ 130,903¥ 352,690
1,915(35,211)(218,660)—¥ 100,734$ 3,664,430
18,526
180,989(2,456,419)—$ 1,407,559

Net periodic retirement benefit expenses for the years ended March 31, 2010 and 2009 were as follows:
Thousands of
U.S. dollars

Millions of yen

Service costs – benefits earned during the year
Interest cost on projected benefit obligation
Expected return on pension plan assets
Amortization of actuarial differences
Amortization of prior service costs
Other
Net periodic retirement benefit expenses
Gain on transfer of benefit obligation relating toemployees’ pension fund
Net

2010

2009

2010

¥ 9,199
6,405(4,359)32,284(192)
4,313
47,651¥ 9,402
6,359(5,028)20,735(192)
4,608
35,885$ 98,913
68,870(46,870)
347,139(2,064)
46,376
512,376—(1,570)—¥47,651¥34,315$ 512,376

The discount rate and the rate of expected return on plan assets used by the Company and its consolidated subsidiaries
are mainly 2.1% and 2.0% for the year ended March 31, 2010, and 1.8% and 2.0% for the year ended March 31, 2009.
Certain domestic consolidated subsidiaries obtained approval from the Minister of Health, Labour and Welfare on April 1,
2008, for the return of the past services portion of the substitutional portion of the welfare pension fund.

9. Income Taxes
The Company is subject to multiple taxes based on taxable
income, which, in the aggregate, indicate a statutory tax
rate in the Company of approximately 36.2% for the years
ended March 31, 2010 and 2009.
Reconciliation of the difference between the statutory

Deferred tax assets:
Provision for retirement benefits
Other
Less: Valuation allowance
		 Subtotal
Deferred tax liabilities:
	Valuation difference on available-for-sale securities
Other
		 Subtotal
Deferred tax assets–net

tax rate and the effective tax rate for financial statement
purposes for the years ended March 31, 2010 and 2009 are
not presented as they are negligible.
Significant components of deferred tax assets and liabilities as of March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥47,778
50,889(8,469)90,198¥36,847
44,724(8,471)
73,101$ 513,741
547,193(91,064)
969,870

11,74813,21324,961¥65,236

6,793
10,28917,083¥56,017

126,322
142,075
268,397$ 701,462

10. Investment and Rental Properties
From the year under review, the Company and its consolidated subsidiaries have adopted the “Accounting Standard
for Disclosures about Fair Value of Investment and Rental
Property” and the “Guidance on Accounting Standard forDisclosures about Fair Value of Investment and Rental
Property.” Book values in the consolidated balance sheets
and the fair values of investment and rental properties ownedby the Company and some of its consolidated subsidiaries
are indicated below. Book value is determined by subtracting accumulated depreciation from the acquisition cost. Fairvalue as of March 31, 2010 is based primarily on the realestate appraisal value determined by a real estate appraiser.

Millions of yen
Book value

2009

Change during
the year2010¥98,150¥(3,916)¥94,233

Fair value as ofMarch 31, 2010

¥378,103

Thousands of U.S. dollars
Book value

2009

Change during
the year2010$1,055,376$(42,107)$1,013,258

Fair value as ofMarch 31, 2010

$4,065,623

TOKYO GAS ANNUAL REPORT 201067

11. Net Assets(A) Distribution to shareholders
Under the Japanese Companies Act (“the Act”), dividends
can be paid at any time during the fiscal year in addition to
the year-end dividend upon resolution at a shareholders’meeting. Interim dividends may also be paid upon a resolution of the Directors’ meeting provided that the articles ofincorporation of the company so stipulate, and that thecompany meets certain criteria.
The Act provides certain limitations on the amounts available for dividends and/or the purchase of treasury stock.
The limitation is defined as the amount available for distribution to the shareholders, and it is calculated mainly basedon other capital surplus, other retained earnings and treasury stock.
The maximum amount that the Company can distributeas dividends is calculated based on the non-consolidated
financial statements of the Company in accordance withJapanese laws and regulations.
At the general meeting of shareholders held on June 29,
2010, the Company’s shareholders approved payment ofyear-end cash dividends of ¥5.0 (US$0.05) per share aggregating ¥13,493 million (US$145,086 thousand) to theshareholders of record as of March 31, 2010.
Such appropriations have not been accrued in the consolidated financial statements for the year ended March 31,
2010. Such appropriations are recognized in the period inwhich they are approved by the shareholders.

(B) Increases/decreases and transfer of capital stock,reserve and surplus
Under the Act, the entire amount paid for new shares isrequired to be designated as capital stock. However, a company may, through a resolution of the Board of Directors,
designate an amount not exceeding one-half of the price ofthe new shares as legal capital surplus, which is included incapital surplus.
Under the Act, in cases in which a dividend distribution of
surplus is made, the smaller of an amount equal to 10% of
the dividend or the excess, if any, of 25% of capital stockover the total of legal capital surplus and legal retained earnings must be set aside as legal capital surplus or legal retained
earnings. Legal retained earnings are included in retained
earnings in the accompanying consolidated balance sheets.
Under the Act, legal retained earnings and legal capitalsurplus could be used to eliminate or reduce a deficit, or could
be capitalized generally by a resolution of the shareholders’meeting.
Legal capital surplus and legal retained earnings may not
be distributed as dividends. Under the Act, however, all legal
capital surplus and all legal retained earnings may be transferred to other capital surplus and other retained earnings,
respectively, which are potentially available for dividends.
(C) Treasury stock
The Act provides for companies to purchase treasury stockand dispose of such treasury stock by resolution of the
Directors’ meetings. The amount of treasury stock purchased
cannot exceed the amount available for distribution to theshareholders which is determined by a specific formula.

12. Additional Information for Cash Flows
Reconciliation of cash and deposits shown in the consolidated balance sheets and cash and cash equivalents shown in the
consolidated statements of cash flows as of March 31, 2010 and 2009 were as follows:
Millions of yen

Cash and deposits
Less: Time deposits with maturities over three months, etc.
Negotiable certificates of deposit included in other current assets
Cash and cash equivalents

Thousands of
U.S. dollars

2010

2009

2010

¥107,391¥66,905$1,154,741(4,522)(2,896)(48,623)

10,000—107,526¥112,868¥64,009$1,213,634

Significant non-cash transactions for the years ended March 31, 2010 and 2009 were as follows:

68

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Decrease in treasury stock due to the conversion of convertible bonds¥—¥ 38,978$—

Losses on disposal of treasury stock due to the conversionof convertible bonds—(11,671)—

Decrease in convertible bonds¥—¥ 27,306$—

FINANCIAL SECTION

13. Segment Information
The Company’s and its consolidated subsidiaries’ primary business activities include (1) gas sales, (2) gas appliance sales, (3)installation work, (4) real estate rental, and (5) other business.

A summary of net sales, operating expenses, operating
income, assets, depreciation, impairment losses, andcapital expenditures by business segments for the years
ended March 31, 2010 and 2009 is as follows:
Millions of yen

For 2010

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate¥1,017,299¥118,592¥41,353¥ 12,397¥226,073

28,236

7,495

3,006

21,312

91,745(151,795)—

1,045,535

126,088

44,36033,710317,819(151,795)

1,415,718

Consolidated

Net sales:
Outside customers
Intra group
Total
Operating expenses

918,183

123,752

302,609(85,484)¥ 15,210¥ (66,310)¥¥16,121¥169,034¥272,050¥ 332,558¥1,840,972

93

9,352

21,046(2,239)142,110

—

—

—

—

—

—

113,697

553

161

3,078

31,807(2,712)

146,586

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate

Consolidated¥1,220,023¥117,256¥45,834¥ 13,132¥263,915¥    —¥1,660,162

37,551

5,106

3,259

22,50599,867(168,290)—

1,257,574

122,363

49,09435,637363,783(168,290)

1,660,162
1,594,957¥

Assets¥1,009,021¥ 42,187

113,217638—

Impairment losses
Capital expenditures¥1,415,718

7,292¥ 127,352

Depreciation—

26,417

Operating income (loss)

2,335

45,011

¥

¥

(650)

¥

1,330,488
85,229Millions of yen

For 2009

Net sales:
Outside customers
Intra group
Total
Operating expenses

1,146,717

120,276

50,194

Operating income (loss)¥ 110,857¥    2,086¥ (1,099)¥

28,194350,301(100,726)

7,442¥ 13,482¥ (67,563) ¥   65,204

Assets¥1,037,149¥ 40,097

109,247733¥17,548¥175,539¥267,562¥ 226,286¥1,764,185

101

9,637

19,347(2,168)—136,899

—

—

—

—

—

—

110,653

917

54

5,769

29,562(2,507)

144,450

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate$10,938,698$1,275,182$444,655$ 133,301$2,430,892

303,61280,59132,322

229,161

986,505(1,632,204)

—

Total

11,242,311

1,355,784

476,989

362,473

3,417,408(1,632,204)

15,222,774

Operating expenses

9,872,935

Depreciation
Impairment losses
Capital expenditures

Thousands of U.S. dollars

For 2010

Consolidated

Net sales:
Outside customers
Intra group

1,330,666

483,989$

25,107$ (6,989)$$10,849,688$ 453,623

1,217,387

6,860—
1,222,548

Operating income (loss) $ 1,369,376
AssetsDepreciation
Impairment losses
Capital expenditures$— $15,222,774

284,053

3,253,860(919,182)

14,306,322

78,408$ 163,548$ (713,010) $916,440$173,344$1,817,569$2,925,268$3,575,892 $19,795,397

1,000

100,559

226,301(24,075)

—

—

—

—

—

—

5,946

1,731

33,096

342,010(29,161)

1,576,193

Operating expenses under Elimination or corporate thatcannot be allocated to business segments are related
mainly to general administrative expenses of the Company,
amounting to ¥67,302 million (US$723,677 thousand) and¥68,664 million for the years ended March 31, 2010 and2009, respectively.
Assets under Elimination or corporate mainly comprise cash
and deposits, investment securities and deferred tax assets of

1,528,064

the Company and its consolidated subsidiaries, and amounted
to ¥368,107 million (US$3,958,139 thousand) and ¥259,494
million at March 31, 2010 and 2009, respectively.
Geographic segment information is not shown sincemore than 90% of both consolidated net sales and total
assets are generated in Japan. Information on overseas
sales is not disclosed due to overseas sales being immaterial compared to consolidated net sales.

TOKYO GAS ANNUAL REPORT 201069

14. Information for Certain Leases
Finance leases
Information as lessee
The Company and its consolidated subsidiaries use certain
other facilities and other intangible assets under lease contracts. Finance lease transactions beginning on or before
March 31, 2008 that do not transfer ownership are accounted
for based on standards for ordinary rental transactions.
Lease payments and amounts equivalent to depreciation
for the finance lease transactions shown above that do nottransfer ownership for the years ended March 31, 2010 and2009, and future lease payments including interest as ofMarch 31, 2010 and 2009, are shown below.
Millions of yen

Lease payments
Depreciation expenses

Thousands of
U.S. dollars

Noncurrent

Millions of yen

Claims for lease fees
Estimated residual value
Equivalent interest
received
Lease investment
assetsAcquisition cost, accumulated depreciation and net bookvalue for property held under the above-mentioned financeleases that do not transfer ownership of the leased property
to the lessee on an “as if capitalized“ basis as of March 31,
2010 and 2009 were as follows:

Other facilities
Other intangible assets

Acquisition cost

Accumulated
depreciation

Net book value¥4,080¥1,534¥2,546

163

131

32

¥4,244¥1,665¥2,578For 2009
Other facilities
Other intangible assets¥4,415¥1,341¥3,074

178

110

68

¥4,593¥1,451¥3,142Thousands of U.S. dollars

For 2010

Other facilities
Other intangible assets

70

FINANCIAL SECTION

Acquisition cost

Accumulated
depreciation

Net book value$43,870$16,494$27,376

1,752

1,408

344

$45,634$17,903$27,720¥18,368¥18,539$197,505

1,044

12,666	More than 2 years
but within 3 years

1,134

1,038

12,193	More than 3 years
but within 4 years

1,029

1,000

11,064	More than 4 years
but within 5 years

959

883

10,311More than 5 years

3,007

2,988

32,333

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥4,933¥4,954$ 53,043

	More than 1 year
but within 2 years

4,246

4,305

45,655	More than 2 years
but within 3 years

3,568

3,605

38,365	More than 3 years
but within 4 years

2,882

2,922

30,989	More than 4 years
but within 5 years

2,266

2,242

24,365More than 5 years

3,899

4,167

41,924

Millions of yen

For 2010(38,118)

1,178

Within 1 year

$27,720(3,724)$12,655	More than 1 year
but within 2 years¥3,142(3,545)¥1,050

Lease receivables¥2,578

1,247¥1,177

4,741

4,526

64

2010

550

23,193

116

Thousands of
U.S. dollars

441

472

2010

$234,376

2009

2010

$ 4,741

2,670

2009

¥22,198

Millions of yen

2009

¥ 550

421

2010

¥21,797

2010

2010

2,157

Thousands of
U.S. dollars

Scheduled recovery amounts of claims for lease fees
related to lease receivables and investment assets as ofMarch 31, 2010 and 2009 are as follows:¥ 441

Future lease payments inclusive of interest:
Current

Information as lessor
The breakdown of lease investment assets as of March
31, 2010 and 2009 were as follows:

Lease investment assets
Within 1 year

Operating leases
Information as lessee
Future lease payments at March 31, 2010 and 2009 wereas follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥238

¥110

$ 2,559

Future lease payments:
Within 1 year
Over 1 year

720

331

7,741

¥959

¥441

$10,311

Information as lessor
Future lease payments to be received at March 31, 2010
and 2009 were as follows:

Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥ 1,622¥ 1,952$ 17,440

Future lease payments:
Within 1 year
Over 1 year

10,38011,087

111,612¥12,003¥13,040$129,064

15. Commitment and Contingent Liabilities
At March 31, 2010, the Company and its consolidated
subsidiaries were contingently liable for (1) debt guarantees
in the amount of ¥5,327 million (US$57,279 thousand) for
financial institution loans to companies other than consolidated subsidiaries and (2) ¥38,700 million (US$416,129
thousand) as guarantors for domestic unsecured bonds
issued by the Company, and assigned to certain banks
under debt assumption agreements made in the years
ended March 31, 2002, 2003 and 2004.
At March 31, 2010, the Company held several long-term
purchase contracts for the supply of LNG. The purchaseprice determinable under such contracts is contingent upon
fluctuations in the market price of crude oil.
Adjustment of the cost for raw materials is subject tomovements on trading contract renewals or price negotiations thereof with gas resource suppliers.

16. Subsequent Events(1) Repurchase of treasury stock
The Company acquired TG Enterprise Co., Ltd., in anabsorption-type merger employing simplified merger
procedures, effective April 1, 2010. As there were requests
from opposing shareholders that the Company repurchasetheir holdings in accordance with the provisions of theCompanies Act, the Company repurchased treasury stock
as described below.
No. of opposing shareholders: 9
	Period in which requests to purchase shares were accepted:
From March 29, 2010, to March 31, 2010
	No. of shares requested to be repurchased:
16,537 thousand shares
No. of shares repurchased: 14,037 thousand shares
Note: The reason for the 2,500 thousand sharesdifference between the number of shares requested to be
repurchased and the number of shares repurchased is thatrequests to repurchase shares were withdrawn by the
opposing shareholders.
	Value of shares repurchased:¥5,783 million (US$62,182 thousand)	Period of acquisition:
From April 16, 2010, to April 21, 2010
Method of acquisition: Off-market transaction(2) Resolution on acquisition of treasury stock
At a meeting on April 28, 2010, the Board of Directors resolved
for the Company to acquire treasury stock, as follows.
No. of shares to be acquired: Limited to 6 million shares	Total value of shares to be acquired:
Limited to ¥2,200 million (US$23,655 thousand)	Period of acquisition:
From April 30, 2010 to March 31, 2011
In accordance with this resolution, the Company purchased
treasury stock, as follows.
	Period of acquisition: From May 7, 2010 to May 13, 2010
(commitment basis)
No. of shares acquired: 5,531 thousand shares	Total value of shares acquired:¥2,199 million (US$23,645 thousand)
Method of acquisition: Market acquisition through a specified
fund trust on the Tokyo Stock Exchange(3) Cancellation of treasury stock
At a meeting on May 21, 2010, the Company’s Board of
Directors resolved the cancellation of treasury stock, as
follows.
	Type of shares to be cancelled:
Common stock in the Company
Number of shares to be cancelled: 19,568 thousand shares
Cancellation date: June 7, 2010TOKYO GAS ANNUAL REPORT 201071

Independent Auditors’ Report

To the Board of Directors of Tokyo Gas Co., Ltd.:We have audited the accompanying consolidated balance sheets of Tokyo Gas Co., Ltd. (the “Company”) and consolidated
subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of income, changes in net assets andcash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Tokyo Gas Co., Ltd. and subsidiaries as of March 31, 2010 and 2009, and the results of their operations and their
cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:	As discussed in Note 2(6) to the Consolidated Financial Statements, effective April 1, 2008, Tokyo Gas Co., Ltd. has been
applying the “Accounting Standard for Lease Transactions”.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2010 are presented solely for convenience. Our audit also 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 1 to the consolidated financial
statements.

Tokyo, Japan
June 29, 201072

FINANCIAL SECTION

Consolidated Subsidiaries and Equity-method Affiliates
As of March 31, 2010

Main Consolidated Subsidiaries
Capital(¥ million)

Equityowned by
Tokyo Gas(%)

Tokyo Gas Urban Development Co., Ltd. Real estate leasing

11,530100

31,782[35.4]

Tokyo Gas Toyosu Development Co., Ltd. Real estate leasing

5,000

100

498

[100.0]57

Nagano Toshi Gas Co., Ltd.

3,800

89.2

11,751[100.0]

781

3,000

100

55,277[94.4]

1,308

2,450

66.7

28,432[41.2]

1,649

1,200

100

16,567[25.5]

1,307

1,000

100

29,329[78.4]

779

1,000

100

52,194[32.8]

1,001

1,000

100

15,370[67.5]

570

1,000

100

7,387

[95.7]

–760

980

75

8,003

[95.3]

446

480

100

15,774[96.7]

1,219

450

100

8,614

[69.4]

542

400

100

18,972

[3.8]

–128

280

100

7,248

[98.2]

515

100

100

40,287[76.1]

2,487

50

100

8,208

[62.0]

47

47

100

13,275[75.0]

861

Company

ENERGY ADVANCE Co., Ltd.
Gastar Co., Ltd.
Tokyo LNG Tanker Co., Ltd.
Tokyo Gas Energy Co., Ltd.
Capty Co., Ltd.

Tokyo Gas Chemicals Co., Ltd.
Park Tower Hotel Co., Ltd.
Tokyo Gas Yokosuka Power Co., Ltd.
Chiba Gas Co., Ltd.
TG Credit Service Co., Ltd.

TG Information Network Co., Ltd.
Tsukuba Gakuen Gas Co., Ltd.
Tokyo Gas Engineering Co., Ltd.
Capty-Livelic Co., Ltd.
Nijio Co., Ltd.

Business

City gas business in Nagano Prefecture
Energy service, district heating andcooling, cogeneration orders, andmaintenance
Production, sales, and maintenance ofgas appliances
LNG and LPG transportation andchartering of carriers
Sales of liquefied petroleum gas (LPG)
Installation of gas supply lines, watersupply and drainage lines, air conditioning systems, new construction, and construction of gas mains and branch lines
Sales of gas for industry and chemicals
and development of LNG cryogenic utilization technology
Management of “Park Hyatt Tokyo”
hotel and restaurants
Independent Power Producer for TEPCO
Supply of gas to Yachiyo City, Narita City,and surrounding cities
Leasing of information equipment, gasappliances and office equipment, andcredit administration connected withinstallations
Information processing services,
software development, and sales ofcomputer equipment, etc.
Supply of gas in Tsukuba City and
Tsukuba Mirai City
Comprehensive engineering services
with a particular focus on energyrelated workGas facility construction, gas appliancesales, and maintenance
Procurement and sales of natural gas
and electricity

FY2009 Net sales(¥ million)[% of outside sales]

Operatingincome(¥ million)

6,534

Number of consolidated subsidiaries: 61

Other Subsidiaries
TOKYO GAS AUSTRALIA PTY LTD,Tokyo Gas International Holdings B. V.,
Tokyo Gas Bajio B.V., Tokyo Gas Darwin LNG Pty Ltd,
Tachikawa Urban Center Co., Ltd.,
Living Design Center Co., Ltd., Tokyo Gas Baypower Co., Ltd.,TOKYO GAS–MITSUI & CO. HOLDINGS SDN. BHD.,
Tokyo Oxygen and Nitrogen Co., Ltd.,Tokyo Carbonic Co., Ltd., Tokyo Gas Pluto Pty Ltd,TG Enterprise Co., Ltd., Japan Super Freeze Co., Ltd.,
Miho Gas Co., Ltd., Shoei Gas Co., Ltd.,Tokyo Gas Auto Service Co., Ltd., TG Telemarketing Co., Ltd.,Tokyo Gas LPG Terminal Co., Ltd.,
Kawasaki Gas Pipeline Co., Ltd.,Tokyo Gas Remodeling Co., Ltd., Washimiya Gas Co., Ltd.,Urban Communications, Inc., Tochigi Gas Co., Ltd.,TGI Financial Solutions Co., Ltd.,

Tosetz Co., Ltd., Tokyo Kiko Co., Ltd.,
Capty Customer Service Co., Ltd.,
Enelife Carrier Co., Ltd., Showa Unyu Co., Ltd.,Tokyo Rare Gases Co., Ltd., Tokyo Auto Gas Co., Ltd.,Tokyo Gas Lifeval Kazusa Co., Ltd., Capty Tech Co., Ltd.,Tokyo Gas Lifeval Higashi-Ohta Co., Ltd.,Tokyo Gas Lifeval Minami-Setagaya Co., Ltd.,Tokyo Gas Lifeval Chiba Co., Ltd.,Tokyo Gas Gorgon Pty Ltd,TGE (SHANGHAI) LNG ENGINEERING CO., LTD.,Tokyo Gas Customer Service Co., Ltd.,Tokyo Gas Yamanashi Co., Ltd.,Tokyo Gas Pipeline Co., Ltd.,Tokyo Gas Chemicals Sales, Inc.,Tokyo Gas Facility Service Co., Ltd.

Equity-Method Affiliates
TOKYO TIMOR SEA RESOURCES INC.
GAS MALAYSIA SDN. BHD.
East Japan Housing Evaluation Center Co., Ltd.
Bajio Generating VOFTOKYO GAS ANNUAL REPORT 201073

Investor Information
As of March 31, 2010

Tokyo Gas Co., Ltd.
Head Office
1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan
URL: http://www.tokyo-gas.co.jp/index_e.html

Overseas Offices
New York Representative Office
The Chrysler Building, 405 Lexington Avenue, 33rd Floor
New York, NY 10174, U.S.A.
Tel: +1-646-865-0577 Fax: +1-646-865-0592
Paris Representative Office
102, Avenue des Champs-Elysées, 75008 Paris, France
Tel: +33-1-45-62-00-59 Fax: +33-1-42-25-96-85
Asia Pacific Regional Office
Level 30, Menara Standard Chartered,No. 30 Jalan Sultan lsmail, 50250 Kuala Lumpur, Malaysia
Tel: +60-3-2144-2928 Fax: +60-3-2144-2930

Date of Establishment October 1, 1885
Paid-in Capital ¥141,844,398,888
Aggregate Number of Shares Issuable
6,500,000,000 shares

Issued Number of Shares 2,703,761,295 shares

Number of Shareholders 156,144
Stock Listings Tokyo Stock Exchange,
Osaka Securities Exchange, andNagoya Stock Exchange (Trade code: 9531)

Independent Auditors KPMG AZSA & Co.
Agent to Manage Shareholders’ Registry
The Chuo Mitsui Trust & Banking Co., Ltd.,3-33-1 Shiba, Minato-ku, Tokyo 105-8574, Japan

Number of Employees 15,539
(Consolidated basis, excluding workers on loan
and part-time workers)

Principal Shareholders
Name

Number ofshares held(Thousands)

Nippon Life Insurance Company
163,000
Japan Trustee Services Bank, Ltd. (Trust a/c)
149,602
The Dai-ichi Mutual Life Insurance Company
120,472
The Master Trust Bank of Japan, Ltd. (Trust a/c) 109,411
Fukoku Mutual Life Insurance Company
68,504
Tokyo Gas Employees Shareholding Association 41,619
Japan Trustee Services Bank, Ltd. (Trust a/c 9) 37,370
Mizuho Trust & Banking Co., Ltd. Employee
Pension Trust Dai-ichi Mutual Life Insurance
Company Account Standby Trustee
Trust & Custody Services Bank, Ltd.
35,490Mellon Bank, N.A. as Agent for its
Client Mellon Omnibus US Pension
33,007
State Street Bank and Trust Company (505225) 31,641

Percentageof shareownership (%)

6.04
5.54
4.46
4.05
2.54
1.54
1.38

1.32
1.22
1.17

Notes: Percentage of share ownership is calculated by the number of shares
excluding treasury stock (5,062 thousand shares).
		The Dai-ichi Mutual Life Insurance Company carried out reorganization
on April 1, 2010 and therefore its company name was changed to The
Dai-ichi Life Insurance Company, Limited.

Monthly Stock Price Range (Tokyo Stock Exchange)
Yen
800
700
600
500
400

Thousandsof shares

300

300,000

200

200,000

100

100,000

0

0
01
02
03
04
05
06
07
08
09
10
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3■ Stock price (left)■ Monthly trading volume (right)

Further Information
Please direct comments regarding the content of this reportor requests for other publications to:Tokyo Gas Co., Ltd., Investor Relations Section,
Investor Relations Dept.
Tel: +81-3-5400-3888
Fax: +81-3-3437-2668
E-mail: tgir@tokyo-gas.co.jp

74

FINANCIAL SECTION

Forward-Looking Statements
Statements made in this annual report with respect to Tokyo Gas plans, strategies,
and beliefs, and other statements that are not expressions of fact are forwardlooking statements about the future performance of the Company. As such, they
are based on management’s assumptions and opinions stemming from currently
available information, and therefore involve risks and uncertainties. These risks anduncertainties include, without limitation, general economic conditions in Japan,
the exchange rate between the yen and the U.S. dollar, and the ability of Tokyo Gas
to continue to adapt to rapid technological developments and deregulation.
Financial Data and Graphs
For purposes of presentation, in this annual report, all amounts less than one
billion yen or one million yen have been rounded down, and hundredths of apercentage point have been rounded to the nearest whole number.
In addition, all graphs and tables represent fiscal years ended March 31 of therespective years.

Tokyo, the start of the day
7:00 AMThe Tokyo streets are waking up and people arestarting their day. All over the city, households
are using city gas. For hot water, indoor heating,and cooking. And as fuel for fuel cells.

Tokyo is one of the world’s leading cities, with a population of more than 13 million, the largest economy of any city in the world, and abundant natural beauty. From its base in theTokyo metropolitan area, Tokyo Gas has provided energy that has supported the development of lifestyles and industry in Japan for more than 120 years.

Tokyo Gas Co., Ltd. Annual Report 2010

Achieving Sustainable Growth
in a Low-Carbon Society
Annual Report 2010

1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan
http://www.tokyo-gas.co.jp/index_e.html

This report is printed on recycled paper from Tokyo Gas offices.

Printed in JapanTokyo Gas Co., Ltd.