Challenge
VisionToward Achieving theChallenge 2020 Vision

In November 2011, we released “The Tokyo Gas Group’s Vision for Energy and the Future: Challenge 2020Vision” as a guideline to lead us to what we aim to be up to 2020. It was based on extensive internal discussions
about the role of an energy company in society that can enable it to realize a prosperous, fulfilling way of life forpeople, contribute to the competitiveness of domestic industries, and be friendly toward the environment.

Gist of Challenge 2020 Vision

We will develop and expand our business structure and base, inorder to enhance the value of our LNG value chain, return profits tocustomers and shareholders, and contribute to society.
Five action plans to advance the LNG value chain
1

Reduce LNG purchasecosts and expand overseas
operations

2

Procurement andtransportation

Production and supply

Deliver safe and stablesupply of energy

LNG value chain: fromJapan to the world

Areal expansion

HOPstage
Fiscal
2012-2014

Energy solution

5Realize a leaner and stronger businessstructure

What we did in the “Hop” stage
Built a base to realize the Vision and evolved the Value Chain
The first three-year period (fiscal 20122014) was identified as a “Hop” stage
and we carried out activities for thefollowing major themes: (1) diversificationand expansion of LNG procurement andoverseas business; (2) infrastructurebuilding for safe and stable energy
supply; and (3) provision of energy
solutions that meet customer needs.

TOKYO GAS ANNUAL REPORT 2016

Provide energy
solutions adapted to avariety of needs

LNG value chain from the Greater
Tokyo Area to nationwide

Pursue technical development and IT utilization
with a focus on the future

43171Diversification and expansion of LNG procurement and overseas business

While taking into consideration the balance between supply stability, price, and flexibility, weemphasized acquisition of shale and other unconventional gas resources, and of interests in them.
We also made progress in making alliance with overseas LNG players.

Safe and stable energy supply

23We endeavored to put in place an optimal infrastructure in step with the increased use of natural gas andbroadening of our service area by constructing the Hitachi LNG Terminal and establishing trunk line loopsin Northern Kanto. At the same time, we implemented countermeasures for earthquakes and otherdisasters to ensure safe and stable gas supply that is less susceptible to damage and interruption.

Energy solutions that meet customer needs

We released the world’s first residential fuel cell system for housing complexes, ENE-FARM. In
addition to securing additional power sources in order to expand the electric power business, weworked to expand nationwide LNG sales.

Challenge2020 Vision

2020
Toward becoming the “total energy corporate group” and the “global corporate group”

Tokyo Gas will make further progress in its core city gas business and develop the electric power, engineering, wide-area gas supply,and other businesses into new sources of strength whereby to make being the “total energy corporate group” a reality. At the sametime, we will maintain our business base in the Greater Tokyo Area and develop business across Japan and overseas, aiming tobecome a “global corporate group” with about a quarter of earnings to be generated from overseas businesses in fiscal 2020.
Challenge Performance Indicators of Gas Supply
Volumes by Application
22.0 billion m3

15.0 billion m3

3.5
2.7
3.4

3.5

Residential

3.3

Commercial

7.0

Industrial

5.2

Industrial

3.0

Wholesale

Reference values as of the time
the Vision was put in place

10 %(general use)

25 %As of the time
20 % the Vision wasadopted(Average for
FY2009-2011)

Targets for
FY2020

70 %

50 %

25 %

(power generation use)

3.5
1.9
2012.3Business Structure(Consolidated Net Income Ratio by Business)

Gas business
LNG sales, electric power, and other businesses
Overseas business2021.3

Milestones
Challenge 2020 Vision comprises of the following three periods or what we call“stages” with different themes and initiatives to implement for each stage.

Presentposition

Main initiatives•Diversification and expansion ofLNG procurement and overseas
business•Safe and stable energy supply•Energy solutions that meetcustomer needs

STEPstage

Fiscal 2015-2017
Main initiatives•Evolve into the total energy
business•Accelerate global businessdevelopment•Reconstruct the corporate
group

Review of the “Hop” stage
We made a smooth first step during the “Hop” stage. Various
initiatives in areas such as LNG procurement, overseas
business, infrastructure building and expansion, and energy
solutions were carried out.
Looking at the business environment, in Japan, the direction
and schedule of the electric power and gas system reforms
had become clearer. As electric power companies and gas
companies have begun to enter into each other’s markets andareas, and new companies have also begun to enter both

Fiscal 2018-2020
Our target

Advanced LNG value chain
Fiscal 2020
Consolidated operating
cash flow¥250 billion
D/E ratio

ROEROA

8%

4%

Total payout ratio

Approx. 0.8 Approx. 60%(each fiscal year)

markets, a new era of a choice of customers for their electricpower and gas suppliers has been emerging.
Overseas, increased needs for natural gas-related
infrastructure have become evident on the back of asustainable increase in demand for natural gas. The Tokyo Gas
Group is taking such changes in the energy industries in Japanand overseas as an opportunity for growth and is boldly andspeedily taking up challenges in the next “Step” stage.

“SFiscal 2012-2014

stagege” statep

Into theHOPstage

JUMP18TOKYO GAS ANNUAL REPORT 2016

Three years from fiscal 2015
STEPstage
Fiscal2015-2017

Building a path toward achieving the Vision
The full deregulation offers an opportunity for growth
for the Tokyo Gas Group. Beyond enabling us to startin the electric power business it is facilitating ourevolution into the total energy corporate group. Ouremphasis continues to be on serving the Greater Tokyo
Area, where we seek for a style of evolution only theTokyo Gas Group can have, by leveraging its businessbase, know-how, history of 130 years duration.
We also find it critical to explore growth opportunities
overseas in order to achieve long-term growth. An

Changes in Business Environment

Energy policies

important part of accelerating our overseas
development at present is our management of theexisting upstream project in Australia. In addition, wewill focus on new projects in Southeast Asia andNorth America.
Moreover, we are reconstructing our group itself, inorder to better promote both the evolution into thetotal energy business and the accelerated global
development, not to overlook creating new sources ofearnings flows.

Two Growth Factors
Evolving into the total energy businessAccelerating global business development

Natural gas will continue to beone of the key energy sources inJapan in the immediate future.

Regulations
Deregulation of the electric powerand gas industries led to moremarket interpenetration acrossbusiness and regional borders.

Shift from management focused on one dominant
Expand nationwide and overseas, based on
business in city gas, corresponding to Mt. Fuji, tothe business in the Greater Tokyo Area.
management of several large businesses, bydeveloping additional sources of income and growth,in electric power, engineering and other businesses,
corresponding to an entire mountain range.

Trend in the Greater Tokyo AreaReconstructing our corporate group

Growth of the economy andenergy demand of the Greater
Tokyo Area is slowing down overthe long term.

Build an organization and a system tosupport the “total energy corporate group”
and the “global corporate group”

What we did in fiscal 2015

Evolving into
the total energybusiness

City gas businessElectric power business

1. LNG procurement∙ Started LNG imports from Australia’s Queensland Curtis LNG Project.
∙ Signed an agreement on strategic mutual cooperation with Taiwan's CPC Corporation∙ Signed a basic agreement on LNG sale and purchase from the Cameron LNG Projectin the U.S.
2. Infrastructure∙ Saito Trunk Pipeline went into service.
∙ Onahama Satellite Terminal started operation.
∙ Hitachi LNG Terminal started operation and Ibaraki-Tochigi Line went into service.
3. Restructuring and integration∙ Completed the approval and notification procedures required for the integration ofChiba Gas, Tsukuba Gakuen Gas, and Miho Gas
4. Energy Solutions∙ Started marketing for ENESINFO∙ Hydro Stations in Senju and Urawa went into service.
∙ Developed housing complexes fuel cell ”ENE-FARM,” jointly with PanasonicCorporation

1. Sales of electric power to low-voltage customers∙ Started pre-order sales of the total energy service“Zuttomo Plan”∙ Entered into alliance with wholesale customers andLPG companies
2. High-voltage and extra-high-voltage electricpower sales∙ Established Synergia Power Co. with Tohoku
Electric Power
3. Expansion of power generation capacity∙ Chiba-Sodegaura Energy Co. began preparation
for construction of a coal-fired power plant∙ Ohgishima Power Station Unit 3 went intooperation∙ Preparation began for an expansion plan of theKawasaki Natural Gas Power Plant Units 3 and 4

Real estate businessEngineering solution business
Consolidated the group’s engineering capability into Tokyo Gas Engineering Solutions

Started construction of the TGMM Shibaura Project(tentative name).

∙ Opened offices in Jakarta, Hanoi, Singapore, and Bangkok.
∙ Entered into a basic agreement with Toray Industries to provide energy services to its factoryin South Carolina, U.S.
∙ Withdrew from the energy service business in Brazil, in order to concentrate managerial
resources more effectively.

Accelerating
global businessdevelopment

Expansion of business bases andbusiness development in North Americaand Southeast Asia

Reconstructing ourcorporate group∙ Decided to establish Tokyo Gas Liquid Holdings Co., Ltd. to control the liquid gas business.
∙ Signed agreement to transfer stock in GASTAR Co., Ltd. with the aim of transferring management control of GASTAR to Rinnai Corporation.

TOKYO GAS ANNUAL REPORT 201619

Challenge2020 Vision

Challenge 2020
VisionWhat we will do in fiscal 2016
Fiscal 2016 is an important year to ensure future growth of
the group, as the current year is in the middle of the nineyear Challenge 2020 Vision period (fiscal 2012-2020).
In the electric power business, we are committed toestablish ourselves as No. 1 among new electric power
entrants.

Concerning the gas business, the retail gas market will befully deregulated in April 2017. We will be fully prepared forthe change by having deepened our relationships with over
11 million customers and by leveraging such strength.

Evolving into the total energy business

1City gas business

1. LNG procurement∙ Promote diversification∙ Enhance flexibility and pricecompetitiveness throughalliances with LNG players inJapan and overseas

2. Infrastructure expansion∙ Establish and expand thepipeline network, production
infrastructure, etc.

3. Restructuring and integration∙ Integrated Chiba Gas, Tsukuba
Gakuen Gas, and Miho Gas toTokyo Gas

4. Address the shift to full gas
deregulation
5. Optimal LNG value chain
6. Energy solutions

2

Electric power business

3

Developping engineeringsolution business, liquid gas
business, and real estatebusiness1. Increase generation capacity∙ Expand competitive gas-fired
thermal power and base power
generation capacity∙ Implement initiatives forexpansion of renewable energy
generation, as an effort tosuppress climate change

Engineering solution business∙ Provide one-stop solutions thatsatisfy needs of customers inJapan and overseas

Liquid gas business
2. High-voltage and extra-highvoltage electricity sales∙ Expand sales through Ennetand Synergia Power∙ Expand and rationalize via
alliances with LPG operators andM&A∙ Provide electricity and value
added services to LPG
customers

3. Low-voltage electricity sales∙ Expand sales, aiming to becomea No. 1 new electric power
entrant∙ Expand sales via alliances withwholesale customers, LPG
companies, and variousindustries.

Accelerating global business development

Participate in new projects in North America and Southeast
Asia by utilizing the enhanced overseas basis (organizationand personnel) and information network

Real estate business∙ Promote large-scale
development projects in areas
such as Tamachi and Toyosu anddo business in small- andmid-scale properties

Reconstructing our corporate group

The group management and structure will be enhanced tosupport growth strategies.

Schedule the start of providing energy services in the Toray
Group’s factories in Malaysia and North America

20TOKYO GAS ANNUAL REPORT 2016