Factors Influencing Revenues and Expenses
Revenues and expenses in the gas business are determined by the increase or the decrease in gas sales volumes (volumedifference) and the gap between the selling price and the purchase price (price difference). It is necessary to distinguish between
factors that exert influence in the short term and those that exert influence in the medium-to-long term.

Major Factors Influencing Revenues and Expenses in the Short Term

SHORT TERM

Higher income

Temperature

Temperature changes influence demand for hot water andconsequently sales volumes.

Lower income

Lower temperatures
Higher temperatures

Gas Sales Volumes
EconomicTrends

Gross Profits

High utilization rates
Low utilization rates

The price of LNG is linked to the price of crude oil. Accordingly,
a drop in the price of crude oil causes raw material costs todecline and an increase in the price of crude oil causes raw
material costs to rise.

CrudeOilPrices

Raw MaterialCosts

Utilization rates of industrial and commercial facilities influencesales volumes.

ExchangeRates

PensionActuarial
Differences

Crude oil price declining phase
Crude oil price rising phase

LNG purchase contracts are denominated in U.S. dollars.
Accordingly, yen appreciation against the U.S. dollar causes raw
material costs to decline and yen depreciation against the U.S.
dollar causes costs to rise.
Actuarial differences arise from differences between expected
and actual investment returns on pension assets as well as fromdifferences between expected and actual retirement benefits.
These costs are written off as a lump sum mainly in the fiscal
year following the year in which they arise and are posted asoperating expenses. Accordingly, actuarial differences influencerevenues and expenses.

Yen appreciation
Yen depreciation

Favorable differences
Unfavorable differences

POINTGas Rate Adjustment System’s Medium-to-Long-Term
Neutralizing Effect on Crude Oil Price and Exchange Rate Fluctuations
Gas prices are determined using the gas rate adjustment system.
Through this system, average raw material prices over a three-month
period according to trade statistics are compared with the raw
material cost that is used as the standard (standard average raw
material cost), and the gas rates are adjusted using a defined
calculation method based on the differences. A time lag of fourmonths on average (called a sliding time lag) exists between thepayment of raw material costs and the reflection of such changes
in gas rates. Consequently, fluctuations in crude oil prices andexchange rates may result in the under-recovery or over-recoveryof raw material costs if this lag cuts across a fiscal year, thereby
affecting income. Looking at the medium-to-long term, however,
the gas rate adjustment system has a neutralizing effect on theincome impacts of fluctuations in raw material costs.

Timing of the Standard Average Raw Material Cost
Calculation and Reflection in Gas Rates

How the Sliding Time Lag in Rates Works
All Japan LNG price
Average raw material
price reflected in gas rate

Timing of standard average raw material cost calculation
Jan.

Feb.

Mar.

Apr.

May.

Jun.

Jul.

Aug.

Sep. Dec.

Average raw material price
Average raw material price

Under
recoveryAverage raw material priceOver recovery

The average raw material price over thepast three months is calculated every
month and then reflected in the gas ratethree months later.

Reflection in gas rates

05

Tokyo Gas Annual Report 2015Jun.

Jul.

Aug.

FY N

FY N+1

Major Factors Influencing Revenues and Expenses in the Medium-to-Long Term

MEDIUM-TO-LONG TERM

Government Policies and Regulations Relating to Energy

For details, see P.37

Tokyo Gas is involved in the city gas business and the electric power business, both of which are subject to regulations.
Revisions to regulations governing these businesses could influence the Company’s earnings.

Fluctuations in Raw Material Prices
Raw material price trends could influence our cost-competitiveness in comparison with other gas providers or suppliers of other forms of energy.
The Company is taking steps to hedge risks related to a decrease or stabilization of raw material prices, such as resolving to import natural gas at
prices based on the Henry Hub index.

Competition with Other Energy Sources
Competition between energy sources occurs with regard to such factors as eco-friendliness and efficiency, and this competition could possibly influencedemand for natural gas.
Tokyo Gas is actively promoting fuel conversion from heavy fuel oil to natural gas through such means as soliciting the environmental benefits of natural gas.

Population Movements and Industrial Development within the Company’s Service Area
Long-term trends, such as population movements and industrial development, within the Kanto region, the Company’s service area, have thepotential of influencing medium-to-long-term earnings.
Population influx into the Kanto region continues, and the number of houses is expected to rise into the future.

Demand and Infrastructure Development by Tokyo Gas
Tokyo Gas is simultaneously developing infrastructure and demand in the Kanto region, its service area.
We are also focusing on nationwide wholesale efforts. Our ability to develop demand could influence medium-to-long-term earnings.

POINT
Expansion of Industrial Gas Sales Volumes

For details, see P.23

Tokyo Gas aims to increase industrial gas sales volumes going forward. The causes of this expected rise can be categorized based on theabovementioned factors as follows.
①Competition with Other Energy Sources②Demand and Infrastructure Development by Tokyo Gas

Fuel conversion from heavy fuel oil to natural gas is proceeding
due to the following benefits of natural gas.
Natural gas has a very small impact on the environment. During
combustion, it emits no sulfur oxide (SOx). Further, nitrogenoxide (NOx) emissions are 60% less than those from coal, andcarbon dioxide (CO2) emissions are 40% lower than when using
coal and 30% lower than when using heavy fuel oil.
There is no need to store city gas in tanks, which contributes toimproved operational efficiency at factories.
Dirtying by soot is low when burning natural gas, thereby
reducing equipment cleaning requirements along withassociated costs.

Northern Kanto is ripe with latent demand, at the North Kanto
Industrial Zone for example. However, this area currently lacks
pipeline networks, necessitating the use of heavy fuel oil or othernon-gas energy sources. For this reason, the Company isundertaking capital expenditures targeting northern Kanto. InMarch 2016, the construction of the Hitachi LNG Terminal will becompleted, allowing us to open a pipeline that will run from aterminal to Moka City, Tochigi Prefecture. Going forward, we will
progressively construct pipelines and develop demand, and weanticipate expanded gas sales volumes in northern Kanto toresult.

●●●Tokyo Gas Annual Report 201506