Tokyo Gas Co., Ltd. Annual Report 2012

Our Vision and Strategy
Annual Report 2012

Person responsible for publication:
Hisashi Nakamura
General Manager, Investor Relations Sect.,Finance Dept., Tokyo Gas Co., Ltd.
For inquiries regarding planning and editing of this report:
Investor Relations Sect., Finance Dept.,
Tokyo Gas Co., Ltd.
1-5-20 Kaigan, Minato-ku, Tokyo 150-8527, Japan
TEL: +81-3-5400-3888
FAX: +81-3-5472-3849
E-mail: tgir@tokyo-gas.co.jp

This annual report is printed on Tokyo Gas Recycled Paper (made from recycled paper from Tokyo Gas offices, trimmings fromafforestation activities, and reused and unused wood materials) using vegetable oil ink that contains low levels of organic solvents.

Printed in JapanTokyo Gas Co., Ltd.

Consolidated Subsidiaries andEquity–Method Affiliates

Editorial Policy

Consolidated Subsidiaries and Equity–Method Affiliates
As of March 31, 2012

Main Consolidated Subsidiaries
In fiscal 2011, the Company revised its editorial policy for its annual reports. The new policy calls for the stringent selection andconcentration of information, such as financial data, business strategy explanations, and information on other areas of impor-Company

Business

Capital(¥ million)

Equity owned
by Tokyo Gas(%)

FY2011 Net sales (¥ million)[% of outside sales]

Operating income(¥ million)

tance, to better facilitate investors’ efforts to analyze the Company. For additional information, please refer to the following tools

Tokyo Gas Urban Development
Co., Ltd.

Real estate leasing

11,867100.0

29,224and websites.

Ohgishima Power Co., Ltd.

Generation and supply of electricity

5,350

75.0

Nagano Toshi Gas Co., Ltd.

City gas business in Nagano Prefecture

3,800

89.2

ENERGY ADVANCE Co., Ltd.

Energy service, district heating and cooling, cogeneration orders, and maintenance

3,000

100.0

Gastar Co., Ltd.

Production, sales, and maintenance of gas appliances

2,450

66.7

29,700[43.7]

1,992

Tokyo LNG Tanker Co., Ltd.

Sea transport of LNG and LNG carrier leasing

1,200

100.0

17,118[35.1]

3,293

Tokyo Gas Energy Co., Ltd.

Sales of liquefied petroleum gas (LPG)

1,000

100.0

33,694[76.2]

5

Capty Co., Ltd.

Installation of gas supply lines, water supply anddrainage lines, air conditioning systems, new construction, and construction of gas mains and service
lines

1,000

100.0

54,649[33.6]

883

Tokyo Gas Chemicals Co., Ltd.

Sales of gas for industry and chemicals and development of LNG cryogenic utilization technology

1,000

100.0

18,264[71.9]

580

Chiba Gas Co., Ltd.

Supply of city gas to Yachiyo City, Narita City, andsurrounding cities

480

100.0

17,903[96.4]

799

TG Information Network Co., Ltd.

Information processing services, software development, and sales of computer equipment, etc.

400

100.0

19,608[2.9]

311

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services with a particularfocus on energy-related work

100

100.0

53,179[83.6]

2,965

Nijio Co., Ltd.

Procurement and sales of natural gas and electricity

47

100.0

66,939[21.1]

3,975

Details of Challenge Vision 2020
The Tokyo Gas Group’s Vision for Energy and the Future ~Challenge 2020 Vision~(Released November 2011)
http://www.tokyo-gas.co.jp/IR/english/library/pdf/vision/vision2020_01.pdf

CSR Activities
Tokyo Gas Group CSR Report
http://www.tokyo-gas.co.jp/csr/index_e.html

Financial and Industry Data (EXCEL Spreadsheet Data Available)[34.6]

4,276

59,933[25.2]

962

13,263[100.0]744

70,771[95.6]

744

Number of consolidated subsidiaries: 66

Investors’ Guide
http://www.tokyo-gas.co.jp/IR/english/library/invguid_e.html

Other Subsidiaries
TOKYO GAS AUSTRALIA PTY LTD, Tokyo Gas International Holdings B.V., Tokyo Gas Toyosu Development Co., Ltd., Tokyo Gas Bajio B.V., TOKYO GASDARWIN LNG PTY LTD, Park Tower Hotel Co., Ltd., Tokyo Gas Shale Investment Ltd., Tokyo Gas Yokosuka Power Co., Ltd., Tachikawa Urban Center

Quarterly Financial Results
Consolidated Financial Results Bulletin
http://www.tokyo-gas.co.jp/IR/english/library/earn_e.html

Co., Ltd., Tokyo Gas Lease Co., Ltd., Tokyo Gas Baypower Co., Ltd., Tokyo Gas-Mitsui & Co. Holdings Sdn. Bhd., Tokyo Gas Yamanashi Co., Ltd., Tokyo
Oxygen and Nitrogen Co., Ltd., Tokyo Gas Lifeval Chiba Co., Ltd., Tsukuba Gakuen Gas Co., Ltd., Tokyo Carbonic Co., Ltd., TOKYO GAS QCLNG PTYLTD., TOKYO GAS PLUTO PTY LTD, Tokyo Gas Lifeval Sagamihara Co., Ltd., TOKYO GAS GORGON PTY LTD, TOKYO GAS ICHTHYS PTY LTD., Japan
Super Freeze Co., Ltd., Miho Gas Co., Ltd., Tokyo Gas Telemarketing Co., Ltd., Tokyo Gas LPG Terminal Co., Ltd., Shoei Gas Co., Ltd., Kawasaki Gas
Pipeline Co., Ltd., Tokyo Gas Chemicals Sales, Inc., Tokyo Gas Auto Service Co., Ltd., Living Design Center Co., Ltd., Tokyo Gas Remodeling Co., Ltd.,Tokyo Gas Lifeval Minami-Tama Co., Ltd., TOKYO GAS WA258P PTY LTD, Washinomiya Gas Co., Ltd., Urban Communications, Inc., Tochigi Gas Co.,
Ltd., Capty Tech Co., Ltd., Tokyo Gas Pipeline Co., Ltd., Tokyo Gas Facility Service Co., Ltd., TGI Financial Solutions Co., Ltd., Tokyo Gas Lifeval MinamiSetagaya Co., Ltd., Tokyo Gas Lifeval Higashi-Ohta Co., Ltd., Tosetz Co., Ltd., Tokyo Kiko Co., Ltd., Enelife Carrier Co., Ltd., Tokyo Gas Lifeval Kazusa
Co., Ltd., Tokyo Auto Gas Co., Ltd., Showa Unyu Co., Ltd., Tokyo Rare Gases Co., Ltd., TGE (Shanghai) LNG Engineering CO., LTD., Capty-Livelic Co.,
Ltd., TG Europower B.V.

Equity-Method Affiliates
TOKYO TIMOR SEA RESOURCES INC.
GAS MALAYSIA SDN. BHD.
East Japan Housing Evaluation Center Co., Ltd.
Bajio Generating VOF
MT Falcon Holdings Company, S.A.P.I. de C.V.
Numerical targets for fiscal 2012 are based on information available when the figures wereannounced (April 27, 2012) and on the judgment of management. The Company undertakes
timely disclosures to Tokyo Stock Exchange of the latest information, which it also releaseson the IR page of its web site (http://www.tokyo-gas.co.jp/IR/english/ir_e.html).

51

Contents

Contents

Operating Performance andImpacting Factors

Key Points and Progress ofGrowth Strategies

02

17

P.
Operating Performance in Fiscal 2011
A Three-Minute Overview––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

P.

02

Growth Strategy—Enhancing the LNG Value Chain––––––––––––––––––––––––––––––––––––––––

17

Reducing Resource Costs and Expanding
Overseas Operations––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

18

Building a Production and Supply Infrastructure
to Cultivate Demand

22

Providing Diverse Energy Solutions–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

24––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

28––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Capital Expenditures Plan

Policies of Management

Key Points Regarding
Corporate Governance
Systems

04

P.
Discussion with the President

04

Corporate Governance––––––––––––––––––––––––––––

05

Overview of Corporate Governance Systems–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

05

Internal Control System–––––––––––––––––––––––––––––––––––––––––––––

06––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

06

Outside Directors––––––––––––––––––––––––––––––––––––––––––––––––––––––

Highlights of the enhancement of the LNG value chain
Scenario for reducing resource prices

Approach toward acquiring upstream interests
Policy on unconventional natural gas

Scenario for augmenting gas sales volume

06–––––––––––––––––––––––––––––––––––––––––––––––––––––

Conditions for making decisions on infrastructure
investments that have not yet been determined07––––––––––––––––––––––––––––––––––––––––––––

Background behind the scale ofelectric power generation business

Chances of actual results surpassing forecasts
Forecast for fiscal 201230
30–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

31–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

32––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

32

Officer Remuneration
Advisory Committee–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

32––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

33–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

33

Audits by Corporate Auditors
Compliance––––––––––––––––––––––––––––

07––––––––––––––––––––––––––––––––––––––––––––

07

Risk Management System*–––––––––––––––––––

08–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

08

Projection in cash flow distribution and shareholder returns

29–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

07

Time when “ENE-FARM” began contributing to profits––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Independent Auditors––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

29

P.

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Earthquake and Disaster Countermeasures––––––––––––––––––––––––––––––––––––––––––

Toward the Realization of a Safe Gas Supply
that is Even More Resistant to Disaster Damage
Board of Directors and Corporate Auditors

34
36––––––––––––––––––––––––––––––

36––––––––––––––––––––––––––––––––––––––––––––

37* The Company’s recognition of and countermeasures for risks pertaining to business strategies in
response to investor inquiries

Overview and Potential ofTokyo Gas

09

Management’s Analysis ofOperating Performance in
Fiscal 201140

P.
Overview and Potential of Tokyo Gas
The Potential of Natural Gas

P.

––––––––––––––––––––––––––––––––

09

Management’s Discussion and Analysis––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

10

Consolidated Financial Statements

Understanding Tokyo Gas through Comparison–––––––––––––––––––––––––––––––Developing Business through the LNG Value Chain––––––––––––––––––––––

1214–––––––––––––––––––––––

40––––––––––––––––––––––––––––––––––––––

46–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

51

Consolidated Subsidiaries andEquity-Method Affiliates01Performance in Fiscal 2011
02 Operating
A Three-Minute Overview

Operating Performance in Fiscal 2011
A Three-Minute Overview
Before Analyzing the Figures[Factors that Affect Our Earnings]
Gross profits in the gas business are determined by the increase in gas sales volume (volume difference) and the gap between the selling andpurchase prices (price difference).

Gas Sales Volume

Gas Rate Adjustment System and Slide Time Lag

The Company’s net sales depend on sales of city gas, which accountTo increase the transparency of gas rates and encourage providers tofor 70% of the Company’s total. Therefore, changes in selling volume

be clear about their efforts to achieve higher business efficiencies, thedirectly impact net sales. Factors that have a major effect on selling

gas rate adjustment system was introduced.Through this system, av-

volume are temperature and economic and other fluctuations.

erage gas resource prices over a three-month period according totrade statistics are compared to the gas resource cost that is used as

Temperature

the standard (standard average resource cost), and the gas rates are

Demand in the residential sector stems mainly from demand for hot

adjusted using a defined calculation method based on the differences.

water and indoor heating, so selling volume declines when winters are

Under this system, the impact of changes in resource procurement

warm, resulting in lower sales and income. In the commercial sector,

costs on a gas company’s earnings is essentially neutral. However, a

gas is used mainly for air conditioning, so cool summers and warm

time lag of up to five months (called a slide time lag) exists between thewinters cause gas sales volume to decrease, reducing sales andpayment of resource costs and the reflection of such changes in gas

income.

rates. Consequently, fluctuations in crude oil prices and exchange
rates may result in the under-recovery or over-recovery of gas resource

Economic and Other Trends

costs if this lag cuts across a fiscal year, thereby affecting income.

Economic and other trends affect business in the industrial and commercial sectors. In the industrial sector, plant utilization rates fall when

How the Slide Time Lag in Rates Works

economic conditions are sluggish, reducing sales volumes. In the com-

The average gas resource price over the past three months is calculated every month,and then reflected in the gas未回収
rate three months later.
(Example: The average gas resource cost for January through March is reflected in theJune gas rate.)

mercial sector, meanwhile, lackluster economic performance can, forexample, lower hotel utilization ratios, and commercial facilities may

Nationwide average LNG price
Average resource prices reflected in gas rate

shorten hours of operation, lowering sales volume.

Resource Costs

Under-recovery

Over-recovery

Resource costs account for a substantial portion of the Company’s
operating expenses. These costs tend to fluctuate in line with gas sales
volumes and be affected by changes in crude oil prices and exchange
rates.

Crude Oil Prices

FY N

FY N+1The price of LNG, which is the source of city gas, is linked to the crude
oil price. Therefore, fluctuations in the crude oil price may affect resource prices. Changes in terms of contracts and negotiations with
suppliers of LNG may also affect resource costs.

Pension Actuarial Differences
Actuarial differences arise from differences between expected andactual investment returns on pension assets, as well as on differences

Exchange Rates

between expected and actual retirement benefits. These costs are

LNG purchase contracts are denominated in U.S. dollars. Accordingly,

written off as a lump sum in the fiscal year following the year in which

yen appreciation against the U.S. dollar causes resource costs to de-they arise and are posted as operating expenses.

cline on a yen basis. Conversely, yen depreciation against the U.S.
dollar pushes raw material costs upward.

Accordingly, major actuarial differences can have a substantial
impact on revenues and expenses in the following fiscal year.

Liquefied natural gas (LNG): LNG is produced by cooling gas (natural gas) composed primarily of methane (CH4) down to around minus 162°C,
thereby liquefying the gas. Liquefaction reduces the volume down to 1/600 that of the gas, allowing large amounts to be transported by tanker.
LNG value chain: This chain refers to the sequence of business activities leveraging the combined strength of the Tokyo Gas Group, spanning the procurement and transportation of LNG, production and supply of city gas and energy solutions, resulting in the provision of high-value-added energy and services.

Operating Performance in Fiscal 2011
A Three-Minute Overview

Summary Analysis of Operating Performance
In fiscal 2011, ended March 31, 2012, gas sales volume increased 445

the slide time lag expanded from ¥29.2 billion in the previous fiscal year

million m , or 3.0%, to 15,190 million m . The residential volume was up 11

to ¥47.3 billion in the year under review. This factor had a ¥18.1 billion

million m3 year on year, due to temperature-based influences, and sales

negative effect on gross profit.

3

3

volume was up 18 million m3 for all residential use. Despite the cold winterIn fiscal 2010, the Company shifted its primary pension invest-

weather, the rise was relatively small because early spring and winter tem-ments—which impact the depreciation of pension actuarial differences inperatures in the previous year had also been cold. The commercial volume

retirement benefit accounting —from a concentration on relatively variable

was down 215 million m3, owing to energy-saving efforts in the aftermathshares to bonds, in anticipation of stable investment performance. As aof the Great East Japan Earthquake. The industrial volume, on the otherresult of this move, investment performance in fiscal 2010 was down in

hand, increased 619 million m3 because of such factors as a rise incomparison with fiscal 2009, when higher stock prices resulted in stron-

demand for electric power generation following the earthquake.

ger investment performance. As a result, in fiscal 2011 the expense

Although the yen continued to appreciate, the crude oil price re-burden related to depreciation of pension actuarial differences in retire-

mained high, at US$114.16 per barrel, prompting an increase in unit

ment benefit accounting increased by ¥2.7 billion, whereas this burden

gas selling rates in accordance with the gas rate adjustment system.

decreased by ¥19.9 billion in the previous fiscal year; therefore these dif-

Reflecting the increase in the gas sales volume, gas sales expanded

ferences had a ¥22.7 billion negative impact on operating income.

¥169.2 billion.

In fiscal 2011, net income was down ¥49.4 billion from the previous

However, gross profit worsened ¥20.1 billion owing to a ¥189.3

fiscal year, to ¥46.0 billion. This change was due in part to lower ex-billion increase in resource costs caused by a higher volume of resourc-

traordinary income, to which the sale of land in Toyosu contributed in

es used and higher unit costs. Of this amount, under-recovery due tofiscal 2010.
For details, please see Management’s Discussion
and Analysis (page 40).

Summary of Operating Results

Billions of yen

Gas sales volume (Million m3, 45MJ/m3)
Net sales
Operating expenses
Operating income
Ordinary income
Net income

Fiscal 2011

Fiscal 2010

Change%15,1901,754.2
1,677.1
77.0
75.6
46.0

14,745
1,535.2
1,412.7
122.4
121.5
95.4

+445
+219.0+264.4
–45.4
–45.9
–49.4

+3.0
+14.3
+18.7
–37.1
–37.8
–51.8

Economic Frame

Fiscal 2011
Fiscal 2010

Pension Investment
JCC($/bbl)Exchange rate(¥/$)

Average temperature(ºC)

114.16
84.15

79.08
85.74

16.4
16.7

Fiscal 2010
Fiscal 2009

Investment yield(costs deducted)

Discount rateYear-end assets(Billions of yen)

2.70%
7.16%

2.0%
2.1%

235.0
222.0

Ordinary Income for Fiscal 2011: Analysis of Factors (Year on Year)
FY2010¥121.5 billion

Note: (+) & (–) refer to contributions to income.

Decrease in gas gross margin (slide time lag effect –¥18.1billion)

Increase in fixed costs
FY2011¥75.6 billion–¥20.8 billion

Net sales:+¥144.9 billion(Gas sales volume & composition +¥17.0 billion , Slide time lag +¥131.4 billion , Others –¥3.5 billion)
Gas resource costs:–¥165.7 billion(Amount & composition –¥15.4 billion, Foreign exchange+¥54.7 billion, JCC–¥161.6 billion, Others –¥43.4 billion)

Tokyo Gas
(Non-consolidated)–¥39.2 billion–¥20.6 billion

General expenses decreased:+¥0.9 billion(Decrease in advertising and other costs to develop demand +¥4.3 billion,Consignment costs –¥2.1 billion ,etc)
Personal expenses increased on pension actuarial difference:–¥22.0 billion(Pension actuarial differences +¥19.9 billion –¥2.7 billion)
Depreciation and amortization:±¥0

Increase in other operation/supplementary income+¥4.0 billion

Appliance sales +¥0.1 billion, Installation work +¥0.3 billion, Electric power +¥3.7 billion and others

Decrease in non-operating income–¥1.7 billion(+) Premature repayment adjustments +¥2.4 billion,
Foreign exchange gain and loss +¥1.6 billion (–¥1.3 billion +¥0.3 billion)(–) Financial balance –¥3.4 billion (+¥4.8 billion + ¥1.3 billion),
Decreased gain on weather derivatives –¥0.9 billion (+¥1.0 billion +¥0.1 billion)

Change–¥45.9 billion

Consolidated subsidiaries–¥8.9 billion
Internal offset, etc.
+¥2.2 billion(–) Australian subsidiaries –¥4.7 billion〔foreign exchange effect –¥2.8 billion (+¥2.2 billion
Tokyo Gas Urban Development –¥1.2 billion〔Profit decline from rent revisions〕
ENERGY ADVANCE –¥0.6 billion (Regional energy services profit decline)
Tokyo LNG Tanker –¥0.6 billion (Profit decline from freight rate revisions)Eliminations of dividends income +¥1.0 billion–¥0.6 billion)〕03

04 Discussion with the President
Discussion with the President

Tsuyoshi Okamoto
President and Representative Director

Through “enhancement of the LNG value
chain,” we will achieve sustainable long-term
corporate growth.
In the aftermath of the Great East Japan Earthquake, which struck on March 11, 2011, society and the Tokyo
Gas Group’s operating environment have changed. Against the backdrop of the nuclear power plant accident,
the need to respond to the electrical power supply–demand issue has grown more pressing, and the situation
has brought about a reexamination of the country’s energy policies. Under these conditions, natural gas hastaken on an even greater role than in the past, and expectations of the Tokyo Gas Group have mounted. To
meet these expectations, in November 2011 we formulated and announced “The Tokyo Gas Group’s Vision
for Energy and the Future: Challenge 2020 Vision.” This vision describes how the Tokyo Gas Group will pull
together to achieve “enhancement of the LNG value chain.” Through achieving this objective, we aim to fulfill
our role as a company that meets society’s requirements by contributing to the supply of energy, as well as
meeting our customers’ needs. At the same time, we will achieve sustainable long-term growth and satisfy the
expectations of our shareholders and investors.
In the following pages (pages 5–8), the president of Tokyo Gas explains the Company’s thoughts concerning items of particular interest to investors. Please refer to the following pages for a report on operations
during fiscal 2011 and an overview of the vision, including details on the state of its progress.
Fiscal 2011 in Review

Operating Performance in Fiscal 2011— A Three-Minute Overview (performance highlights) ___________ P.02
Management’s Discussion and Analysis (Detailed Analysis) ____________________________________________________________ P.40
Overview and Progress on the “Challenge 2020 Vision”

Growth Strategy ____________________________________________________________________________________________________________________________ P.17

Discussion with the President

What are some highlights of the “enhancement of the LNG value chain?”Okamoto: Diversity is the keyword for our initiatives. Let us look first at

However, our diversification is not limited to resource procurement

our diversification of resource procurement. Tokyo Gas imports more

and upstream interests. Another thrust of our diversification activities

than 11 million tons of LNG per year, the majority from such locations

involves stepping up our involvement in overseas electric power gen-as Southeast Asia and Australia. We are planning to expand our sourc-

eration, energy services, and the expansion of engineering businesses.

es to include a broader global base, including supply from North

Through these efforts, we are deepening our involvement in theAmerica and Africa. Another aspect of diversification involves the waycommercial distribution of natural gas, spanning upstream to down-

we participate in LNG projects. Going beyond the conventional ap-

stream operations. These moves will enable us to increase the value

proach of procuring resources from sellers on the basis of long-term

we add to the LNG value chain and expand the areas in which we

contracts, we are now acquiring upstream interests and participating

develop our operations as we work toward “enhancement of the LNG

proactively in liquefaction plants and in transportation aspects. In thesevalue chain.”ways, we aim to achieve more diverse terms of trade, including pricing.

Enhancement of the LNG Value Chain
Increasing added value
Reduce resource prices
Expand overseas business

Provide a safe andstable supply of energy

Deliver energy solutions
that meet various needs

Procurement, transportation

Production and supply

Energy solutions

Expanding the LNG value chain from Japan to the world

Expanding the LNG value chain
from the Tokyo metropolitan area
to all of Japan

Expanding area coverage■

Overseas natural gas-fired
thermal power generation■

Overseas gas supply■

Overseas engineering business■

Overseas energy services■

Expand the useof natural gas■

Engineering■

Energy services

What is the scenario for reducing resource prices?
Okamoto: Reducing resource prices is one of our top priorities, but

we expect to see mutual benefits from these projects in the future. To

there is no simple solution. Achieving each of our diversification initia-

strengthen our grip on resource procurement, we intend to expand ourtives will open up a host of future possibilities. Rather than looking at

destinations for the resources we procure—not only extending our op-

the measures that we are pursuing as individual cases, we consider

erations from the Tokyo metropolitan area to other parts of Japan, butthem to be interrelated initiatives that will have a major combined effectalso including the cultivation of global markets.

on lowering resource prices for us in the future. For example, we have

If prices in the Pacific market continue to be below those in thecommenced negotiations regarding LNG procurement from the U.S.

Atlantic market, for instance, market logic dictates that this difference

Cove Point LNG Project. This move exemplifies efforts to expand ourmust be resolved in some way or another. Once exports of inexpensive

overseas procurement locations and will pave the way to increase

U.S. shale gas get fully under way, I believe that this should place

future access to different areas than those from which we have pro-

ample downward pressure on international LNG market prices.

cured resources in the past. Our vision also calls for us to aggressively

Through our involvement in commercial distribution of fuel supplies indevelop business other than upstream operations. In this category, we

the Atlantic to organizations such as T-Power N.V., which operates ahave participated in natural gas-fired power generation in Mexico andnatural gas-fired power station in Belgium, we are arbitraging price dif-

Belgium. In addition, we are cooperating in the construction of an LNG

ferentials with the Asia–Pacific market. Such efforts will alleviate thevalue chain in Vietnam and taking part in an electricity and heat supply“Asia premium” on LNG and should serve to reduce gaps in interna-

system in Thailand. The common thread running through all of thesetional market prices. We aim to become a major, influential player in theactivities is that they are businesses to which natural gas is core, andglobal LNG market.

05

06 Discussion with the President
What is your approach toward acquiring upstream interests?
Okamoto: In the future, we will employ new technologies and intro-

viable options. Using floating LNG for pipeline distribution on projects

duce new approaches even on small and medium-scale LNG projects

that previously were not considered economically feasible is one ex-

to improve their economic performance and increase our range ofample of this approach. A host of feasibility studies are under way indifferent parts of the world, which are also helping to attract interest in
our company. In the past, we have typically taken upstream interests ofaround 1–5%. To strengthen our grip on LNG procurement going forward, we aim to take a larger percentage interest in small andmedium-scale LNG projects of around 20–30%. If conditions are right,
we would even consider taking a majority stake.
Naturally, the larger the position we take, the larger our risk becomes, so we will evaluate such projects on the basis of their internalrate of return (IRR), judging projects carefully from many angles andtaking into consideration country risk, interest retention risk, and thereliability of our partners. We will look seriously at such projects after
weighing such risks against their return.

What is your policy on unconventional natural gas?
Okamoto: With regard to unconventional natural gas, in addition to the

Canada centering on shale gas. Whether projects are considered

U.S. Cove Point LNG Project, in 2010 we commenced negotiations on“conventional” or “unconventional,” the main point for us is that they

participating in the Queensland Curtis LNG Project in Australia, making

provide methane (CH4). Of primary importance is whether such proj-

us the first Japanese energy company to cultivate a procurement

ects are solid economically and whether they allow a stable supply. On

channel involving coal bed methane. Such activities are examples ofthis basis, we will continue to consider projects in the same way we

our efforts to take part in upstream businesses. In 2011, we partici-

have in the past.

pated in a natural gas development project in British Columbia in

What is the scenario for augmenting your gas sales volume?
Okamoto: We expect residential gas sales volume to remain flatof around 4%, including supplies to customer generation plants andthrough fiscal 2020. We believe commercial volume will expand due

fuel for our own power generation business. As a result, we forecast

the use of gas in such applications as cogeneration and gas air con-demand will expand from 3.5 billion m3 in fiscal 2011 to 5.2 billion m3

ditioners, but this demand is expected to increase at a rate of onlyin fiscal 2020.

around 2% per year. What we do anticipate will drive a rise in gas

Going forward, in addition to focusing on our own supply area wesales volume through fiscal 2020 is industrial demand, including forare forging LNG purchase/sale agreements with such companies as

power generation. By continuing to cultivate general industry demand,

Hokkaido Gas and Saibu Gas, thereby promoting the supply of LNG

centering on fuel conversion and the introduction of cogeneration, we

gas providers throughout Japan.

expect demand to rise around 8% per year on average between fiscal
2011 and fiscal 2020, from 3.4 billion m3 to 7.0 billion m3. Owing to

Gas Sales Volume, by Use

the completion of the Chiba–Kashima Line in March 2012, we fore-

Billion m3

cast an increase from the Kashima waterfront industrial zone, rising

25.0

by 0.3 billion m3 in fiscal 2012, compared with the preceding fiscal
year. We estimate potential demand in the Kanto region—the area
within a 200-kilometer radius around Tokyo—at 9.0 billion m . We are
3

20.0
15.0

working to meet this potential demand by completing the Hitachi

10.0

LNG Terminal, which is currently under construction, and augmenting

5.0

our pipeline network.
To meet the rapid increase in the demand for natural gas for power
generation, we expect demand to increase at an average annual rate

0

1.5 times the current level

22.0 billion m3

15.2 billion m3

2011
Residential
Commercial
Industrial (power generation)

2020
Industrial (general industrial)
Wholesale

FYDiscussion with the President

What are your conditions for making decisions on infrastructure investmentsthat have not yet been determined?
Okamoto: One major prerequisite to making a decision is to confirm

on this project followed confirmation of potential demand in northernthat demand is sufficient to warrant investment. Once this is estab-

Kanto and recognition of the need to increase supply stability through-lished, other factors include a project’s ability to increase supply

out the Tokyo metropolitan area.

stability and its value from a security standpoint. We have resolved to

Other projects that we plan to consider include the tentatively

build a new high-pressure trunk line from the Hitachi LNG Terminal in

named Hitachi–Kashima Line (provisional name)—a major prerequisite

Ibaraki Prefecture, which is scheduled to commence operations inbeing whether central line demand will justify our investment—whichfiscal 2015, to the city of Moka in Tochigi Prefecture, Koga in Ibaraki

would increase energy security through a wide-area loop. On the ten-

Prefecture, and Soka in Saitama Prefecture, thereby connecting thetatively named Hitachi–Onahama Line (provisional name), we expect

loop line around the Tokyo metropolitan area. Our decision to embark

central line demand to be a major factor in our investment decision.

Please explain the background behind the scale of your electric power generation business.
Okamoto: The current scale of our power generation business, includ-

Including this project, projects in which the likelihood of our participa-

ing the interests of other companies, is around 2 million kW. In addition,

tion is high should expand the scale of our business by 1 million kW, to

we have already begun considering participation in such projects asa total of 3 million kW. Investment decisions on increasing our partici-

Ohgishima Power Station Unit 3, for which a construction decision ispation even more will involve deliberations on improving the electrical

expected around autumn 2012 and that would generate 407,000 kW.

power system and judgments on the economic feasibility of projects.

When will “ENE-FARM” begin contributing to profits?
Okamoto: We expect to sell around 7,100 units in fiscal 2012, but be-should reach 300,000 units. Assuming that their use continues tocause of development costs and upfront investments focused on

steadily gain in popularity, residential gas sales to supply these units

popularizing the units, we do not anticipate any contribution to profits inshould become a major pillar of sales. Please understand that we are

the short term. By fiscal 2020, however, the stock of installed units

looking at this business from a long-term perspective, into the 2020s.

What are the chances of these results surpassing your forecasts?
Okamoto: We recognize that the small-volume segment, a regulated

Specifically on overseas business, at the present we include in our fore-

area, is unlikely to contribute to ongoing profit increases, and accordingly,

casts only those projects on which we have made a decision to

our plans in this area are conservative. Going forward, we expect to derive

participate. Similarly for the power generation business, we expect ourhigher profits from the large-volume segment, where margins are firm.

business to expand to up to 5 million kW, but our income and expense

Looking at our profit structure, we plan to boost profits from theplans assume that our scale of generation is 3 million kW. Our forecasts

overseas and power generation businesses, but our plans are on thepresume that expenses will rise, but we are conservative in our revenue

conservative side; they include only projects on which profits and rev-

forecasts. Consequently, we will do our very best to push performanceenues are firm but incorporate expenses that are not yet certain.

beyond our planned figures.

Fiscal 2011
Consolidated operating
cash flow¥194.5 billion

Fiscal 2020

Approx. ¥250.0 billion/year(FY2012–2020 total: ¥2,240.0 billion)

ROE

5.4%

Approx. 8%

ROA

2.5%

Approx. 4%

Current Situation

Future Vision(Average for fiscal
2009–2011)(Fiscal 2020)

25%

10%
20%

50%
70%

D/E ratio

0.75

Total payout ratio

61.4%

Approx. 0.8

25%(each fiscal year)

Approx. 60%

Gas business
LNG sales, Electric power business, others
Overseas business07

08 Discussion with the President
Please outline your projection in cash flow distribution (shareholder returns and capital expenditures), results for fiscal 2011, and your forecast for fiscal 2012.
Okamoto: Our “Challenge 2020 Vision” calls for total consolidated op-

um-term management plan, our current plan calls for us to examine

erating cash flow of ¥2,240 billion between fiscal 2012 and fiscal 2020.

revenue/expense and funding plans on the basis of our balance sheet

Of this amount, 68%, or ¥1,680 billion, is earmarked for capital expen-

structure, forecasts a D/E ratio of approximately 0.8 times, and aims for

ditures; 15%, or ¥380 billion, for investments and financing; and 17%,

us to maintain a total payout ratio of roughly 60%.

or ¥420 billion, for shareholder returns.

For fiscal 2011, we maintained dividends at ¥9 per share, as in the

Our shareholder return policy calls for a total payout ratio of aroundpreceding fiscal year. We repurchased a maximum number of our own

60%, including dividends and repurchases of stock scheduled for retire-shares, paying ¥5.0 billion for 14 million shares, and these shares havement. We aim to maintain a stable dividend that increases gradually overalready been retired. In fiscal 2012, we forecast a dividend of ¥9 per

the long term. Whereas the vision called investment to increase at ashare.

pace of roughly ¥50 billion per year compared with our previous mediCapital Expenditures, Investments and Financing,
Shareholder Returns

Trends in the Total Payout Ratio%

Fiscal 2012–2020: Approximately ¥2,480 billion
Capital expenditures¥1,680.0 billion
Investments and financing ¥380.0 billion
Shareholder returns¥420.0 billion

17%

Consolidated operating
cash flow

15%
68%

80
60

Stock repurchase40¥2,240.0 billion

External debt
(interest bearing debt), etc.

Dividend

20¥240.0 billion

Capex., Investments and¥2,480.0 billion
financing, Shareholder returns

0

06

07

Total payout ratio

08

09

10

11

FY

Dividend payout ratio

What is your forecast for fiscal 2012?
Okamoto: Owing to a change in our method of selling fuel to subsid-

framework, we assume a crude oil price of US$120 per barrel, and aniaries in the power generation business, we forecast a 304 million m3,

exchange rate for the full fiscal year of ¥85 to the U.S. dollar.

or 2.0%, decrease in our consolidated gas sales volume comparedwith fiscal 2011, to 14,886 million m3. Measured on the same basis,
however, the volume amounts to a 0.6% increase. We expect consolidated net sales to rise 9.1%, to ¥1,914.0 billion, owing to an increasein gas unit prices under the gas rate adjustment system and a rise insales of “other energy,” including higher LNG and other sales.
Although resource costs will increase in line with higher crude oil
prices, and income will be affected by the gas tariff revision, we anticipate a ¥31.3 billion improvement resulting from the slide time lag. As aresult, we expect operating income to rise 28.4%, to ¥99.0 billion. We
also forecast net income of ¥63.0 billion, up 36.8% year on year. Regarding resource prices, which form the basis for our economic
Million m3, 45MJ/m3, Billions of yen

Fiscal 2012

Gas sales volume

Fiscal 2011

(Forecasts announced on
April 27, 2012)

Change%15,19014,886–304–2.0

Including gas used at electric power business

15,28815,383+95+0.6

Net sales

1,754.2

1,914.0+159.8+9.1

Operating expenses

1,677.1

1,815.0+137.9+8.2

Operating income

77.0

99.0

+22.0

+28.4

Ordinary income

75.6

96.0

+20.4

+26.9

Net income

46.0

63.0

+17.0

+36.8

Slide time lag effect (non-consolidated)

–47.3

–16.0

+31.3

–

Amortization of actuarial differences (non-consolidated)

–2.7

–4.0

–1.3

–

Overview and Potentialof Tokyo Gas

Overview andPotential ofTokyo Gas
The Potential of Natural Gas––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Understanding Tokyo Gas through Comparison–––––––––––––––Developing Business through the LNG Value Chain––––––

10
12
14

09

and Potential
10 Overview
of Tokyo Gas

The Potential of Natural Gas
Natural gas produces energy that is much cleaner than other fossil fuels,
and thus demand is rising for this resource around the world.

Environmental Benefits of Natural Gas
Natural gas is a combustible gas mixture consisting primarily of hy-

Comparison of Emissions (Coal=100)

drocarbon methane (CH4). Like oil and coal, it is a fossil fuel. However,
it is composed of a lower percentage of carbon (C) than these substances. For this reason, it releases relatively small quantities ofcarbon dioxide (CO2) during combustion. After being processed to

Natural gas

Oil

Coal

0

70

100

40

70

100

60

80

100

SOx

the point that it can be used to generate energy through combustion,
natural gas contains almost no nitrogen (N). It is also exceptionallyeasy to control this fuel. Accordingly, nitrogen oxide (NOx) emissions

NOxduring burning are incredibly low. In addition, when liquefied, natural
gas contains almost no sulfur or other impurities, meaning that nosulfur oxide (SOx) is emitted, thus making natural gas a source ofCO2energy with an incredibly low environmental impact.

Spreading Use of Natural Gas
Demand for natural gas is rising rapidly on a global scale. This trend

Global Primary Energy Demand Estimates

can be attributed to such factors as increased affordability, a result ofMillion tons crude oil equivalent (Mtoe)

the establishment of international pipeline networks and the spread-

18,00017,142 Mtoe

ing usage of unconventional natural gases; strong demand in
emerging nations; and attention garnered through the potential for

14,867 Mtoe
12,699 Mtoe
12,000natural gas to be used as an alternative for nuclear power, which has
become more significant amidst the acceleration of a global anti-nu-

25%

22%

21%
6,000

clear movement in response to the nuclear accidents in Japan.
According to the estimates of an International Energy Agency,

0demand for natural gas, which is more environmentally sound than oiland coal and more economically feasible than renewable energies, is
expected to rise by 50% or more by 2035. Furthermore, the share ofnatural gas among primary energies is expected to rise from the cur-

2010
Coal
Biomass

Oil

2020

2035

Natural gas
Nuclear power
Other renewable energy

Hydro power

Source: “Golden Rules Case,” Golden Rules for a Golden Age of Gas,
World Energy Outlook, International Energy Agency, May 2012

rent 21%, to 25%.

Availability around the World
Currently, reserves boasting volumes of natural gas in the area of 208

Reserves Boasting Volumes of Natural Gas

trillion m3 have been confirmed. These reserves are located aroundTrillion m3

the world, and are particularly concentrated in the Middle East andEurope / Eurasia

Eurasia. While approximately half of all oil reserves are located in the
Middle East, natural gas reserves are distributed more evenly
throughout the world. In 2011, approximately 3.2 trillion m3 of natural
gas was produced. When the volume of gas contained in confirmed
reserves is divided by this figure, the result suggests that these re-North America

78.7
Asia / Pacific80.0

Middle East
Africa16.8

14.5

Central and South America
7.6

serves will be able to supply enough gas to meet demand forapproximately 63 years.

10.8

Source: BP Statistical Review of World Energy, June 2012

Overview and Potentialof Tokyo Gas

Understanding Tokyo Gas throughComparison

The Potential of Natural Gas

Developing Business through the LNG
Value Chain

Rising Volume of Reserves
When considering the volumes of reserves that are recoverable

are thought to exist, primarily concentrated along the Pacific Rim.

with current technologies, which exceeds the current volume inThis means that the combined total for the volume of conventional

confirmed reserves, it can be estimated that there exists, primarily

and unconventional gases in the reserves spread across the globe

in Russia and the Middle East, reserves boasting volumes of con-could be as much as 752 trillion m3. Looking at the current produc-

ventional natural gases in the range of 421 trillion m . Furthermore,tion volume of natural gas of 3.2 trillion m3 per year, it is entirely

reserves of unconventional natural gases have recently been being

possible that the remaining natural gas resources may be able todiscovered at a rapid pace, and volumes of roughly 331 trillion m3

sufficiently supply the world for over 200 years.

Recoverable Reserves

Reserves of Conventional and Unconventional Gases

3

OECD Europe
45 trillion m3
Eastern Europe / Eurasia
174 trillion m3
MiddleEast
137 trillion m3
Africa74 trillion m3
Conventional

Asia / Pacific
128 trillion m3

Unconventional

OECD America
122 trillion m3

CBM
47 trillion m3
10.1%

Tight sand gas
76 trillion m3
Shale gas
208 trillion m3

Latin America
71 trillion m3

Source: “Golden Rules Case,” Golden Rules for a Golden Age of Gas, World Energy Outlook,
International Energy Agency, May 2012

Conventional gases
421 trillion m3

6.3%

55.9%

27.7%

Unconventionalgases
331 trillion m3

Growing Demand in the Japanese Market
The ratio of natural gas usage among other primary energies in Japan isnotably lower than the global average of 23.7%. However, following theGreat East Japan Earthquake, which occurred on March 11, 2011, use ofDomestic and Global Primary Energy
Consumption Volumes%

natural gas for thermal power generation has been increasing in an at7.7

tempt to develop alternatives to nuclear power. Also, dispersed power

4.9

sources such as cogeneration have been reassessed to be viable sources of power. Consequently, the percent of primary energy consumption

19.9%
23.7%

1.5

JAPAN

attributable to natural gas has risen rapidly from the 17% recorded in

Natural gas

2010 to the present level of approximately 20%, and demand for thisCoalresource is expected to rise into the future.

Nuclear24.6

Petroleum

4.0
6.4
1.6

WORLD
Natural gas

30.3

Petroleum

33.1
42.2

Hydro

Coal
Nuclear
Hydro
Renewable energy

Renewable energy
Source: BP Statistical Review of World Energy, June 2012

Differing Prices between Regions
Japan suffers from a lack of gas resources. It also is without an in-Japan has increased, further widening the gap between prices international pipeline network, forcing it to rely on LNG imports

Japan and those in Europe and the United States.

utilizing tankers. Regardless of these factors, the price of LNG in
Japan was nearly the same as the price in Europe or the UnitedStates up until a few years ago. The price of LNG in Europe and theUnited States has remained at approximately the same level since

Gas Prices by Region
US$/MMBtu
18then due to such factors as the global economic recession that followed the Lehman Shock of September 2008 and the increased

12

supply in the United States following the shale gas revolution. In
Japan, meanwhile, the rising price of crude oil has caused a subse-

6

quent rise in the price of LNG due to the link between the prices ofthese two resources and demand for natural gas as a replacement
for nuclear power has grown. In this manner, the price of LNG in0

2006/4
Japan (All Japan LNG)

2009/4
Europe (NBP)

Source: Compiled by Tokyo Gas from various materials

2012/4
U.S.A. (Henry Hub)11

and Potential
12 Overview
of Tokyo Gas

Understanding Tokyo Gas
through Comparison
Developing businesses from upstream activities to sales,
in areas where major potential demand is expected.

Business Structure
Activities Spanning Resource Development to Sales
Different from energy companies in Europe and the United States, thedemand assumptions, moving steadily forward in production, supply

Tokyo Gas Group conducts a chain of business operations extending

and sales efforts in an interconnected manner. Furthermore, whereas

from resource procurement and transportation to customer sales andin Europe and the United States customers are responsible for theirservice.

own safety, in Japan gas companies are accountable for all aspects of

In Japan, the Gas Utility Industry Law assigns supply districts toproviders of city gas. At the same time, the law obliges providers tosafety, all the way to customers’ gas valves. We maintain consistently
high levels of safety from supply through to sales.

supply gas safely throughout their districts. Although this arrangement

In addition to these activities, in recent years we have also begun

creates a monopoly on supplying users who consume less thanparticipating actively in resource development projects in order to pro-

100,000 m3 of gas per year (46 MJ/m3), gas rates are regulated.

cure resources more consistently and competitively. By forging

Meeting our obligation to provide a stable supply in resource-poorstronger links among our business activities, we aim to achieve aJapan requires us to conduct long-term, stable resource procurement

better overall balance in our operations, maximizing LNG’s value andbased on accurate forecasts of future demand. The situation is similar

providing natural gas in a safe and consistent manner. We also en-with regard to pipeline networks and other infrastructure, which aredeavor to provide energy solutions that meet customers’ needs,

less developed than in Europe and the United States. Tokyo Gas andincluding for electricity, heat, and renewable energy.

other major players in Japan must plan investments on the basis ofDifferences in Business Structure between the Tokyo Gas Group and European and U.S. Energy Companies

Natural gas resource
development

Business Structure of Tokyo Gas
Conducts business through an LNG
value chain spanning upstream todownstream operations

Common Business Structurein the United States
Gas industry regulation in the UnitedStates comprises two layers: federal regu-

Procurement,
transportation

Production,
power generation

lation and the regulations of individualstates. For interstate pipelines, U.S. law

Common Business Structurein Europe
As one aspect of European integration, formerly monopolistic national providers arebeing compelled to separate and privatize their operations to create consistency
across the market. Nowadays, production,

Supplytransportation, and supply are typicallyhandled by different companies. A common division is into companies that handle(1) importing and domestic production, (2)transportation and storage, and (3) distri-

Sales, services

bution and retail.

requires pipeline operations to be conducted by different companies than thosehandling procurement, supply, and sales.
Here, the gas business tends to be divided
into four types of entities: (1) producers, (2)interstate pipeline operators, (3) gas distribution companies, and (4) marketers.
* Operation of pipelines within individual states differs
by state.

Overview and Potentialof Tokyo Gas

Understanding Tokyo Gas throughComparison

The Potential of Natural Gas

Developing Business through the LNG
Value Chain

Business Area’s Potential
Developing Business in One of the World’s Largest Economic Areas
As of September 2007, Tokyo Gas had more than 10 million custom-States. Furthermore, although Japan’s total population began to de-ers, and the figure is currently around 10.85 million (as of March 31,

cline in 2010, our customer base is expected to continue increasing2012). This business base is on a par with those of leading public

at a pace of around 1% per year, owing to the ongoing influx ofservice companies in the gas business in Europe and the United

people into the Tokyo metropolitan area.
Customer Comparison among the World’s Leading
Gas Companies
Millions
20

15.88
15

11.27

10.85

8.04

10

Tokyo area

50Tokyo Gas
(Tokyo area)

GDF Suez(France and other)Gas customers

Centrica(U.K.)

Sempra(U.S.)

Electricity customers

Source: Compiled by Tokyo Gas from individual companies’ public documents(Figures for the three companies other than Tokyo Gas are as of December 31, 2011.)

Major Potential Demand Expected in the Tokyo Area
The Kanto region, which extends for a 200-kilometer radius aroundTokyo, accounts for around 40% of Japan’s GDP and is its largest

Potential for Industrial and Commercial Demand in the Kanto
Region (200-kilometer radius around Tokyo)

area of concentrated energy demand. The Chiba–Kashima Line,
which opened in March 2012, has begun supplying gas to industrial
customers in the Kashima waterfront industrial zone in Ibaraki prefecture. Going forward, we will work to meet industrial demand
concentrated in the northern Kanto region by extending necessary
pipelines and boosting gas supply capacity through the constructionof the Hitachi LNG Terminal. As a result, we expect demand to increase, centering on fuel conversion and cogeneration. We will also

200-km area

100-km area

2.0 billion m

7.0 billion m

3

3

Cogeneration system/
Power generation
0.3 billion m3

Fuel conversion
5.1 billion m3
Total

9.0 billion m3

Fuel conversion
1.7 billion m3

encourage the uptake of cogeneration—an effective means of gener-

Cogeneration system/
Power generation
1.9 billion m3

ating electricity and heat on-site—from the perspective of creating
dispersed energy systems that will help to reduce the burden on gridelectricity and contribute to peak savings.

Gas Sales Volumes of the Four Leading Companies (Consolidated)

Customers for the Four Leading Companies (Consolidated)

Million m3

Millions

18,000+3.0%

12,000

12

0

+0.5%

8

+1.8%
+0.8%

6,000

+1.1%

4

+0.7%

–0.7%
0

Tokyo Gas
Fiscal 2010

Osaka Gas

Toho Gas

Fiscal 2011

Source: Compiled by Tokyo Gas from individual companies’ public documents

Saibu Gas

Tokyo Gas
Fiscal 2010

Osaka Gas

Toho Gas

Fiscal 2011

Source: Compiled by Tokyo Gas from individual companies’ public documents±0%

Saibu Gas

13

and Potential
14 Overview
of Tokyo Gas

Developing Business throughthe LNG Value Chain
We aim to develop our business throughout the LNG value chain, maximizing value
through linked business spanning the procurement and transportation of LNG,
the production and supply of city gas, and the provision of energy solutions.

Natural Gas Resource
Development
As well as ensuring the stable procurement of gas resources, we
aim to lower procurement prices in a bid to ensure fair prices in

Procurement andTransportation

the Asian market. To achieve these goals, in addition to conventional large-scale projects we are pursuing unconventional sourcesof natural gas and actively taking various upstream interests.

We import more than 11 million tons of LNG per year, based onlong-term contracts through 11 projects in six countries, cen-

Overview of Major Overseas Upstream Operations
Project

Annual contracted
quantity
Inception of(thousands of tons)
project

1,000

DarwinPluto

2006

DurationContract type17 years(–2022)

FOB

3.07
5.0

1,500–1,750

2012

15 years

Ex-Ship,
FOB

1,100

(2014)

25 years

FOB

Gorgontered on politically stable regions.

Upstreaminterest (%)

We strive to keep transportation costs down by using ourown eight-tanker fleet efficiently to meet our own needs, aswell providing transportation for other companies.

1.0

Tokyo Gas LNG Imports by Country

1.25

Queensland
CurtisIchthysDarwin LNG Project

1,200
1,050

(2015)(2017)

20 years

Ex-Ship

15 yearsThousands of tons

(Upstream)

FY

Location

2009

2010

2011

Composition(Midstream)

Malaysia

4,274

4,479

4,479

(39.0%)

1.575

Australia

2,416

2,297

2,264

(19.7%)

Brunei

1,166

1,155

1,362

(11.9%)

Indonesia

730

843

1,011

(8.8%)

Russia

505

983

1,243

(10.8%)

Qatar

297

358

290

(2.5%)

Alaska

141

139

–

–

Other

523

440

826

(7.2%)

Total

10,052

10,692

11,476(100.0%)2.5

FOB

Queensland Curtis LNG Project
Sakhalin

Tokyo Gas Long-Term LNG Contracts
Tokyo

Qatar

BruneiMalaysia
Indonesia
IchthysPluto
New LNG project
Existing LNG project

Gorgon NWS

LNG Carrier “Energy Advance”

DarwinQueensland Curtis

Overview and Potentialof Tokyo Gas

Understanding Tokyo Gas throughComparison

The Potential of Natural Gas

Ohgishima Power Co., Ltd.
1,220 MW

Developing Business through the LNG
Value Chain

Kawasaki Natural Gas Power
Generation Co., Ltd.
420 MW x 2 stations

840 MW

Tokyo Gas Yokosuka Power
Co., Ltd.
240 MW x 1 station

240 MW

Tokyo Gas Baypower Co., Ltd.

Capacity

407 MW x 3 stations*

Generation
methodStart ofoperation

Combined cycle generation

Combined cycle generation

Combined cycle generation

Combined cycle generation

100 MW x 1 station

100 MW

Rollout of operations sincecommencement in 2010

2008

2006

2003

Tokyo Gasinterest

75%

49%

75%

100%

* Reached decision to construct third station in autumn of 2012

With three plants in the Tokyo metropolitan area, our LNG storage andProduction andproduction facilities are some of the largest in the world. We are conPower Generation tinuing to expand our production system to meet growing demand forcity gas. We also operate highly efficient power generation facilities
that employ leading-edge technology and feature reduced environmental impact. By fiscal 2020, we expect to increase our generation
capacity of the current 2,000 MW to between 3,000 MW and 5,000 MW.

Hitachi LNG Terminal(Plan)

SupplyTokyo Gas provides a stable supply of city gas via apipeline network totaling 59,575 km (consolidated),
centered on the Tokyo metropolitan area. Moving forward, we will extend our pipelines into regions ofdemand, promote earthquake preparedness measures and build supply networks that are highly
resistant to disaster.
Sodegaura LNG Terminal
Import volume FY2011 4.851 million ton/year
Storage capacity
1,610,000 kl
Vaporization capability
1,100 t/h
Sodegaura LNG Terminal
Negishi LNG Terminal

Ohgishima LNG Terminal
Ohgishima LNG Terminal
Import volume FY2011 3.326 million ton/year
Storage capacity
600,000 kl
Vaporization capability
1,115 t/hTokyo Gas high-pressure transmission pipelines
High-pressure transmission pipelines of other companies
Tokyo Gas high-pressure transmission pipelines under construction
Tokyo Gas Group supply area
Supply areas of wholesale customers

Negishi LNG Terminal
Import volume FY2011 3.299 million ton/year
Storage capacity
1,155,000 kl
Vaporization capability
560 t/h15

and Potential
16 Overview
of Tokyo Gas

Understanding Tokyo Gas throughComparison

The Potential of Natural Gas

Developing Business through the LNG
Value Chain

Major Overseas Mid-Downstream Operations (Energy and Engineering Services)

Malaysia
Gas Malaysia Bhd.
City gas supply project(Tokyo Gas interest: 14.8%)

Mexico Bajio
Natural gas power generation(Tokyo Gas interest: 49%)

Mexico MT Falcon
Natural gas power generation(Tokyo Gas interest: 30%)

Brazil Malhas Project
Natural gas pipeline project(Tokyo Gas interest: 15%)

Belgium T-Power
Natural gas power project(Tokyo Gas interest: 26.66%)

India Delhi, Mumbai
Energy services project(feasibility study underway)

VietnamCommissioned FEED project at LNG receiving terminal
ThailandEnergy services project (feasibility study underway)“ENE-FARM” residential fuel cells

Gas Sales and Service
Gas air conditioner

In the residential sector, spearheaded by Tokyo Gas LIFEVAL communitybased marketing systems we are proposing lifestyle values based on gas.
We are also working to promote “ENE-FARM” residential fuel cells and aresupplying electricity. In the commercial and industrial sectors, we introduce cogeneration and air conditioning systems and promote fuelconversion from other sources. In these ways, we help to provide energy
and contribute to reductions in CO2 emissions. In addition to selling gas
for energy, we are endeavoring to maximize added value by offering
energy services, including equipment provision and maintenance.

Solar heat collectorGrowth Strategy

Growth Strategy
This section reports the state of progress on specific points of the “Tokyo Gas Group
Challenge 2020 Vision,” announced in November 2011. For more information on the basic
ideas underlying this vision, please refer to the pamphlet entitled The Tokyo Gas Group’s
Vision for Energy and the Future ~Challenge 2020 Vision~.
http://www.tokyo-gas.co.jp/IR/english/library/pdf/vision/vision2020_01.pdf

Reducing Resource Costs and Expanding Overseas Operations–––––––––––––––––––––––––––

22––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

24––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

28

Providing Diverse Energy Solutions
Capital Expenditures Plan

18–––––––––––––

Building a Production and Supply Infrastructure to Cultivate Demand1718 Growth Strategy

Enhancing the LNG Value Chain“Challenge 2020 Vision,” the Tokyo Gas Group’s Growth Strategy
The Tokyo Gas Group is working together on initiatives to enhance
the LNG value chain and realize sustained growth.

Action Plan

Reducing Resource Costs and Expanding Overseas Operations

Accelerating Diversification of Upstream Operations to Lower Resource Procurement Costs
The “Challenge 2020 Vision” calls for Tokyo Gas to earmark 16% of

having only limited sources of procurement, has therefore been com-its capital expenditures and investments and financing, or aroundpelled to procure resources at relatively high international rates.

¥320 billion for overseas business, which includes upstream andTokyo Gas has in place long-term LNG contracts involving 11 proj-

downstream businesses, as well as service and engineering busi-

ects in six countries, providing more than 11 million tons of LNG pernesses. Our objective is to increase net income from overseas

year. We have upstream interests in some of these projects, but going

business from the current level of around 10% to approximately 25%.

forward we plan to take more aggressive upstream interests in order toAmong these investments, the vision prioritizes management strate-

lower resource costs. At the same time, we will expand and accelerate

gies for expanding overseas upstream operations.

the diversification of our procurement sources. Furthermore, to aug-

In Japan, LNG imports are generally based on 15- to 20-year long-ment our purchasing power we will procure resources jointly with otherterms contracts that use a pricing formula linking LNG to crude oil

energy companies where necessary, and we are considering active

prices. As the country relies on imports for nearly all of its energy re-participation in LNG liquefaction and other businesses.

sources, Japan’s import costs are higher than countries that have

We plan to expand our LNG shipping fleet to handle this great-natural resources of their own, such as the United States and Europe-er procurement volume. We believe that this approach will give us

an countries. LNG demand has increased since the Great East Japan

better flexibility in our procurement and help to reduce resource

Earthquake, as power companies shifted to natural gas-fired thermaltransportation costs.

power generation as an alternative to nuclear power generation. Japan,
Fuel Used throughout Japan in LNG-Fired Thermal Power Generation and LNG Import Volume
Thousands of tons
8,000

2010 monthly average: 5,830 thousand tons

2011 monthly average: 6,550 thousand tons

6,000

4,000

2,000

0

2010 monthly average: 3,470 thousand tons

Jan. 2010

Jun. 2010

Fuel used in LNG-fired thermal power generation2011 monthly average: 4,150 thousand tons

Dec. 2010

Jun. 2011

LNG import volume

Source: Compiled by Tokyo Gas from data from the Federation of Electric Power Companies Preliminary Report on Electricity Distribution and Receipt and Ministry of Finance trade statistics

Dec. 2011

Growth Strategy

Moving Steadily Ahead with New Project in Australia
In April 2012, production began on the Pluto LNG Project for an un-

LNG projects, as well as floating LNG and other projects that employ

dersea gas field off the northwest coast of Western Australia, in which

new concepts. In these efforts, we will take a prudent approach

we hold a 5% interest. Through this project, we have begun purchas-

toward balancing profitability with supply stability.

ing 1.5–1.75 million tons per year through a long-term contract. Oncethe project goes fully on stream, LNG production capacity is expected
to reach 4.3 million tons per year. Tokyo Gas also has an interest inanother project in Australia, the Gorgon LNG Project, which is underdevelopment and slated to commence production in 2014. In January
2012, we also took an interest in the Ichthys LNG Project, a gas field,
in which INPEX Corporation has become the first Japanese company
to take part as an operator.

Action 1

In addition to large-scale LNG projects such as these, Tokyo Gas
is examining the possibility of participating in small and medium-scaleFirst cargo received from the Pluto LNG Project

Action 1

Participation in the Ichthys LNG Project

Tokyo Gas has acquired a 1.575% interest in blocks WA-37-R and WA-

To smooth the launch of this project, Tokyo Gas has formed a consor-

285-P of the Ichthys LNG Project, which is under development offshore

tium with the other co-buyers on this project, which should raise Japan’sfrom Western Australia, as well as a 1.575% stake in Ichthys LNG Pty

rate of independent development of oil and natural gas and contribute toLtd., which handles liquefaction.

a stable supply of LNG.

For this project, the natural gas produced at the Ichthys gas-condensate field will be transported to a location near Darwin, in Australia’s
Northern Territories, for liquefaction and onward transport. The project is
expected to have a maximum liquefying capacity of 8.4 million tons per
year. Tokyo Gas has entered into a long-term sales and purchase contract with Ichthys LNG Pty Ltd., which is a subsidiary of INPEX Corporation, one of the project’s operators. Under this 15-year agreement, we
will purchase 1.05 million tons of LNG per year.

Overview of the Ichthys LNG ProjectGas-condensate field:
Liquefying facilities:
Liquefying capacity:
Planned commencement:
Participating interest:

Offshore of Western Australia, Block WA-37-R
Darwin, Northern Territory, Australia
8.4 million tons/year (LNG) with two 4.2 million tonliquefaction trains
October–December 2016
76% for INPEX Group companies, 24% for TOTALGroup companies (as of December 2011)

Submarine pipeline
Ichthys
Field

Ichthys gascondensate
field

Liquefaction
facilities(Darwin)
Australia

Liquefaction plant scheduled for construction in Darwin (conceptual rendering)

Promoting Upstream and Downstream Business Involving Unconventional Natural Gas in North America
As part of its efforts to diversify upstream operations, Tokyo Gas isvolved in a project aimed at acquiring LNG generated through coaltaking part in unconventional natural gas projects. In Queensland,

bed methane (CBM)*. Based on our purchase agreement for thisAustralia, we are participating in the Queensland Curtis LNG Project,

project, we expect to import 1.2 million tons per year for 20 years,

making ourselves the first Japanese energy company to become in-beginning in 2015.

* Natural gas that is absorbed in fissures on the surface of the coal bed.

19

20 Growth Strategy

Shale gas* has significantly increased the volume of recoverable

ratified free trade agreements (FTAs) (for example, the Sabine Pass

natural gas reserves. Our upstream operations in this arena include

Project). Tokyo Gas has also begun pursuing initiatives designed toparticipation in a shale gas development project in Cordova, in theimport into Japan LNG derived from U.S. natural gas.

Canadian province of British Columbia. In April 2012, we also enteredan accord to procure LNG from the Cove Point LNG Project, a natural* Shale gas is natural gas found in pockets in shale strata. Shale is a source rock composed of
hardened mud deposits.

gas liquefaction facility in the U.S. state of Maryland. Through theseprojects, we are taking part in projects on the east and west coastsof North America, which has some of the world’s largest reserves andis a global leader in drilling technologies.

Action 2

The recent expansion of drilling for shale gas in the United States
have led to easing of the supply and demand situation, and within the

U.S. Production of Natural Gas
Billions of m3 (bcm)
800
600

country the Henry Hub natural gas pricing index remains sluggish. As
a result, the gap between U.S. and international market prices has
widened. In some cases, the difference between this index and Japa-

609 bcm
511 bcm
Unconventional
natural gas

400
200

nese import prices was as much as nine times. The United States inprincipal prohibits the export of natural resources themselves, but
export is permitted on a per-project basis. In recent years, exports
have been allowed from some project to countries that have not yet

Action 20

2005
Conventional natural gas

2010
Shale gas

Tight sand gas

CBM

Source: Compiled by Tokyo Gas from data in IEA World Energy Outlook 2012

Initiatives to Pursue Unconventional Natural Gas on the East and West Coasts of North America

Tokyo Gas and Sumitomo Corporation have jointly begun negotiations

Dominion will begin construction on the LNG liquefaction plant, aimingwith Dominion Cove Point LNG, LP (hereinafter, “Dominion”), which is

to commence project operation in 2017. The company plans to procure

heading the Cove Point LNG Project, toward the procurement of LNG

natural gas for liquefaction from the Marcellus Shale Gas Development

derived from U.S. natural gas, including shale gas. The Cove Point

Project, in which Sumitomo Corporation is a participant. Assuming that

LNG Project comprises the Cove Point LNG Receiving Terminal in the

final agreement is reached and that export approval for the project is

U.S. state of Maryland, which Dominion owns and operates, and thereceived, Tokyo Gas will procure LNG derived from U.S. natural gas,company is building an LNG liquefaction plant with annual capacity ofincluding shale gas.

approximately 5 million tons of LNG, which it aims to export. Going

Tokyo Gas is taking an upstream interest in a natural gas development

forward, Dominion will apply for approval for LNG export to Japan andproject, centered on shale gas, in the Cordova Embayment in British

other countries that have not yet ratified FTAs and seek plant con-Columbia, Canada. Through this project, we aim to diversify our holdings

struction approval. Once a final investment decision has been reached,

and gain expertise in shale gas development.

Cordova Natural Gas Development Project
Exploration zone:
Reserves:
Production:

Operation structure:

Cove Point LNG Project

Cordova Embayment, British Columbia, Canada
Approximately 5–8 trillion cubic feet (approximately
100–160 million tons in LNG equivalent)Approximately 500 million cubic feet per day(approximately 3.5 million tons in LNG equivalent peryear) in 2014
Penn West Exploration serves as the operator in ajoint venture with Cordova Gas Resources

Project implementation: Dominion Cove Point LNG, LP
Location:
Maryland, United States
Liquefaction capacity: Approximately 5 million tons per year (planned)
Overview of Key Conditions of the Advance Natural Gas Liquefaction Agreement
Contracted quantity:
Approximately 2.3 million tons per year (LNG equivalent)Contract period:
20 years from the start of operations of the LNG
liquefaction plant

Marcellus Shale
CanadaCordova Embayment
United States
Cove Point LNG Terminal

Growth Strategy

Aiming to Build a Global LNG Value Chain
Tokyo Gas is working to expand its overseas gas-fired thermal power

development), we are moving ahead with participation in the LNG

generation and gas supply business. At the same time, we aim to also

and natural gas infrastructure development business centered on

create an LNG value chain overseas, combining these downstream

emerging markets.

operations with businesses in which we hold upstream interests andtransport activities.

In 1992, Tokyo Gas, the Malaysian national energy company
Petronas, and other entities joined in the establishment of Gas Malay-

We first embarked on the overseas power generation business in

sia Sdn. Bhd., the country’s first city gas provider. Over time, our2004 when we invested in the Bajio power plant (600 MW), an inde-cooperative relationship has deepened through the provision of op-

pendent power producer (IPP) in Mexico. In 2010, we joined fiveerational expertise, extending to pipeline planning and construction,

natural gas combined cycle IPP businesses (totaling 2,230 MW) in

maintenance management and the sale of city gas, and fuel conver-

the country, as well as in a pipeline business to supply natural gas tosion technologies.

these stations. Tokyo Gas also acquired a 26.66% stake in Belgium’s

Attesting to the energy services expertise that Tokyo Gas GroupT-Power N.V. (425 MW) in 2012. This was our first project in Europe

companies possess, we are conducting feasibility studies, which in-

and our third involving the overseas power generation business.

clude introduction of an electric power and heat supply system at an

The Tokyo Gas Group believes that it can leverage its strengths

urban redevelopment zone in Thailand and energy services in India.

by accelerating overseas development of energy services and engi-

In Vietnam, we have signed a memorandum of understanding withneering businesses, with natural gas at its core. In line with thePetrovietnam Gas involving the construction of an LNG value chain.

principles in the Strategies to Revitalize Japan (overseas infrastructure

Bajio (natural gas power project in Mexico)

Action 3

Action 3

Gas Malaysia Bhd. employee operating a pipeline valve

Agreement on Building an LNG Value Chain in Vietnam

Tokyo Gas has signed a memorandum of understanding with Petrovietnam Gas, Vietnam’s nationally operated energy company, to create an
LNG value chain in the country. In line with the country’s economic
growth, demand is increasing for electricity and energy to power industry. The agreement involves the consideration of plans to import LNG andconstruct an LNG receiving terminal, targeted for 2015. Highly regarded
for its technology and expertise in the design, construction, operationand maintenance of LNG facilities, wholly owned subsidiary Tokyo Gas
Engineering Co., Ltd., has received an order to provide front-end engineering and design (FEED) for the country’s first LNG receiving terminal.
Going forward, the agreement is intended to lead to the creation of suchinfrastructure as an LNG receiving terminal and a pipeline, enabling LNG
procurement, cogeneration and fuel conversion.
President Okamoto (third from left) at signing ceremony with Petrovietnam Gas

21

22 Growth Strategy
Action Plan

Building a Production and Supply Infrastructure to Cultivate Demand

Augmenting Supply Capacity in the Northern Kanto Area
The “Challenge 2020 Vision” calls for investment of approximately

for completion in fiscal 2015, linking the city of Soka in Saitama pre-¥730 billion between fiscal 2012 and fiscal 2020 in the development

fecture with Koga in Ibaraki prefecture. We are also planningof infrastructure to cultivate demand.

construction of the Koga–Moka Line. Scheduled for completion in

In the Kanto region, which extends for a 200-kilometer radiusaround Tokyo, Tokyo Gas estimates potential industrial and commer-

fiscal 2017, this line will connect the city of Koga in Ibaraki prefecturewith Moka in Tochigi prefecture.

cial demand for fuel conversion, cogeneration and power generation
at 9.0 billion m3. To cultivate this demand, we are extending our transportation pipeline network to augment our supply capabilities and tocreate pipeline loops that will boost supply stability.
March 2012 marked the completion of the Chiba–Kashima Line,a trunk pipeline having a total length of 79.3 km. Now in operation, thisline provides a structure for supplying the Kashima waterfront industrial zone.

Action 4

By linking this line with the Kashima Waterfront

Line, which was completed in May, we have also begun supplying
TEPCO’s Kashima Thermal Power Station.
Construction is moving ahead with the Saito Line, which is slated

Action 4

Operations Commence at Chiba–Kashima Line, a Trunk Pipeline

Construction on the Chiba–Kashima Line, which began in July

Kashima Waterfront Line to supply a new gas turbine generation

2006, was completed in March 2012. This high-pressure trunk

facility at TEPCO’s Kashima Thermal Power Station, which went on

pipeline extends over 79.3 km, linking the city of Chiba in Chibaline in June 2012. By July 2014, this plant will convert to highly effi-

prefecture with Kamisu in Ibaraki prefecture. In addition to supply-

cient combined cycle generation comprising three turbines. Initiallying the Kashima waterfront industrial zone in Ibaraki prefecture,planned to provide backup power for emergency situations, thewhich is one of the Kanto region’s most prominent industrial zones,

facility has been repositioned to accommodate regular power gen-the pipeline should help to cultivate new industrial demand by aug-

eration. Tokyo Gas believes that the completion of these two lines

menting a natural gas supply infrastructure that has to date been

will enable the Company to develop demand of around 300 million

insufficient. In May 2012, we also completed construction of the

m3 in fiscal 2012, eventually increasing to 2 billion m3 at maximum.
Overview of the Chiba–Kashima Line

Kashima Waterfront Line

Goten Branch Station

TEPCO Kashima
Thermal Power Station
Kashima Waterfront
Industrial Zone

Start/terminus

Goten Branch Station (Chiba, Chiba prefecture) to
Kashima Governor Station (Kamisu, Ibaraki
prefecture)

Pressure/diameter

7MPa / 600mm

Length79.3 kmConstruction start

July 2006

Construction end

March 2012

Overview of the Kashima Waterfront Line
Kashima Governor Station

Start/terminus

Towada, Kamisu, Ibaraki prefecture(Tokyo Gas Kashima Governor Station to TEPCO
Kashima Thermal Power Station)

Pressure/diameter

7MPa / 600mm

Length

4.4 kmConstruction start

August 2011

Construction end

May 2012

Chiba–Kashima LineGrowth Strategy

Hitachi Project to Significantly Augment Supply Capabilities in the Northern Kanto Area
Estimating that its gas sales volume will outstrip current supply ca-

Completion of the Ibaraki–Tochigi Line will enhance energy secu-

pacity by the late 2010s, Tokyo Gas is moving forward with the Hitachirity throughout the Kanto region and dramatically increase supply

Project. This project calls for the construction of the Hitachi LNG Ter-

capacity to northern Kanto. Through this initiative, Tokyo Gas is build-minal in the Ibaraki port Hitachi District of Ibaraki prefecture—our 4th

ing infrastructure that will enable it to support gas sales volume of 22

LNG receiving terminal, as well as for building a new high-pressurebillion m3 by fiscal 2020.

pipeline. This Ibaraki–Tochigi Line will connect the LNG receiving ter-

We are working with other energy companies on the construction

minal with the city of Moka in Tochigi prefecture. Accelerating initialof a reciprocal gas supply structure that will strengthen the natural

plans by two years, in the summer of 2012 Tokyo Gas plans to begin

gas supply network in eastern Japan by linking pipelines in the event

construction on the project, which is now scheduled to be completedof disaster. We have already formed reciprocal arrangements withand commence operations in fiscal 2015.

INPEX Corporation and Shizuoka Gas Company.

Fiscal 2020 Target

Japan Petroleum Exploration Co., Ltd. pipeline

Creation ofreciprocal gas
supply structure
for emergencies

Gunma Connecting
Trunk Line, Phase II

Hitachi–Onahama Line(provisional name)

Ibaraki–Tochigi Line

Hitachi Terminal

Koga–Moka Line
Hitachi–Kashima Line (provisional name)
Saito Line
Kashima Waterfront LineINPEX Corporation pipeline
Soka–Yashio Line

Chiba–Kashima Line
Yokohama Line, Phase II
Shin-Negishi Line
Shizuoka Gas Company pipeline

Negishi LNG Terminal

Sodegaura LNG Terminal

Ohgishima LNG Terminal

Tokyo Gas high-pressure trunk lines
Other companies’ pipelines
Tokyo Gas supply area
Tokyo Gas Group supply area
Other gas companies’ supply areas

23

24 Growth Strategy
Action Plan

Providing Diverse Energy Solutions

Promoting the Proliferation and Expansion of Dispersed Energy Systems
Tokyo Gas is working to promote dispersed energy systems that use

Furthermore, these systems have diverse applications, as they cannatural gas, as these systems help to reduce CO2 emissions, en-

be used to provide electricity and heat energy.

hance energy security in the event of disasters or power outages, andTo promote “ENE-FARM,” Tokyo Gas is endeavoring to lower

contribute to electricity peak savings. We aim to install some 300,000

their prices through mass production and faster technological inno-“ENE-FARM” residential fuel cell systems, roughly 31 times the fiscal

vation. At the same time, we are working to make the units more

2011 level, and increase our stock of commercial and industrial co-compact so they can be installed on the ve-

generation systems by approximately 2.6 times.

randas of multihome dwellings and to extend

Different from large-scale power plants, “ENE-FARM” residential

their useful life.

fuel cell systems and cogeneration generate power in demand locations, which reduces transmission losses and enables the effective
use of waste heat. Compared with conventional systems* , “ENE1

FARM” reduces primary energy requirements by 35% and cuts CO2*1 Thermal power generation +conventional city gas water
heaters*2 Thermal power generation

emissions by 48%. Compared with conventional generation systems*2, which have overall energy usage efficiencies of around 40%,
gas cogeneration systems achieve much higher levels, at 70–85%.

Cogeneration system“ENE-FARM”“ENE-FARM” (Residential) Stock Plan

Cogeneration System (Commercial, Industrial) Stock PlanThousand units

MW

400

4,000

300

300

4,000

Approximately 2.6 times
3,000

Approximately 31 times
2,000

200

Sales expected toincrease 24% year on
year, to 7,100 units.
16.7

100
0

9.6
2011

2012 (Plan)

1,530

1,680

2011

2012 (Plan)

1,000

2020 (Plan)0

FY2020 (Plan)

FY

Promoting Advanced Use of Natural Gas and Fuel Conversion
The commercial and industrial applications of natural gas are exten-

conversion from heavy fuel oil and kerosene to natural gas, and intro-

sive; it can be used for heating, heat treatment, drying, foodducing highly efficient appliances and advanced uses of natural gas

processing, and air conditioning, among other things. In the after-in cogeneration systems. As a result, wemath of the Great East Japan Earthquake, natural gas has attracted

expect gas sales volume, centering on indus-

increasing attention from the perspectives of supply stability, energy

trial use, to increase 7 billion m3 by fiscal 2020.

efficiency, CO2 reductions and operating costs. Tokyo Gas is cultivat-

Action 5

ing new demand by highlighting the benefits of combining fuelGas appliance forcommercial use

CO2 Reduction due to Fuel Conversion from Fuel Oil A to Natural Gas
Size of circle indicates amount of CO2 emitted, with a conventional burner using fuel oil A equivalent to 100

Fuel Conversion

Advanced Use

Examples of Advanced
Use Measures
Use of highly efficient burners

100

75

45 –70

Collection of waste heat
Insulation, reduction of heatloss at openings

Fuel oil A + conventional burner

Conversion to natural gas

Increased burner efficiency

Improvement of combustion
air, others

Growth Strategy

Action 5

Promoting Fuel Conversion at the Kashima Waterfront Industrial Zone

Completion of the Chiba–Kashima Line Enables Supply to Reach
Prominent Kanto Industrial Area
The Kashima Waterfront Industrial Zone, which extends over approximately 24 million m2 in the region of Ibaraki prefecture fronting
the Kashima-Nada Sea, is home to some 160 companies, making it one of the Kanto region’s most prominent industrial complexes.
In 2007, Tokyo Gas began cultivating LNG demand in the area by transporting fuel there via tank lorries. Following completion of the
Chiba–Kashima Line in March 2012, we have begun supplying the region with city gas. This new supply route opens up possibilities
for the full-fledged cultivation of new markets, such as fuel conversion to natural gas.
Here, we introduce a success story of fuel conversion by Kashima South Joint Power Corporation.

Kashima South Joint Power Corporation
Streamlined Operations Management and Cleanliness
Deciding Factors

Providing the Support that Japanese
Manufacturing Requires

Mr. Takahashi, who was involved in the fuel conversion project,offers the following comments: “At first, many aspects of the project were unclear, and it was subjected to careful internal scrutiny.
We studied the project’s impact and concerns extensively.” As ajoint independent power producer, the key decision point waswhether the project would enable the company to support thecompetitiveness of its customers by providing a stable supply ofenergy at a low cost. Streamlining operations management wasa particular focus. With the conventional power generation process using heavy fuel oil, it was necessary to carefully manage
the temperature of the fuel oil, from the time it was received to thetime it was burned in the boiler, in order to prevent coagulationand control evaporation. Large-scale equipment was also needed
to process exhaust gas following incineration. Natural gas, which
does not require such processes, offered substantial improvements in controllability and operability. The use of gas also
eliminated the need for heavy fuel tanks, heaters, gasificationequipment and flue gas processing equipment. In addition, as
natural gas is not as corrosive as heavy fuel oil, boiler repair frequency was reduced, allowing more than two years of continuous
operation. The company also forecast reduced investment in facility upgrades and maintenance costs. Another important factor
from the operational and facility management perspective wascleanliness. The company had made a thorough effort to conserve energy, improving its total thermal efficiency* from around
60% in fiscal 1990 to nearly 80% in fiscal 2010. The key to further
improvements is to substantially reduce emissions of soot, SO2,
CO2 and other substances, and lower them to near zero throughthe introduction of natural gas.
After taking these factors into consideration, the company
decided to convert to the use of natural gas as fuel.

The project to modify boilers for fuel conversion got underway in October 2010,
and in January 2012 construction commenced on Boiler No. 3. Progressing
according to schedule, construction wascompleted by March 2012, when the
Chiba–Kashima Line was completed, andthe boiler commenced operations in April
2012. Introducing the project from aworkplace perspective, Mr. Takahashi exBoiler No. 3
plains, “As we had anticipated, achievinga dramatic improvement in operability and controllability was
simple.” In September 2012, construction is scheduled to begin
on Boiler No. 2, followed by Boiler No. 1 in February 2013. By thesummer of 2013, fuel conversion is expected to be complete on all
boilers. By fiscal 2013, the company expects to reach total thermal
efficiency of 80% or higher, contributing significantly to environmental performance and energy savings.
The company’s President Kanamori explains, “Low-costenergy is essential to maintaining the competitiveness of Japanesemanufacturing. We look forward to the results of efforts by Tokyo
Gas to provide stable supplies through links with the Hitachi zone,
procure unconventional natural gas, and introduce schemes thatwill not be affected by the price of heavy fuel oil.”* Amount of heat sold/amount of heat provided by fuel(From left) Yukio Handa, Tokyo
Gas; Tadashi Maeda, Managing Director, President Tatsuro
Kanamori, Deputy General
Manager Shuji Takahashi,
Kashima South Joint Power;
Toru Ishiguro, Tokyo Gas

Kashima South Joint Power Corporation
The company, a joint independent power producer, was established in 1968 through joint investment
by seven companies on the eastern side of the Kashima industrial complex. Kashima South Joint
Power has a total capacity of 210 MW, comprising three steam turbines and two gas turbines. The
company provides 16 companies with steam, electricity and pure water. In recognition of its environmental and energy-conservation measures, in 2009 the company won an award from the Minister of
Economy, Trade and Industry for “the conservation of energy through the collection of heat from waterproduced by companies in the complex, as well as gas cogeneration.”25

26 Growth Strategy

Expanding Power Generation (Natural Gas-Fired Thermal Power Generation)
The Tokyo Gas Group currently generates electricity at four gas-fired
thermal power generation plants in Japan. These plants employ gas

Scale of the Power Generation Business(Including Other Companies’ Interests)

turbine combined cycle generation, which is highly efficient andMWoffers superior energy savings. As of March 31, 2012, we had total

6,000

3,000 MW– 5,000 MW

generating capacity of approximately 2,000 MW (of which, the Tokyo
Gas Group’s ownership share is 1,300 MW). We plan to augment

4,000

generation capacity, eventually raising this level to 3,000–5,000 MW.
Our basic policy on developing this business is to minimize risk by

1.5–2.5 times
the current level

2,000

2,000 MW

monitoring domestic trends for electricity supply and demand, as
well as electric power system reforms, keeping a careful eye to the

0

2011

2020

FY

economic viability of our operations as we strive to make effective useof our LNG procurement capacity and LNG terminals, pipelines andother equipment as one of Japan’s leading energy companies.
In April 2012, we began considering construction in Ohgishima
Power Station Unit 3.

Action 6

Action 6

Beginning to Consider Ohgishima Power Station Unit 3

The Ohgishima Power Station (Yokohama, Kanagawa prefecture) is a
cutting-edge power station. The facility employs gas turbine combined
cycle generation, which is highly energy efficient, with maximum efficien-

Floor Plan of the Ohgishima Power Station
Water intake

cy reaching 58%. Unit 1 commenced operation in March 2010, followed
1

by Unit 2 in July of the same year. Together, the units have the capacity

2

to generate 814 MW (of which, our ownership share is 610 MW). We

3

have begun considering construction of Unit 3, on which environmental
impact assessments have already been completed, believing that thisunit will make an early contribution to our ability to provide a stable andefficient supply of electricity. A construction decision is scheduled forautumn of 2012, with the aim of commencing operations in fiscal 2015.

4
5

7

6

1 Chimney stack
2 Auxiliary boiler

Unit 3

Unit 2

Unit 18

3 Waste heat collection boiler
4 Gas turbine
5 Steam turbine
6 Generator
7 Turbine building
8 Office central control room

Source: Ohgishima Power Station Environmental Evaluation Standards Digest

Expanding Energy Services throughout Japan, Centered on Natural Gas
Extending our operations outside our sales base in the Kanto region,
we provide the resources that we have procured throughout Japan.
We meet the needs of gas companies throughout Japan, supplying
them with LNG via tank lorries, large ocean-going vessels and smaller domestic ships. Anticipating an increase in long-term, stable LNG
sales volumes, in fiscal 2011 Tokyo Gas formed an accord with othergas companies seeking to secure long-term gas resources, entering
into LNG sales agreements with Hokkaido Gas Co., Ltd., and Saibu
Gas Co., Ltd.

Action 7

LNG satellite terminal

LNG tank lorries

Growth Strategy

Action 7

Encouraging Natural Gas Use throughout Japan

In August 2011, Tokyo Gas signed an LNG sales agreement with
Hokkaido Gas Co., Ltd., deepening a relationship through which

Ishikari LNG Terminal

Tokyo Gas Engineering Co., Ltd., is already cooperating on the

Hakodate Minato LNG Terminal

design and construction of the Ishikari LNG Terminal. Under thisagreement, Tokyo Gas will supply the Ishikari LNG Terminal of Hok-

Hachinohe
LNG Terminal

kaido Gas with around 300,000–400,000 tons of LNG per year
during the 11 years from fiscal 2012–2022. This is our first longterm LNG supply agreement for providing a domestic gas company

Hibiki LNG Terminal

with gas from one of our LNG projects via ocean-going tankers. We
also signed a 16-year LNG sales agreement with Saibu Gas Co.,
Ltd., in March 2012, for fiscal 2014–2029 for the supply of around
300,000 tons of LNG per year to its Hibiki LNG Terminal.

Supplying LNG via Domestic and Overseas Vessels
JX Nippon Oil & Energy
Corporation
Hokkaido Gas Co., Ltd.
Saibu Gas Co., Ltd.

Hachinohe LNG
Currently supplying
Terminal
Hakodate Minato
Currently supplying
LNG Terminal
Ishikari LNG
From 2012
Terminal
Hibiki LNG Terminal
From 2014

Looking to the Future of Energy
Tokyo Gas advocates and is making strides toward the creation of

By optimizing energy use on per-community basis, these net-

“smart energy networks.” Using optimal configurations of renewable

works can help save energy and reduce CO2 emissions. At the sameenergy, fuel cells, storage batteries and energy management sys-time, they serve as dispersed power sources that are independenttems, these networks efficiently control electricity supply and demand

from large-scale power grids, making them an effective source ofand harness the heat provided through cogeneration systems andpower in the event of disaster. We are currently moving forward with

untapped waste heat.

several projects toward verification testing and commercialization.
Action 8

Action 8

Commencing the Commercialization of Smart Energy Networks

Applying the technological expertise it has accumulated through verification testing, Tokyo Gas is working toward the commercialization of smart
energy networks. We are working with Tokyo’s Minato Ward on the construction of a smart energy network north of the east exit of Tamachi
Station. Scheduled to begin supplying energy in April 2014, the projectwill be Japan’s first in an urban redevelopment area. We are also pursu-

Smart Energy Network in Progress(North of the East Exit of Tamachi Station)
First smart energy center supply area (Conventional plan)

ICT

Future plan

Solar heat and light(combined deck
structure)

ICT
Public utilities
Mediumpressure gas

ing a project in Tokyo’s Koto Ward based on the Toyosu Green Eco Island
Concept, and have begun considering another in an area centered on

CGS

the area near the west exit of Shinjuku Station.

ICTInterface
between centers

CGS

ICT

ICT

Second smart
energy centerFirst smart
energy center

Specialhigh-voltage
electricity

ICT

ICT

Child welfare facility

Aiiku HospitalHeat used by water in underground tunnel
CGS: Cogeneration system
ICT: Information and communications technology

27

28 Growth Strategy
Capital Expenditures Plan
Capital Expenditures, Investment and Financing Plan for “Challenge 2020 Vision”
The “Challenge 2020 Vision” calls for aggressive capital expenditures,operating cash flow (consolidated net income + depreciation) to beinvestments and financing, including through external funding, toaround ¥250 billion per year, approximately ¥40 billion per year higher

achieve new growth by “enhancing the LNG value chain.” Between

than during the FY09–13 Medium-Term Plan.

fiscal 2012 and fiscal 2020, this plan calls for total capital expenditures, investments and financing of ¥2.06 trillion. As an annual

Use of Capital Expenditures, Investment and Financing

average, the vision, compared with the Group medium-term manage-

Total for fiscal 2012–2020: Approximately ¥2,060 billion

ment plan for fiscal 2009–2013 (hereinafter, “FY09–13 Medium-Term(Approx. ¥230 billion per year)

Plan”) targets an annual increase in spending of around ¥50 billion,

Infrastructure
Overseas business
Demand development
Business base
Other investments in affiliates

7%

from approximately ¥180 billion to around ¥230 billion.

13%

This proactive funding is aimed at optimizing and enhancing our

35%

infrastructure so that we can promote and expand the use of natural¥730 billion¥320 billion¥600 billion¥270 billion¥140 billion

gas. Much of this investment will go toward production and supply
29%

facilities including the Hitachi LNG Terminal. We will also augment our

16%

trunk and service lines and electric power generation to develop
demand, and continue investing aggressively in overseas business(Reference) Capital expenditures, investments and financing in the medium-term management
plan for fiscal 2009–2013: Approximately ¥180 billion per year

to procure gas resources. During the investment period, we expect

Five-Year (Fiscal 2012–2016) Capital Expenditures Plan for Tokyo Gas on a Non-Consolidated Basis
Based on the plan described above, the capital expenditures plan for

Hitachi LNG Terminal by fiscal 2015.

Tokyo Gas on a non-consolidated basis for the five years from fiscal

In supply facilities, we will invest in pipeline installations toward

2012–2016 is as follows.

the development of new demand, completing the Ibaraki–Tochigi

With regard to production facilities, we will install additional va-

Line and planning the new Koga–Moka Line. In addition, we will

porizers in our three terminals located on Tokyo Bay and complete

invest in the formation of a trunk pipeline network, including the Shin-construction of the No. 4 LNG tank in the Ohgishima LNG Terminal.

Negishi Line (Yokohama).

We will also move forward with measures to strengthen the resis-

As a result of these initiatives, we are planning capital expendi-

tance of our facilities to earthquakes and floods, and repair andtures of ¥709.5 billion over the five-year period.

upgrade aged equipment. Furthermore, we plan to complete theGas Sales Volume Plan and Facilities Development Plan
Billion m3

Saito Line
Ibaraki–Tochigi Line
Tochigi Line extension

16.5
16.0
15.5
15.0

Kashima Waterfront Line
Minamisode Line
Sowa Medium-Pressure
Line extension

14.5

Shin-Negishi Line
Yokohama TrunkLine, Phase II

13.0

Sodegaura Terminal
vaporizer expansion
2012

Hitachi LNG Terminal

14.3 billion m3

14.0
13.5

15.6 billion m3
14.9 billion m3

13.9 billion m3

16.0 billion m3

Ohgishima Terminaltank expansion
2013

2014

2015

2016

Facility Investment Plans (Non-consolidated)

Billions of yen
Fiscal
2012

Fiscal
2013

Fiscal
2014

Fiscal2015

Production facilities

28.6

27.5

33.9

Supply facilities

86.4

90.2

88.2

Business facilities

23.2

21.1

Subtotal for gas business facilities(reduction entry of land contribution for construction)

138.2
0.8
139.0

Incidental facilities
Total (reduction entry of land contribution for construction)

FY

Fiscal2016

Total for fiscal
2012–2016

22.7

7.2

120.0

85.7

78.0

428.6

33.1

44.2

36.8

158.4

138.9

155.3

152.5

122.1

706.9

0.5

0.5

0.5

0.4

2.6

139.3

155.8

153.0

122.5

709.5

Corporate GovernanceCorporate
Governance–––––––––––––––––––––––

30––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

30––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

31

Overview of Corporate Governance System
Internal Control System
Outside Directors––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

32––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

32

Officer Remuneration
Advisory Committee–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

32–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

33

Audits by Corporate Auditors
Independent Auditors
Compliance–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Risk Management System–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Earthquake and Disaster Countermeasures––––––––––––––––––––––––

Toward the Realization of a Safe Gas Supply
that is Even More Resistant to Disaster Damage
Board of Directors and Corporate Auditors

33
34
36

–––––––––––

36––––––––––––––––––––––––

3729

30 Corporate GovernanceCorporate GovernanceTokyo Gas works to ensure continued development while consistently earning the trust of customers, shareholders, andsociety. Based on this philosophy, we aim to achieve a continuous increase in our corporate value through enhancing
corporate governance systems. We are endeavoring to develop systems with a commitment to management legality,
soundness, and transparency. Tokyo Gas continues to emphasize the importance of accurate and prompt decision making, efficient business operations, strengthening of auditing and monitoring functions, and clarification of management
and executive responsibilities.

Overview of Corporate Governance System
Tokyo Gas takes a proactive stance in employing outside directors

areas of responsibility, while directors, as appropriate, receive reports

and outside corporate auditors. The Company has created a systemon the status of execution from executive officers and monitor thefeaturing multiple auditing and supervisory layers in its aim to achieve

executive officers. In addition, executive officers report to the Board

highly objective and transparent governance.

of Directors as needed. (To clarify management responsibility andInvitation of Outside Directors

executive responsibility, the terms of office of directors and executive

In 2002, we reduced the number of directors to raise the speed andofficers have been fixed at one year.)effectiveness of management decision-making. In addition, we have

Working to Promote Transparent Management and Create ainvited outside directors to serve on the Board of Directors in order to

Flexible and Open Corporate Culture

improve transparency and to reinforce the supervision of businessIn fiscal 2002, the Company established the Management Ethics

execution. The Board of Directors has 11 members, including 3 out-

Committee, chaired by the President. We also formed in-house com-side directors.

mittees to address issues that are important from a management

Establishment of Advisory Committee

perspective, such as compliance, risk management, customer satis-

We have established the Advisory Committee, which is made up of
three representatives from the outside directors and outside corporate auditors and two inside directors. In accordance with inquiries

faction, and safety. This structure facilitates the sharing of information
within the Group, as well as deliberations, adjustments, and decisions
regarding the Group’s overall direction.

from the Board of Directors, the Advisory Committee selects officer

As of June 28, 2012

candidates in a fair and appropriate manner and deliberates on offi-

Overview of Corporate Governance Systemcer remuneration in accordance with the Company’s basic policy for

Number of directors

officer remuneration.

Average age of directors

Corporate Auditors

Number of outside directors

3

Number of independent officers

6

Number of corporate auditors

5

Number of outside corporate officers

3

In the past, the Company had invited 2 outside corporate auditors,
and in 2006 the number of outside corporate auditors was increased
by one. The five corporate auditors, which now include three outside

11
65.7

corporate auditors, conduct strict audits.

Participation of outside directors / outside corporate auditors
in determination of remuneration

Yes

Realizing Accurate, Rapid Decision-Making and EfficientParticipation of outside directors in determination of
director candidates

Yes

Business Execution

Number of meetings of Board of Directors*

11

The Corporate Executive Committee, which meets weekly as a general rule, deliberates on provisions stemming from Board of Directors’
resolutions and important management-related issues. The Company has introduced an executive officer system for business executionin accordance with decisions of the Board of Directors. Substantial

Attendance rate of outside directors at meetings ofBoard of Directors*
Term of office of directors

91%
One year

Results-linked remuneration

Yes

Share purchase system to reflect the perspective ofshareholders in management

Yes

authority has been delegated to executive officers in their designated* Total for the period from April 2011 to March 2012

Internal Control System
To secure management soundness and transparency and to realize

for Ensuring Appropriateness of Operations (Internal Control System)

the management philosophy, the Company has formulated thefor the Tokyo Gas Group,” and the Company is applying this policy in“Basic Policy on Development of Corporate Structures and Systems

an appropriate manner.

Corporate GovernanceOutside Directors
In accordance with their individual experience and knowledge, thewe comprehensively verify that they are unlikely to have conflicts ofoutside directors strive to secure the soundness and appropriate-interest with general shareholders and they are in a position that en-ness of deliberations and decisions regarding business execution.

ables them to be objective and neutral, and on that basis we make a

From an independent viewpoint, the outside directors monitor the

judgment on their independence. The Advisory Committee has con-performance of duties by the directors and exercise their authority atfirmed that none of the outside officers has a material conflict ofmeetings of the Board of Directors. In this way, the outside directors

interest with the Company—in regard to capital, transactions, or rela-contribute to the improvement of the rationality and objectivity of thetionships—and has confirmed their independence in accordanceCompany’s business execution and of the deliberations and deci-with the above standards. The Committee’s decision has been re-sions of the Board of Directors.

ported to the Board of Directors, which has designated them as

In making judgments about matters related to the independence

independent officers and reported that designation to the stock ex-of outside officers, such as capital, transactions, and relationships,

Namechanges on which the Company is listed.

Current position

Reason for selection

Yukio Sato

Vice Chairman of the Japan Institute ofInternational Affairs

The Company’s management will benefit from Yukio Sato’s international way of thinking nurtured through diplomacy,wide perspective and in-depth knowledge.

Ryuichi Tomizawa

Senior Corporate Advisor of Mitsubishi
Chemical Holdings Corporation

The Company’s management will benefit from Ryuichi Tomizawa’s international way of thinking nurtured in
the aggressive overseas penetration of the chemical industry, wide perspective, and in-depth knowledge.

Yoshihiko Nakagaki

Corporate Advisor of Electric Power
Development Co., Ltd.

The Company’s management will benefit from Yoshihiko Nakagaki’s management way of thinking nurtured at ElectricPower Development Co., Ltd., in a wide range of business development activities, including electric power source
development and electric power wholesale supply, and his advanced capabilities in management, such as
the implementation of reforms reflecting changes in the operating environment.

Corporate Governance System
Customers

Local Community

Shareholders / Investors

General Shareholders’ Meeting
Appointment
ReportCollaboration

Advisory Committee*2

Board of Directors*1
Inquiry

Audit

MonitorReport submission

Management Ethics Committee

Collaboration

Collaboration

Audit

Report submission

AnswerInternal Audit Department

ReportIndependent Auditors

Appointment

Board of Corporate Auditors*3

Appointment

ReportPresident(Corporate Executive Committee*4 )Approval

Deliberation
and report

Safety Committee
Customer Satisfaction
Promotion Committee
Investment Evaluation Committee
Environmental Committee

Settlement and monitor

Report submission

Corporate Communications
Promotion Committee
Risk Management Committee
Other In-House Committees

Audit

Business Departments /Subsidiaries and Affiliates

Add to agenda and report
Decision and risk monitoring

General Shareholders’ Meeting*3*1 Board of Directors: 11 directors (3 outside directors and 8 internal directors) 5 Auditors (3 outside auditors and 2 internal auditors)*2 Advisory Committee: 3 representatives from outside directors and outside auditors, Chairman, and President*3 Board of Corporate Auditors: 5 corporate auditors (3 outside auditors and 2 internal auditors)*4 Corporate Executive Committee: President, 2 Executive Vice Presidents, 11 Senior Executive Officers(3 of the representative directors also serve as President and Executive Vice Presidents)

Stakeholders

Tokyo Gas Co., Ltd.

Business Operations31

32 Corporate Governance

Officer Remuneration
In 2005, the Company formulated the basic policy on officer remu-

shall be determined in accordance with the post of each inside direc-

neration, which outlines the method of remuneration for officers, etc.

tor after performance evaluation.

At a meeting of the Board of Directors in February 2012, the policy(3) Remuneration of outside directors shall comprise monthly remu-

was revised as follows.

neration and bonus. Monthly remuneration shall comprise only fixed

1. Role of Executive and Remuneration

remuneration, while bonus shall be the same as that of inside directors.

The role demanded of officers is to seek to enhance short-, medium-,

4. Remuneration of Corporate Auditors and Its Compositionand long-term corporate value, and officer remuneration shall serve(1) Remuneration of corporate auditors shall be paid within the scope

as an effective incentive for them to perform that role.

of the remuneration limit approved at the Shareholders Meeting de-

2. Level of Remuneration

termined through discussions among corporate auditors.

The level of officer remuneration shall be suitable for the role, responsibility, and performance of the officer.

(2) Remuneration of corporate auditors shall comprise only fixedmonthly remuneration.

5. Assurance of Objectivity and Transparency of

3. Remuneration of Directors and Its Composition(1) Remuneration of directors shall be paid within the scope of the
remuneration limit approved at the Shareholders’ Meeting.
(2) Remuneration of inside directors shall comprise monthly remuneration and bonus. Monthly remuneration shall comprise fixed
remuneration paid in accordance with the post of each individual andperformance-linked remuneration. The amount of bonus to be paid

Remuneration System
The Company shall assure the objectivity and transparency of thesystem of officer remuneration by establishing and operating the“Advisory Committee” comprising outside directors, outside corporate auditors and a number of inside directors to govern the system of
personnel affairs and remuneration of officers.
Millions of yen
TypeTotal Remuneration for Directors and Corporate Auditors (Fiscal 2011)

Remuneration for directors (excluding outside directors)
Remuneration for corporate auditors(excluding outside corporate auditors)
Remuneration for outside officers(outside directors and outside corporate auditors)

Thousands of U.S.dollars*2
Type

Number of
directors/auditors

Total value of
remuneration

Base

Bonuses

Base

Bonuses

9*1

¥447

¥391

¥56

$4,711

$675

3*1

74

74

—

892

—

7*1

¥ 65

¥ 58

¥ 7

$ 699

$ 84

*1 The number of officers included in the total value of remuneration for directors, corporate auditors, and outside officers includes two directors (of which, one was an outside officer) and one corporate
auditor who retired upon the conclusion of the 211th Annual Shareholders’ Meeting.
*2 Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥83 per U.S. dollar, the prevailing exchange rate on March 30, 2012.
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.

Advisory Committee
In February 2005, we established the Advisory Committee, whichof Directors, the Advisory Committee deliberates on officer candi-

has five members—three representatives from the outside directors

dates and officer remuneration in a fair and appropriate manner andand outside corporate auditors as well as the Chairman and the

makes reports to the Board of Directors. The committee also deliber-

President. The committee works to assure objectiveness and trans-

ates on the independence of outside officer candidates.

parency in management. In accordance with inquiries from the Board

Audits by Corporate Auditors
Board of Corporate Auditors
The Board of Corporate Auditors meets once a month as a generalrule and otherwise as needed. The five members of the board, which
include three outside corporate auditors, conduct deliberations andmake reports.
In line with the Corporate Auditor’s Audit Standards, each corporate auditor conducts effective audits through the following principal
initiatives.
The corporate auditors attend meetings of the Board of Directors, the Corporate Executive Committee, and other important
meetings. They state their opinions relating to legality and otherperspectives when necessary.

The corporate auditors conduct research into the state of operations at the head office, major business offices, andsubsidiaries, and hold discussions with directors to exchange
opinions, both on a regular basis and otherwise as needed.
The corporate auditors cooperate closely with the Audit Department, which is the internal audit organization, and with theindependent auditors and strictly audit the execution of duties
by the directors, targeting the establishment of a high-quality
corporate governance system.
In regard to the internal control system for financial reporting,the corporate auditors receive evaluations of internal control
and reports on the status of audits from the Board of Directors
and KPMG AZSA LLC.

Corporate GovernanceOutside Corporate Auditors

In making judgments about matters related to the independence

The outside corporate auditors conduct audits / monitoring from anof outside officers, such as capital, transactions, and relationships,

independent viewpoint and contribute to improving the rationality andwe comprehensively verify that they are unlikely to have conflicts ofobjectivity of the Company’s business execution and of the delibera-interest with general shareholders and they are in a position that en-

tions of the Board of Directors through their statements at meetings

ables them to be objective and neutral, and on that basis we make aof the Board of Directors. In addition, through their statements andjudgment on their independence. The Advisory Committee has con-the exercise of their majority voting rights at meetings of the Board of

firmed that none of the outside officers has a material conflict ofCorporate Auditors, the outside corporate auditors contribute to as-interest with the Company—in regard to capital, transactions, or rela-suring and improving the legality, appropriateness, rationality, andtionships—and has confirmed their independence in accordance

objectivity of the audits by the corporate auditors. In addition, with thewith the above standards. The Committee’s decision has been re-objective of assuring the effectiveness of audits by the corporate au-

ported to the Board of Directors, which has designated them as

ditors, the Company invites outside corporate auditors who have a

independent officers and reported that designation to the stock ex-

substantial degree of knowledge about finance and accounting.

changes on which the Company is listed.

Name

Current position

Reason for selection

Yukio Masuda

Consultant of Mitsubishi Corporation
Outside Director of Showa Shell Sekiyu K.K.

The Company’s auditing will benefit from Yukio Masuda’s excellent management capability and experiences
nurtured at a major trading company and high level of knowledge about the energy business.

Masayuki Osawa

Outside Auditor of PACIFIC CONVENTION PLAZAYOKOHAMAThe Company’s auditing will benefit from Masayuki Osawa’s abundant experience acquired at a local
government and a regional economic grouping as well as in-depth knowledge about financial administration.

Yoshihiko Morita

Advisor of Sumitomo Mitsui Banking Corporation,
President of Japan Institute for Overseas Investment

The Company’s auditing will benefit from Yoshihiko Morita’s wide-ranging international way of thinking andexperience nurtured through work in the fields of international finance and overseas economic cooperation.

Independent Auditors
The Company has concluded an auditing contract with KPMG AZSA

Company’s audits are handled by three certified public accoun-

LLC for auditing services based on the Companies Act and auditingtants—Seiichi Sasa, Koji Kakinuma, and Masaru Miura. For each ofservices based on the Financial Instruments and Exchange Act, asthese auditors, the number of consecutive years of auditing service iswell internal control audits based on the Financial Instruments andless than seven years (as of June 29, 2012).

Exchange Act, and the Company is being audited on that basis. The
Compensation for independent auditors (Fiscal 2011)

Millions of yen

Thousands of U.S.dollars*

Remuneration for auditing services
Remuneration for non-auditing services
Total

¥259
30
¥289

$3,120361$3,481* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥83 per U.S. dollar, the prevailing exchange rate on March 30, 2012. 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.

Compliance
The Company has identified the following three points as its basic

we promote a thorough awareness of ongoing activities related to ourpolicy and is promoting compliance on that basis.

code of conduct that was revised in 2004. We are also moving for-Fostering of a compliance oriented mentality
Compliance efforts by each workplace based on the group policy

ward with a compliance casebook designed for applying the code of
conduct to various problems in the workplace, so as to achieve thepermeation of compliance.

Establishment of the compliance PDCA cycle

Compliance Structure

Addressing Compliance Risk

We have established the Management Ethics Committee, chaired byThrough the effective operation of internal and external advisory sys-

the President. This committee discusses at the management leveltems, we are endeavoring to ensure that compliance-related problems

basic compliance policies and all aspects of compliance initiatives byare discovered and resolved quickly so that our corporate self-regula-

the Company, monitors the implementation of compliance-related

tory processes will continue to function effectively. We monitor themeasures, and confirms activity programs from the following year andeffectiveness of Group compliance promotion activities by conducting

thereafter. We have also established the Compliance Department toregular compliance awareness surveys of all employees. The results oflead compliance-related activities for each unit. These include devel-

these surveys are reflected in initiatives for the following years. The

opment of compliance promotion systems, encouraging awareness

Audit Department’s Compliance Audit Group conducts audits of theand educational campaigns about the code of conduct, compliance

Company, its subsidiaries, and its affiliates from the viewpoint of strictrisk reduction measures, maintenance of advisory systems, and thecompliance with laws, corporate ethics, and social norms. When con-broad-based distribution of information within and beyond the Tokyo

cerns are identified, the Group conducts follow-up audits in theGas Group companies. To cultivate an understanding of compliance,

following year to verify progress in tackling those concerns.

33

34 Corporate GovernanceRisk Management System
Enterprise Risk Management (ERM)

the Corporate Executive Committee and obtains the necessary ap-

In fiscal 2003, the Company established an enterprise risk manage-

provals. Moreover, since the start of fiscal 2011, the Corporate

ment (ERM) system. The Board of Directors has established risk

Planning Dept. has been responsible for the risk management func-

management regulations, which include documented rules concern-tion, thus creating a framework for implementing unified ERM

ing major risks faced by the Group.

together with operational management.

The Risk Management Committee was established in fiscal 2008

Under the new framework, around 120 Risk Management Pro-

with the aim of identifying and evaluating progress regarding the es-

motion Officers have been deployed in the business departments oftablishment and the operational status of the ERM system, as well asTokyo Gas and its subsidiaries and affiliates in order to promote ERM.

improving the level of ERM. The committee periodically undertakes

Each year, we assess risks and the implementation and improvement

risk assessments and checks on progress regarding the establish-

status of countermeasures. This system facilitates the steady imple-

ment and the operational status of the ERM system. It also reports tomentation of the ERM-PDCA (Plan-Do-Check-Act) cycle.

Enterprise Risk Management (ERM)
Corporate Executive Committee
Confirmation of major Group risks
Reflection of resultsof risk assessment

Securities Markets and Other Stakeholders
Disclosure of risk information through Yuho
Securities Report, Financial results, Annual
report, CSR report, etc.

Report / proposal for plan for assessment of majorGroup risks / other essential matters

Clear statement of risk
management policies

Risk Management Committee(Executive Office: Corporate Planning Dept.)(1) Identifying, confirming, and evaluating Group risk management(2) Examination and confirmation regarding ERM
Reports regarding results of risk assessment, statusof implementation of countermeasures, status of
improvement, etc.

Business Departments / Subsidiaries and Affiliates

Feedback of evaluation results /improvement proposals
Clear statement of risk
management policies(1) Identifying and evaluating risks, formulating and implementing risk countermeasures(2) Improvement of risk assessment, countermeasures

Risk Management
Because the Company provides public services that comprise a lifeline, for many years, we have also had a crisis management systemthat serves as a response system in case an accident or other riskrelated event actually occurs. Specifically, we have formulated
Emergency Response Organization Regulations. In case of major

Emergency Response Organization
Suggestion of establishment of Emergency Response Organization, etc.

President(Organization Leader)

Executive Officenatural disasters, such as earthquakes, or production or supply disruptions arising from major accidents at pipelines or terminals, as wellas influenza, terrorism, failures in mission-critical IT systems, compli-

Instructions /orders reports

ReportCollaboration

ance problems, etc., the Emergency Response Organization
responds to the situation immediately in accordance with the Emergency Response Organization Regulations. Periodic training is
conducted in relation to major risk response measures. Moreover, theCompany has also formulated a Business Continuity Plan (BCP), outlining its responses in the event of a major earthquake of themagnitude assumed by Japan’s Cabinet Office, a major accident disrupting power supply, an outbreak of influenza, etc. This plan is inplace to reinforce the Company’s risk management system.

Business Departments

Corporate Planning Dept.
(Groupwide coordination)* The organizational unit in charge of the executive office is determined in advance in accordancewith the type of the emergency.

Corporate Governance

FAQ Regarding Risks Related to Management
Strategies

investors are increasingly concerned with the heightened diversifica-

In accordance with the management strategies in the “Challengetion and intensification of risks. This section explains the Company’s

2020 Vision,” the Tokyo Gas Group is implementing aggressive initia-

approach / response to risks related to management strategies, intives in a wide range of fields, such as diversification and expansion into

regard to which the Company often receives questions from investors.

upstream businesses overseas. Accompanying these initiatives,

Q1. The vision outlines plans for gas sales volume toincrease to 22.0 billion cubic meters. Following theearthquake demand for LNG in Japan has increased
rapidly. In addition, given the trend toward reduced
environmental burdens, LNG demand is expected toincrease on a global basis. Will a tightening of thedemand-supply balance have an adverse affect on
raw material procurement?

A1. Following the earthquake, the shift toward natural gas has accelerated, and in
the short term it is possible that the demand–supply balance will be tight. However,with multiple new projects as well as an increase in the supply of unconventional
natural gas, such as shale gas and CBM, our supply capacity is sufficient. We believethat demand and supply will be balanced, in both the short term and the medium tolong term. Moving forward, we will implement an appropriate response as we trackchanges in energy policy, including the use of nuclear power.

Q2. Isn’t the risk of investing in upstream businesses
very high? Rather than expanding upstream operations, shouldn’t your focus be on stable gas
operations?

A2. Upstream operations are said to be high risk because they generally involve exploration. The risk that we incur is limited because we only invest in projects forwhich reserves have been estimated and for which demand is assured through longterm contracts with purchasers, including the Company. In addition, we closely adhere to in-house investment standards, select projects that will generate a sufficienteconomic return, and make our participation decision.

Q3. With expansion of electric power generationand preparation of the wide-area pipeline network,
isn’t it possible that the Company will over-invest?

A3. Our basic approach to investment, including the electric power business and thewide-area pipeline network, is to make decisions based on economic rationality. Ourpolicy is to use our funds effectively, investing only in projects from which we can
expect an appropriate return.

Q4. Japan’s gas industry will be affected by regulatory reforms that are being advanced, such ascomplete deregulation and the separation of electric
power generation and transmission. Doesn’t this situation present a risk to the Company’s profitability?

A4. Future policies are currently under deliberation, and it is difficult to foresee thefuture of the energy framework. However, our vision sets out our intention to expand
profits in large-scale, unregulated fields in the future. For example, even if regulatory
reform is advanced, we believe that we will be able to sustain our profitability.

Q5. The Company has indicated that it will securecommercial demand in the Tokyo metropolitan region as a source of demand for gas sales volume,
but isn’t there a risk that demand will decline due toa further shift of plants to overseas locations?

A5. In our vision, we set out a goal of sales of 22.0 billion cubic meters of gas in thefiscal year ending March 2021, and this includes the reduction in demand stemmingfrom the surfacing of the risk of industrial hollowing out.

Q6. Real estate is not the Company’s core business.
Does the in-house development of real estate holdings, such as Tamachi, pose substantial risks, and is
this use of funds not in accordance with the expectations of shareholders?

A6. Real estate is positioned as a business to increase our corporate value, and inregard to large sites with high potential, such as Tamachi, we are focused on development with limited risk following initiatives to increase value, such as rezoning andurban planning. In addition, we will also advance initiatives as an energy enterprise,such as the introduction of advanced energy systems. In regard to other idle realestate, we will make decisions on a case-by-case basis, with options including use
within the Group or disposal.

Reference

In regard to major risks related to the Group’s operations and items for which there is a possibility of a significant influence on investment decisionsof investors, please refer to the Risks of Business section of the Consolidated Financial Results Bulletin for the Fiscal Year Ended March 31, 2012
(J-GAAP)35

36 Corporate Governance

Earthquake and Disaster Countermeasures
Tokyo Gas is strengthening its earthquake and disaster countermeasures, which are divided into three categories:
preventive measures, emergency response measures, and restoration measures.

Preventive Measures

medium-pressure and low-pressure pipelines into multiple disasterWe have built production and supply facilities using advanced seis-

prevention blocks. In times of emergency, the supply to severely

mic design standards and we have doubled and tripled safety

damaged areas is cut off on a local basis, and the influence on otherprecautions. Our city gas production facilities have been built so thatblocks is minimized.

they are capable of withstanding earthquakes on a scale similar to
the Great Hanshin-Awaji Earthquake (M7-class earthquakes). In our

Division of the low-pressure
pipeline network(179 low-pressure blocks)

underground tanks, the surface level of the liquid is always below
ground level. Consequently, even in the unlikely event of a crack or
break in a tank, the LNG could not seep outside. Tokyo Gas uses
high-pressure and medium-pressure pipelines made from welded

Division of the medium-pressure
pipeline network(15 medium-pressure blocks)

steel pipes that provide exceptional strength and flexibility. In boththe Great Hanshin-Awaji Earthquake and the Great East Japan

Disaster prevention blocks

Earthquake, the pipes exhibited
Underground tanks

excellent earthquake resistance.

Emergency Response Measures
Safety equipment on gas meters (microcomputer controlled) auto-

Restoration Measures

matically stops the flow of gas when a gas leak or an earthquake

We have made thorough preparations to resume service as quickly

measuring five or more on the Japanese seismic intensity scale isas possible in areas where the supply of gas has been shut off. In

detected. In addition, we have installed emergency shutoff equip-

particular, under the auspices of the Japan Gas Association, a systemment to ensure safety in such locations as underground shopping

has been established to coordinate the cooperative efforts of gas

centers and tall buildings. This equipment makes it possible to shutcompanies from throughout Japan in the event of a major disaster.

off the gas supply for an entire underground shopping center or an

Following the Great East Japan Earthquake, the number of people

entire building.

who came from throughout the country to engage in restoration ac-

To maintain a stable supply of gas in as extensive an area as pos-

tivities under this system reached about 4,100 at one point.

sible while also preventing secondary damage, we have divided our

Toward the Realization of a Safe Gas Supply That Is Even More Resistant to Disaster Damage
Following the Great East Japan Earthquake, which caused damage on a scale that exceeded all expectations,
we have implemented the following principal countermeasures.

Measures to Prevent Damage from Earthquakes,
Tsunami, and Other Disasters.
As of 2020, we will aim to restore service within 30 days excluding
the most heavily damaged areas. (Assuming an earthquake on ascale similar to the Great Hanshin-Awaji Earthquake with an epicenter directly under the Tokyo metropolitan area, for which
restoration currently would take 55 days.)introduction of a remote restart system for governors (pressuretransformers)
At LNG terminals, we will strengthen countermeasures for earthquake, tsunami, etc., and implement new revetment liquefaction
countermeasures.

Power Failure Countermeasures･ We will further enhance the system of disaster prevention blocks

We will take steps to strengthen power failure countermeasures at

into which supply areas are divided when there is an earthquake.

plants, such as strengthening in-house power generation facilities,

Specifically, we will create more blocks and establish blocks withand prepare for unexpected situations, including earthquakes.

advanced earthquake resistance. In addition, we will establish
tsunami and liquefaction blocks. In this way, we will enhance ourability to minimize the areas in which supply is shut off when

Assuring Security

there is an earthquake. (By June 2012, the sub-division of theWe will accelerate the replace-

low-pressure network had been completed, creating 179 blocks.)

ment of old cast iron pipes and･ We will realize rapid restoration through the development andother old pipes with PE pipes.

PE pipes offer superior durability
and earthquake resistance.

Corporate Governance

Board of Directors and Corporate Auditors
As of June 28, 2012

Directors

Representative Director, President

Director, Chairman

Tsuyoshi Okamoto

Mitsunori Torihara
April
June

1967
2003

April
April

2006
2010

July
April
June

1972
2004
2007

April

2010

April
April

1975
2004

April
June
April

2006
2009
2012

April
April

1975
2005

April

2009

June

2011

Joined the Company
Representative Director, Executive Vice President, Division Manager of Strategic
Planning Div. and in charge of Internal Audit Dept. and Compliance Dept.
President, Representative Director, and Executive President
Director and Chairman of the Board

April
June
April

1970
2004
2007

April

2010

Joined the Company
Director, Senior Executive Officer and Division Manager of Strategic Planning Div.
Representative Director, Executive Vice President, and in charge of Personnel Dept.,
Secretary Dept., General Administration Dept., Compliance Dept., and Internal
Audit Dept.
President, Representative Director, and Executive President

Representative Director

Representative Director

Shigeru MurakiMichiaki Hirose

Joined the Company
Senior Executive Officer and Division Manager of R&D Div.
Director, Senior Executive Officer and Chief Executive of Energy Solutions Div. andGeneral Manager of Volume Sales Dept. of Energy Solution Div.
Representative Director, Executive Vice President, Chief Executive of Energy Solutions
Div. and General Manager of Volume Sales Dept. of Energy Solution Div.

April
April

1974 Joined the Company
2007 Senior Executive Officer and in charge of Corporate Planning Dept., Infrastructure
Project Dept., Finance and Managerial Accounting Dept., Accounting Dept. and Affiliated Companies Dept.
June2009 Director, Senior Executive Officer and in charge of Corporate Planning Dept.,
Corporate Communications Dept., and Affiliated Companies Dept.
January 2010 Director, Senior Executive Officer and in charge of Corporate Planning Dept., ProjectManagement Dept., Corporate Communication Dept. and Affiliated Companies Dept.
April
2012 Representative Director, Executive Vice President, Division Manager of Living
Energy Div.

Director

Director

Tsutomu Oya

Mikio Itazawa

Joined the Company
Executive Officer, General Manager of Urban Energy Business Dept. of Energy Sales
and Service Div. and Acting General Manager of Volume Sales Dept. of Energy Sales
and Service Div.
Senior Executive Officer and Chief Executive of Energy Resources Div.
Director, Senior Executive Officer and Chief Executive of Energy Resources Div.
Director, Senior Executive Officer, Division Manager of Energy Production Div.

April
June
April
April
June

1974
2003
2004
2007
2010

Joined the Company
General Manager of West Pipeline Business Dept. of Pipeline and Maintenance Div.
Executive Officer and General Manager of Pipeline Dept. of Pipeline Network Div.
Senior Executive Officer and Division Manager of Pipeline Network Div.
Director, Senior Executive Officer and Division Manager of Pipeline Network Div.

Director

Director

Kazuo Yoshino

Matsuhiko Hataba

Joined the Company
Executive Officer and General Manager of Finance and Managerial Accounting Dept.
of Strategic Planning Div.
Senior Executive Officer and General Manager of Investor Relations Dept., and in
charge of Finance & Managerial Accounting Dept., and Accounting Dept.
Director, Senior Executive Officer and Division Manager of Information Technology
Div., and in charge of Finance & Managerial Accounting Dept. and Accounting Dept.

April
April

1976
2006

April
June

2009
2012

Joined the Company
Executive Officer and General Manager of Human Resources Dept. of BusinessSupport Div.
Senior Executive Officer and Division Manager of Living Energy Div.
Director, Senior Executive Officer and in charge of Corporate Planning Dept.,
TG-Group Reorganization Project Dept. and Affiliated Companies Dept.

37

38 Corporate GovernanceOutside Directors

Outside Director

Outside Director

Yukio Sato

Ryuichi Tomizawa

April
1961 Joined the Ministry of Foreign Affairs
September 1998 Permanent Representative of Japan to the United Nations (Ambassador of Japanto the United Nations)February 2003 President of The Japan Institute of International Affairs
December 2004 Commissioner of National Public Safety Commission
February 2009 Vice Chairman of The Japan Institute of International Affairs (Current position)
June
2010 Outside Director of the Company

New Outside Director

Outside Director

Yoshihiko Nakagaki

April
April

1965 Joined Mitsubishi Kasei Industries Corporation (Current Mitsubishi Chemical Corporation)2000 President of Mitsubishi-Tokyo Pharmaceuticals, Inc. (Current Mitsubishi Tanabe
Pharma Corporation)
June
2002 Member of the Board, President and Chief Executive Officer of Mitsubishi Chemical
Corporation
October 2005 Member of the Board, President of Mitsubishi Chemical Holdings Corporation
April
2007 Member of the Board, Chairman of Mitsubishi Chemical Holdings CorporationJune
2011 Outside Director of the Company
June2012 Senior Corporate Advisor of Mitsubishi Chemical Corporation (Current position)

April
June

1961
1996

June
June

1998
2000

June

2001

June

2009

June

2012

Joined Electric Power Development Co., Ltd. (J-POWER)
Director and Department Director of Corporate Planning Dept. of Electric Power
Development Co., Ltd. (J-POWER)Managing Director of Electric Power Development Co., Ltd. (J-POWER)
Vice President and Representative Director of Electric Power Development Co., Ltd.
(J-POWER)
President and Representative Director of Electric Power Development Co., Ltd.
(J-POWER)
Corporate Advisor of Electric Power Development Co., Ltd. (J-POWER)(Current position)
Outside Director of the Company

Following the Great East Japan Earthquake, which occurred on March 11,

November 2011. It is my hope that the Company will venture to be an ideal

2011, it became painfully clear that Japan suffered from an overdependence

energy company; a company that benefits itself by fulfilling its mission of

on foreign countries for its primary energy resources. This cast light on theprotecting national interests. In particular, I think it is of the utmost importanceimportance of developing an optimally balanced portfolio consisting of various

for Tokyo Gas to practice management based on a long-term perspective.

different types of energy, and formulating a medium- to long-term vision for

While investment and other initiatives that involve incurring expense place

the management of this portfolio that considers such concerns as how

downward pressure on income over the short term, such efforts also result instable, low-cost procurement will be realized. At the same time, as members

long-term improvements in shareholder value. Not only must the Company

of a consuming nation, we need to think about how we will fulfill our

realize this itself, steps must also be taken to communicate this fact toresponsibility of reducing CO2 emissions. In Japan, we are faced with theshareholders. In addition, I feel that Tokyo Gas should avoid developing

need of addressing these two tasks, neither of which can be put off. A heavy

overseas businesses that only promise short-term returns and are riddled

responsibility has thus been handed to electricity and gas companies, whichwith risks. Rather, the Company should focus on solidifying the ground

serve as the main vessels through which these issues must be addressed.

beneath its feet so that it may steadily accelerate its growth into the future. In

Amidst this turbulence, Tokyo Gas has become a star of anticipation as it

other words, I want Tokyo Gas to minimize risks while realizing development

accelerates the expansion of overseas upstream projects in accordance withover the long term. To aid them in this quest, I will offer all the assistance thatits “Challenge 2020 Vision” long-term management vision, announced in

I can, based on the experience I have accumulated up until this point.

Auditors

April
April

1972
2004

April
June

2007
2009

Auditor

AuditorKunihiro Mori

Manabu Fukumoto

Joined the Company
Executive Officer and General Manager of Energy Production Dept. of Energy
Production Div.
Senior Executive Officer and assistant to Director of General Administration Dept.
Corporate Auditor of the Company

April
April

1975
2006

June

2009

June

2011

Joined the Company
Executive Officer and General Manager of General Administration Dept. of Corporate
Communication Div.
Senior Executive Officer and in charge of Purchasing Dept., Real Estate Management
Dept., Major Site Development Dept. and Internal Audit Dept.
Corporate Auditor of the Company

Corporate GovernanceOutside Auditors

April
April
June

1964
2002
2008

March 2009

Outside Auditor

Outside Auditor

Yukio Masuda

Masayuki Osawa

Joined Mitsubishi Corporation
Representative Director and Executive Vice President of Mitsubishi Corporation
Consultant of Mitsubishi Corporation (Current position)
Outside Corporate Auditor of the Company
Outside Director of Showa Shell Sekiyu K.K. (Current position)

April
October
April
June
June

1966
2006
2009
2009
2010

Joined the Yokohama City Hall
Senior Director of the Yokohama Chamber of Commerce & Industry
Administrative Director of Yokohama City Silver Human Resources Center
Outside Corporate Auditor of the Company
Outside Auditor of PACIFIC CONVENTION PLAZA YOKOHAMA (Current position)

New Outside Auditor
April
1969
October
2004
December 2011
June
2012

Joined Export-Import Bank of Japan
Vice Governor of Japan Bank for International Cooperation
Advisor of Sumitomo Mitsui Banking Corporation (Current position)
President of Japan Institute for Overseas Investment (Current position)
Outside Corporate Auditor of the Company

Outside Auditor

Yoshihiko Morita

We are currently immersed in an era characterized by rapid change. In Japan,

is placed in a unique position as it is both a public utility, which entails assum-

one notable change is the rising degree of attention that society is paying

ing a great deal of social responsibility, and a private company that has totoward energy companies. This concern is higher than ever, a trend that canpursue profits. Therefore, it must strike a balance between these two differing

be attributed to the energy-related issues that surfaced last year. As a leading

aspects of its operations if it is to achieve sustainable growth.

gas company in Japan, Tokyo Gas is in a prime position to spearhead efforts

Tokyo Gas employs over 16,000 people on a consolidated basis. As an

to reduce the importation prices for natural gas, which are high compared toorganization grows larger or as its operations spread to different areas, theother countries, and return the benefits of these reductions to consumers. It

range of problems that may occur obviously grows wider. For this reason, it

is extremely difficult to realize raw material price reductions in the short term.

is vital to establish a corporate culture of openness that facilitates problem

Regardless, I hope the Company will formulate solid plans for the future, andsolving both on a small scale and on the larger organizational scale. Further-

work toward realizing such price reductions through various overseas initia-

more, in the event that a serious issue with the potential of impacting corpo-

tives. Also, I feel the role Tokyo Gas must play in the present operating envi-

rate value were to occur, it is of course important for the company to takeronment is extremely important, as many believe that the future of energy will

steps to resolve this issue, but it is also equally important to quickly disclose

be centered on natural gas. Still, Tokyo Gas must be prudent in monitoring

the issue to the public. In fulfilling my duty as an outside auditor, I will pay

the rapidly diversifying range of risks as it undertakes the challenges that will

particular attention to promoting such levels of transparency, which I believe

allow it to live up to the expectations of its shareholders. Moreover, Tokyo Gas

are necessary in realizing sustainable growth.

Executive Officers
President
Executive Vice Presidents
Senior Executive Officers

Executive Officers

Tsuyoshi Okamoto
Shigeru MurakiMichiaki Hirose
Tsutomu Oya
Mikio Itazawa
Kazuo Yoshino
Matsuhiko Hataba
Koichi Aonuma
Yutaka Kunigo
Masahiro Mikami
Hideaki Obana
Hiroaki Kobayashi
Takashi Uchida
Satoru Yasuoka
Hiroaki Kubota
Hidefumi Takahashi
Yoshihiro Tanabe
Fumio Murazeki
Hideaki Arai
Masaru Takamatsu
Michiharu Takahashi
Fumihiko Hara
Kiyotada Den
Takahiro Saito

Chief Executive of Energy Solution Div., General Manager of Volume Sales Dept. of Energy Solution Div.
Chief Executive of Residential Sales Promotion Div.
Chief Executive of Energy Production Div
Chief Executive of Pipeline Network Div.
Chief Executive of Information Technology Div., in charge of Finance Dept., and Accounting Dept.
In charge of Corporate Planning Dept., TG-Group Reorganization Project Dept., and Affiliated Companies Dept.
Chief Executive of Housing Development Div.
Chief Executive of Energy Resources Div.
In charge of General Administration Dept., Corporate Communications Dept., and Environmental Affairs Dept.
In charge of Purchasing Dept., Real Estate Management Dept., and Major Site Development Dept.
Chief Executive of Technology Development Div.
In charge of Personnel Dept., Secretary Dept., Compliance Dept., and Internal Audit Dept.
Chief Executive of Regional Development Marketing Div.
General Manager of Information Technology Application Dept., Information Technology Div.
General Manager of Sales Marketing I Dept., Housing Development Div.
Dispatched to the Japan Gas Association
General Manager of Residential Sales Planning Dept., Residential Sales Promotion Div.
General Manager of Pipeline Dept., Pipeline Network Div.
General Manager of Corporate Planning Dept.
Coordinator of Energy Solution Div.
General Manager of LIFEVAL Project Management Dept., Residential Sales Promotion Div.
General Manager of Personnel Dept.
General Manager of Facility Engineering Business Dept.

3940 Management’s Discussion and Analysis
Management’s Discussion and Analysis
Summary

Under the gas rate adjustment system, fluctuations in the price ofIn the fiscal year under review, ended March 31, 2012, gas sales

crude oil can take as long as five months before they are reflected in gas

volume increased 3.0% year on year, to 15,190 million m3, owing torates. For this reason, while fluctuation in crude oil prices can cause

high demand for gas for power generation purposes following theshort-term fluctuations in the Company’s earnings and operating ex-

Great East Japan Earthquake, which occurred on March 11, 2011.

penses, particularly on an individual fiscal year basis, the long-term per-The rise in gas sales volume, together with an increase in gas

cussions are minimal.

unit prices under the gas rate adjustment system, pushed up

In the fiscal year under review, the JCC was consistently high, ini-

sales of city gas. Also, full-year operation of the No.2 unit at the

tially remaining in the range of US$110–119 per barrel. While the priceOhgishima Power Station as well as strong demand for power

temporarily fell below US$110 per barrel in November 2011, it later

generation following the earthquake contributed to higher electricsoared to US$120 per barrel in March 2012. For the full fiscal year, thepower sales. Consequently, net sales climbed 14.3% year on

average was US$114.16 per barrel, up US$30.01 from the previous

year, to ¥1,754.2 billion. Operating expenses rose 18.7%, toyear. In foreign exchange rates, the yen remained at a high level, and the¥1,677.1 billion, as the higher price of LNG and increased gas

average yen–dollar exchange rate was ¥79.08 for the full fiscal year, re-sales volumes drove up raw material costs. As a result, operating

flecting the yen’s appreciation of ¥6.66 compared with a year earlier.

income decreased 37.1%, to ¥77.0 billion, and ordinary income

As a result, the year’s trends in crude oil prices had the effect ofwas down 37.8%, to ¥75.6 billion. Net income fell 51.8%, to ¥46.0

pushing up the Company’s LNG purchase price and contributing to in-billion, largely due to the rebound from last year’s recording ofcreases in sales and gas resource costs.

¥39.7 billion in extraordinary income from the sale of land in Toyosu and the reduction in deferred tax assets that accompanied aPrices of Crude Oil and LNG

change in tax systems.

US$/MMBtu

With respect to appropriations to shareholders, the Company
maintained its existing policy of a total payout ratio of 60%. Thismeans the sum of cash dividends and share repurchases will be
at least 60% of net income for the year.

Operating Environment in the Year under Review
Macroeconomic Conditions

US$/barrel

20

160

15

120

10

80

5

40

0

In the fiscal year under review, the Japanese economy experienced

11/4

5

6

7

8

9

10

11

12

12/1

2

3

10

11

12

12/1

2

3

0

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

harsh conditions due to the lingering impacts of the Great East Japan
Earthquake. In this environment, a gradual trend toward recovery wasseen centered on domestic demand. Following the earthquake, Japan’s
energy market is now faced with the tasks of addressing the electricity
shortages in the Tokyo metropolitan area in the short term, and reevalu-

Yen–Dollar Exchange Rate
Yen/US$
90

ating energy’s role in society from a medium- to long-term perspective.
Against this backdrop, natural gas, which is known to be easier to supply and more economically sound, convenient, and environmentally80

friendly, has been gathering a great deal of attention from society. In
particular, industrial demand, or in other words sales volumes of natural
gas for power generation purposes, increased greatly year on year. This

70

11/4

5

6

7

8

9

can be attributed to a rise in demand from independent power producers (IPPs), power producer and suppliers (PPSs), and other power providers; higher demand for gas to be used in customers’ in-housecogeneration systems; and full-year contributions from the No.2 unit at

Analysis of the City Gas Businessthe Ohgishima Power Station, in which the Company is investing.

Sales increased year on year across three sectors (residential,
industrial, and wholesale), while sales in the commercial and oth-Influence of Fluctuating Oil Prices and Foreign Exchange Rates

ers sectors declined due to residual impacts of the earthquake.

on the Company’s Operations

Residential Sector

The purchase price of LNG, which accounts for the majority of the re-

There was a decline in sales volume per customer due to a decrease insources used in the Group’s core city gas business, is linked to the Ja-

the number of household occupants and the accelerated movement

pan Customs-cleared Crude price (hereafter JCC). It is therefore

toward energy and electricity saving. However, there was a rise in cus-

exposed to risks related to fluctuations in crude oil prices. In addition,

tomers’ higher demand for hot water and indoor heating that followed

since contracts are denominated in U.S. dollars, earnings are at risk

the cold winter. Accordingly, residential demand grew 0.5%, to 3,538

from fluctuations in the yen–dollar exchange rate.

million m3.

Management’s Discussion and Analysis

Commercial and Others Sector

Net Income and Net Income per Share (Years ended March 31)

While customer numbers were up, trends such as the shortening of¥ billion

work hours and cancelling of school that followed the earthquake re-

120

60

90

45

60

30

30

15

sulted in decreased operating times of facilities. Consequently, commercial demand declined 7.1%, to 2,827 million m3.
Industrial Sector
Year-long contributions from the No.2 unit at the Ohgishima Power Station, higher usage of cogeneration and in-house generation systems following the earthquake, and demand from general industry that wasbuoyed by moderate economic recovery resulted in a 9.9% increase in

0

¥

08

09

10

11

0

12

Net income (left)
Net income per share (right)

industrial demand, to 6,856 million m3.
(Reference) Comprehensive Income (¥ million)
Wholesale Sector

Years ended March 31

As a result of increased demand from other gas utilities, wholesale sup-Income before minority interests

plies grew 1.2%, to 1,970 million m3.

Other comprehensive income

As a result, the overall gas sales volume increased 3.0%, or 445
million m3, to 15,190 million m3.

Valuation difference on available-for-salesecurities
Deferred gains or losses on hedges

Gas Sales Volume by Sector (Years ended March 31)
16,00012,0008,000

2012

96,07047,329(5,375)86(604)(1,783)(7,095)(4,266)

Share of other comprehensive income ofassociates accounted for using equity
method(2,554)(2,129)Total other comprehensive income(15,630)(8,092)Comprehensive income

80,44039,237

Foreign currency translation adjustment

Million m3, 45MJ/m3

2011

4,000
0

08
Residential

09

10

Commercial and others

11
Industrial

12
Wholesale

Analysis of Segments
City Gas Sales
Tokyo Gas and certain consolidated subsidiaries conduct sales of city

Analysis of Income and Expenses

gas. Not only is such gas provided to general customers, it is also soldto the Group’s power plants. (External sales ratio: 93.4%)

Sales and income up
In the fiscal year under review, gas sales increased 14.9%, or ¥169.2

Gas Appliances and Installation Workbillion, to ¥1,306.2 billion, due to higher gas unit prices under the gas

We sell gas cooktops, water heaters, gas air conditioning systems thatrate adjustment system and a 3.0% rise in gas sales volume. As a result,use hot water, “ENE-FARM” residential fuel cells, gas heat pump air

total net sales rose 14.3%, or ¥219.0 billion, from the previous year, toconditioning systems, and other products. These sales are mainly han-

¥1,754.2 billion.

dled by Tokyo Gas LIFEVAL, Enesta, and Enefit, which represent the

Operating expenses increased 18.7%, or ¥264.4 billion, to ¥1,677.1

core of Tokyo Gas’ community-based marketing system. We also installbillion, following a ¥189.3 billion increase in raw material costs due togas pipes and valves in properties owned by customers in our service

higher LNG prices and gas sales volumes. As a result, operating income

area. (External sales ratio: 92.2%)

decreased 37.1%, or ¥45.4 billion, to ¥77.0 billion.
Ordinary income decreased 37.8%, or ¥45.9 billion, to ¥75.6 billion,

Other Energies

as foreign exchange gains of overseas subsidiaries declined ¥1.0 billion

This segment’s operations consist of business relating to energy

and income from weather derivatives fell ¥0.9 billion.

services (including LNG sales), LPG, electric power, industrial gas, andIn the fiscal year under review, we experienced the rebound from last

others. (External sales ratio: 85.9%)

year’s recording of ¥39.7 billion in extraordinary income from the sale ofA large percentage of this segment’s sales comes from the electric

land in Toyosu to the Tokyo Metropolitan Goverment and a ¥4.4 billion

power business and in the fiscal year under review the No.2 unit at the

reduction in deferred tax assets that accompanied a change in tax sys-

Ohgishima Power Station contributed to sales throughout the full year.

tems. As a result, net income was down 51.8%, or ¥49.4 billion, to ¥46.0

As a result, segment sales were up 45.0% year on year, or ¥31.6 billion,

billion. Further, on a non-consolidated basis, Tokyo Gas recorded slideto ¥101.8 billion, and operating income rose 30.7%, or ¥1.9 billion, totime lag effect of ¥18.1 billion and amortization of actuarial differences of¥7.9 billion.

¥22.7 billion, which placed downward pressure on operating income.

41

42 Management’s Discussion and Analysis

Real Estate

Financial Position

This segment includes mainly leasing and management of land andAssetsbuildings. Major properties include the Shinjuku Park Tower and land

At fiscal year-end, total assets amounted to ¥1,863.8 billion, up 1.9%, orand buildings in such areas as Ginza and Gofukubashi. (External sales¥34.2 billion, from a year earlier. Total property, plant and equipment

ratio: 35.7%)

declined 1.3%, or ¥14.7 billion, to ¥1,105.5 billion, due to progressive
depreciation. Total intangible assets jumped 18.4%, or ¥7.6 billion, toOther¥48.7 billion, due mainly to investments in software. Total investments

This segment includes information processing, shipping, credit and leas-and other assets declined 4.5%, or ¥10.2 billion, to ¥218.7 billion, fol-ing, and construction. (External sales ratio: 49.7%)

lowing a decrease in investment securities.

Business Results by Segment (¥ million)
Sales

billion. This is primarily attributable to the fact that notes and accounts

Total current assets increased 11.7%, or ¥51.5 billion, to ¥490.8
receivable–trade rose 32.4%, or ¥51.8 billion, to ¥211.9 billion, which

Years ended March 31

2011

2012

offset the decline in cash and deposits of 11.2%, or ¥10.2 billion, to

1,137,077

1,306,262

Gas appliances and installation work

177,472

187,628

Other energies

221,292

302,593

Real estate

32,797

29,675

Other

162,302

181,880

liabilities increased 7.6%, or ¥49.2 billion, to ¥695.9 billion, due to in-

Total

1,730,942

2,008,040

creases in bonds payable of 6.4%, or ¥20.0 billion, and in long-term

Adjustments(195,699)(253,782)

loans payable of 23.0%, or ¥43.3 billion. Total current liabilities rose

Consolidated

1,535,242

1,754,257

City gas sales

Sales figures for each segment include intersegment transactions.

Liabilities
Total liabilities at the end of the fiscal year stood at ¥1,008.7 billion, up
5.6%, or ¥53.2 billion, from the previous fiscal year end. Total noncurrent

1.3%, or ¥4.0 billion, to ¥312.8 billion, as a result of an increase in notes
and accounts payable–trade of 21.6%, or ¥16.5 billion, to ¥92.6 billion,
which offset the declines in current portion of noncurrent liabilities of
10.5%, or ¥5.1 billion, to ¥43.6 billion, and in other current liabilities ofOperating Income
Years ended March 31

2011

2012

136,181

97,404

Gas appliances and installation work

1,872

3,129

Other energies

11,166

10,924

Real estate

5,713

3,301

Other

9,907

7,066

Total

164,841

121,826

Adjustments(42,389)(44,751)

Consolidated

122,451

77,075City gas sales

Operating income figures for each segment include intersegment transactions.

2.9%, or ¥4.0 billion, to ¥129.2 billion.
Net Assets
Total net assets decreased 2.2%, or ¥18.9 billion, to ¥855.1 billion. This
was a result of the 1.4%, or ¥11.6 billion, decrease in total shareholders’equity following the recording of purchase of treasury stock of ¥34.0
billion and dividends from surplus of ¥23.6 billion, which offset net income of ¥46.0 billion.
Changes in Treasury Stock
In the fiscal year under review, treasury stock decreased 6.7%, or ¥0.2
billion, to ¥2.1 billion, as the Company cancelled all 93,478 thousands
shares of treasury stock acquired through market purchase.

Contribution to Net Sales by Segment
Years ended March 31¥80.1 billion.

2011

2012

ChangeCity gas sales

65.6%

65.0%

–0.6 point

Gas appliances andinstallation work

10.3%

9.3%

–1.0 pointdue the recording of purchase of treasury stock of ¥34.0 billion andOther energies

12.8%

15.1%

+2.3 points

dividends from surplus of ¥23.6 billion, which offset net income of ¥46.0

Real estate

1.9%

1.5%

–0.4 point

billion. As total assets rose 1.9%, or ¥34.2 billion, to ¥1,863.8 billion, the

Other

9.4%

9.1%

–0.3 point

Equity Ratio
Total equity decreased 2.3%, or ¥19.8 billion, to ¥839.1 billion. This wasequity ratio declined 1.9 percentage points, to 45.0%.
Interest-Bearing Debt
In the year under review, total interest-bearing debt increased 7.1%, or¥41.7 billion, to ¥625.8 billion As a result, the D/E ratio rose 0.07 point,
to 0.75.

Management’s Discussion and Analysis

Credit Ratings

As of March 31, 2012

Moody’s

Aa3

High creditworthiness and very low credit risk to meetlong-term obligations.

S&P

AA–

Very strong capacity to meet obligations. Difference
from the highest rating, AAA, is small. (Plus and minus
signs indicate relative standing within each rating category.)

Cash Flows from Investment Activities
Net cash used in investing activities was ¥101.8 billion, compared with
¥172.3 billion in the previous fiscal year. This can mainly be attributed to

R&I

AA+

Very high creditworthiness supported by some excellent factors.

JCR

AAA

The highest level of capacity of the obligor to honor its
financial commitment on the obligation.

proceeds from sales of noncurrent assets of ¥46.4 billion, up ¥45.8 billion, and a decrease in purchase of investment securities of ¥20.6 billion,to ¥1.1 billion.
Cash Flows from Financing Activities
Net cash used in financing activities was ¥16.4 billion, compared with
¥7.2 billion in the previous fiscal year. While proceeds from long-termloans payable increased ¥50.9 billion, to ¥68.2 billion, decrease in com-

Total Equity and Equity Ratio (At March 31)

mercial papers was ¥15.0 billion, compared with increase in commercial¥ billion

%

1,000

50

800

40

600

30

400

20

Operating Cash Flow

200

10

Aiming to aggressively invest in the gas business to prepare for future0

growth in demand, Tokyo Gas has made operating cash flow a key

0

08

09

10

11

12

papers of ¥15.0 billion in the previous fiscal year; purchase of treasury
stock was up ¥25.7 billion, to ¥34.0 billion; and redemption of bonds
increased ¥10.0 billion, to ¥30.0 billion.

management indicator and has disclosed its allocation policy. Operating

Total equity (left)
Equity ratio (right)

cash flow is calculated by adding depreciation to net income.
Operating cash flow for the fiscal year ended March 31, 2012,

Interest-bearing Debt and D/E Ratio (At March 31)

amounted to ¥194.5 billion, a year-on-year decrease of ¥50.3 billion.

¥ billion

Times

800

0.8

600

0.6

400

0.4

200

0.2

0

0

The lower figure reflects a ¥49.4 billion decrease in net income and a¥0.8 billion decrease in depreciation.
Total Payout Ratio
Tokyo Gas has set an objective of a 60% total payout ratio, which means
to return 60% of net income to shareholders, as an indicator of its commitment to shareholder returns. Specifically, we define this new indicator

08

09

10

11

12

Interest-bearing debt (left)
D/E ratio (right)

as the ratio of the sum of the income 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 ¥9.00 per share for the fiscal year

Capital Expenditures and Depreciation

ended March 31, 2012, unchanged from the previous year, and share

Capital expenditures decreased 2.5%, or ¥3.8 billion, to ¥146.4 billion.

repurchases of ¥50.0 billion in the fiscal year ending March 31, 2013. As

This was largely due to the absence of the investments recorded lasta result, the total payout ratio for the fiscal year ended March 31, 2012,

year in the Ohgishima Power Station, which commenced operations

was 61.4%.

during the previous fiscal year. Similarly, depreciation was down 0.6%,
or ¥0.8 billion, to ¥148.5 billion.

Cash FlowsIn regard to dividends, we maintained dividends at ¥9.00 per share.
In the future, our priority is to ensure stable dividends, with consideration
for gradual increases over the long term and without reducing dividends.
With respect to share repurchases, our basic principle is to cancel

Cash Flows from Operating Activities

the shares. In the fiscal year ended March 31, 2012, we purchased

Net cash provided by operating activities decreased ¥12.5 billion year

treasury stock totaling ¥50.0 billion, and these shares were cancelled inon year, to ¥149.8 billion. This was primarily due to a decline in income

June 2012.

before income taxes of ¥80.8 billion, to ¥74.6 billion, and a rise in increase of notes and accounts receivable–trade of ¥45.3 billion, to ¥52.3
billion. These factors outweighed the recording of increase in notes andaccount payable–trade of ¥21.8 billion, compared with decrease innotes and account payable–trade of ¥52.5 billion in the previous fiscal
year, and a decline in decrease in provision for retirement benefits of¥22.9 billion, to ¥11.2 billion.

Millions of yen
Years ended March 31

Net cash provided byoperating activities
Net cash used in investment
activities
Net cash provided by(used in) financing activities

2010

2011

2012

294,110

162,345

149,818(177,290)(172,305)(101,810)(69,375)(7,212)(16,454)43

44 Management’s Discussion and Analysis

Key Management Indicators

Residential Sector

ROA and ROE worsened due to lower net income.

The rebound from the weather-related benefits experienced in the fiscal

ROA

year under review will likely result in gas sales volumes to the residential

The average balance of total assets remained relatively unchanged,

sector declining 2.1%, to 3,464 million m3.

however net income dropped 51.8% year on year, to ¥46.0 billion. AcCommercial and Others Sector

cordingly, ROA declined 2.7 percentage points, to 2.5%.

Due to the absence of the weather-related benefits seen in the fiscal
ROE

year under review, gas sales volumes to the commercial and others sec-

The average balance of total equity increased, while net income dropped

tor are projected to decrease 2.3%, to 2,763 million m3.

51.8% year on year, to ¥46.0 billion. As a result, ROE declined 6.0 perIndustrial Sector

centage points, to 5.4%.

While changes in electricity schemes will result in a decline in sales volTEP

umes of 395 million m3, our ability to capture new demand will soften thisOur goal is to generate profit in excess of capital costs. This is reflected

decline and overall sales volumes of gas to the industrial sector will de-in our adoption of Tokyo Gas Economic Profit (TEP: Net operating prof-

crease only 2.4%, or 162 million m3, to 6,694 million m3. If gas used for

it after tax prior to interest payments minus the cost of capital) as one of

the electricity business is included in this calculation, the figure will actu-

our main management indicators.

ally show an increase of 3.4%, or 233 million m3.

In the fiscal year ended March 31, 2012, net operating profit after
tax prior to interest payments (NOPAT) was ¥55.3 billion, the weighted

Wholesale Sector

average cost of capital (WACC) remained unchanged, at 3.1%, and theSales volumes of gas to the wholesale sector are expected to de-cost of capital was ¥46.2 billion. Consequently, TEP was ¥9.1 billion.

crease 0.3%, to 1,965 million m3, following a decline in large-scale
wholesale sales.

ROA and ROE (Years ended March 31)

Consolidated Gas Sales Volume Forecasts%

Million m3, 45MJ/m3
1218,000912,000
6
6,000

3
0

08

09

10

11

12

ROA
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)012Effect of changes in electric power business scheme
Commercial
Industrial
Wholesale

13
Residential

We forecast increases in sales and income in the fiscal year

TEP (Years ended March 31)

ending March 31, 2013.

¥ billion

In the fiscal year ending March 31, 2013, we expect consolidated net

70
60

sales to increase 9.1%, or ¥159.8 billion, to ¥1,914.0 billion; operating

50

income to rise 28.4%, or ¥22.0 billion, to ¥99.0 billion; and net income40

to grow 36.8%, or ¥17.0 billion, to ¥63.0 billion.

30
20

In the fiscal year ended March 31, 2012, ordinary income was ¥75.6

10

billion, but in the fiscal year ending March 31, 2013, we forecast an in-

0–10crease of 26.9%, or ¥20.4 billion, to ¥96.0 billion. Principal factors in08

09

10

11

12

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

clude a ¥15.1 billion year-on-year increase in non-consolidated ordinary
income of Tokyo Gas, a ¥0.1 billion rise in ordinary income of consolidated subsidiaries, and a ¥5.2 billion increase due to consolidated ad-

Forecasts (Announced on April 27, 2012)justments.
On a non-consolidated basis, Tokyo Gas is expected to record a

Gas Sales Volumes
Following changes in electricity schemes, gas sale volumes in the fiscal¥15.1 billion year-on-year increase in ordinary income in the fiscal year

year ending March 31, 2013, are forecasted to decrease 2.0% year on

ending March 31, 2013. While revenues will be negatively impacted by

year, or 304 million m , to 14,886 million m . However, if gas used for the

reduced gas rates, the expected increase in sales stemming from highelectricity business is included in this calculation, the figure will actually

gas unit prices under the gas rate adjustment system should outweighshow an increase of 0.6%, or 95 million m3, to 15,383 million m3.

the impacts of higher material prices stemming from rising crude oil

33Management’s Discussion and Analysis

prices and the appreciation of the Japanese yen, leading to a ¥18.0 bil-Temperature Fluctuation Risk

lion increase in gross profit on gas. Contributing to this increase, theTemperatures affect the volume of city gas sales, which account forslide time lag under the gas rate adjustment system is expected to drivearound 70% of consolidated sales. In the residential sector, gas is used

up profits by ¥31.3 billion. In addition, amortization of pension actuarial

mainly for water heating and indoor heating. Mild winter weather candifferences will worsen ¥1.3 billion, but lower depreciation due to tax

erode revenues and income by reducing the volume of gas sold. In thesystem revisions will result in a ¥4.7 billion decline in fixed costs.

commercial and others sector, gas is mainly used for air conditioning

Ordinary income of consolidated subsidiaries is projected to be almost unchanged, rising only ¥0.1 billion.

systems, so if temperatures are low in the summer or high in the winter,such temperature fluctuations can erode revenues and income by reducing the volume of gas sold.

External Risks Affecting Business Activities

The average temperatures in the fiscal year ended March 31, 2012,

The following is a list of some of the risks that could impact the Com-

were 22.6°C in the first half of the year, 10.2°C in the second half, andpany’s business. However, this is only a partial list. For a more complete

16.4°C for the whole year. Forecasts for the fiscal year ending March 31,

list of risks, please refer to the Company’s Yuho securities report (Japa-

2013, are based on an average of 16.7°C for the whole year.

nese only).
Impact of 1ºC Temperature Rise on Overall Gas Sales Volume
Gas Resource Purchase Price Fluctuation Risk
The extent to which fluctuations in exchange rates and crude oil prices will affect gross profit in the fiscal year ending March 31, 2013, is
as follows.
Exchange rate:

Approximately ¥1.6 billion down (up) withRate of change

Summer (June–September)–0.2%

Winter (December–March)–2.4%

Intervening months (April, May, October, November)–1.9%

Annual

–1.6%

depreciation (appreciation) of ¥1/dollar
Crude oil price:

Approximately ¥1.1 billion down (up) with anincrease (decrease) in crude oil price of US$1/barrel

Monthly Gas Sales Volume for the Fiscal Year Ended March 31,
2012 (Non-consolidated)
Million m3, 45MJ/m3
2,000

In the fiscal year ended March 31, 2012, the average exchange rate
was ¥79.08 to one dollar, and the crude oil price averaged US$114.16
per barrel. Forecasts for the fiscal year ending March 31, 2013, are

1,500
1,000

based on an exchange rate of ¥85.00 to one dollar and an average
crude oil price of US$120.00 per barrel.

500
0

11/4

5

6

Residential

7

8

9

Commercial and others

10

11

12

Industrial

12/1

2

3

Wholesale

Ordinary Income Plan for Fiscal Year Ending March 31, 2013: Analysis of Factors (Year on Year)(Announced on April 27, 2012)

Note: (+) & (–) refer to contributions to income.

FY2011¥75.6 billion

Increase in gas gross margin (slide time lag effect +¥31.3 billion)

Decrease in fixed costs
FY2012(forecast)¥96.0 billion+¥18.0 billion

Net sales:+¥119.5 billion(Gas sales volume & composition +¥3.4 billion, slide time lag +¥129.0 billion, Gas tariff revisions, etc. –¥12.9 billion)
Gas resource costs:–¥101.5 billion(Amount & composition –¥3.1 billion, Foreign exchange –¥51.5 billion, JCC –¥51.3 billion, Others +¥4.4 billion)

Tokyo Gas
(Non-consolidated)+¥15.1 billion+¥4.7 billion

General expenses increased:–¥0.6 billion(Repair cost +¥2.4 billion, taxes increased –¥1.8 billion, Consignment costs –¥1.0 billion, etc.)
Personal expenses decreased:+¥0.2 billion
Depreciation and amortization decreased:+¥5.0 billion and others(effect of tax system revisions +¥11.8 billion, Increased depreciation from acquisition –¥6.8 billion)

Decrease in other operation/supplementary income–¥2.2 billion

Appliance sales –¥1.4 billion, Electric power –¥1.2 billion and others

Decrease in non-operating income–¥5.5 billion(–) Decreased in Premature repayment adjustments –¥2.4 billion, decrease in dividends from subsidiaries andaffiliates received –¥2.1 billion and others

Change+¥20.4 billion

Consolidated subsidiaries+¥0.1 billion
Internal offset, etc.
+¥5.2 billion(+) Nijio +¥0.9 billion (Sales increased)(–) Tanker –¥0.7 billion (Cost increased)
Elimination of dividends income +¥5.1 billion

45

46 Consolidated Financial Statements
Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 2012 and 2011
AssetsThousands of
U.S. dollars

Millions of yen

2011

2012

2012

Production facilities¥ 180,446¥ 171,318$ 2,064,072

Distribution facilities

461,109475,2625,726,048

Noncurrent assets
Property, plant and equipment

Service and maintenance facilities

62,14962,740755,904

Other facilities

318,239304,245

3,665,602

447

316

3,807

97,85091,705

1,104,880

1,120,243

1,105,587

13,320,325

Goodwill

1,198

741

8,928

Other

39,94447,987578,157

41,143

48,729587,096

Investment securities

137,456

131,305

1,581,988

Long-term loans receivable

21,34024,164291,133

Deferred tax assets

39,08535,060422,410

Other

31,92828,926

348,506

(909)

(750)

(9,036)228,900

218,706

2,635,012

1,390,286

1,373,023

16,542,446

Cash and deposits

90,30280,149965,651

Notes and accounts receivable — trade160,128

211,969

2,553,843

Lease receivables and lease investment assets

26,78927,751

334,349

Short-term investment securities

5,006

44,006

530,193

Inactive facilities
Construction in progress
Total property, plant and equipment

Intangible assets

Total intangible assets

Investments and other assets

Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets

Current assets

Merchandise and finished goods

3,591

3,538

42,627Work in process

8,937

10,734

129,325

Raw materials and supplies

36,45142,700514,458

Deferred tax assets

15,624

12,499150,590

Other

93,08958,161

700,735

(546)

(649)

(7,819)Allowance for doubtful accounts
Total current assets
Total assets

439,374

490,861

5,913,988¥1,829,661¥1,863,885$22,456,446* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥83 per U.S. dollar, the prevailing exchange rate on March 30, 2012. 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.

Consolidated Financial Statements

Thousands of
U.S. dollars

Millions of yen

Liabilities and net assets

2011

2012

2012

¥ 311,492¥ 331,493$ 3,993,892

Long-term loans payable

188,239

231,520

2,789,398

Deferred tax liabilities

17,33012,229147,337

Provision for retirement benefits

96,87085,5781,031,060

Provision for gas holder repairs

3,565

3,268

39,373—2,217

26,711

Asset retirement obligations

3,679

4,679

56,373

Other

25,53524,931

300,373

646,713695,920

8,384,578

Current portion of noncurrent liabilities

48,765

43,631

525,675

Notes and accounts payable — trade76,18092,6601,116,386

Short-term loans payable

17,825

16,599199,988

Noncurrent liabilities
Bonds payable

Provision for safety measures

Total noncurrent liabilities

Current liabilities

Income taxes payable

32,79530,479367,217

Deferred tax liabilities

6

6

72

Asset retirement obligations

77

199

2,398

133,203129,288

1,557,687

Total current liabilities

308,853

312,864

3,769,446

Total liabilities

955,567

1,008,785

12,154,036

141,844

141,844

1,708,964

Legal capital surplus

2,065

2,065

24,880Retained earnings

718,439

706,620

8,513,494

Other

Net assets
Shareholders’ equity
Capital stock*

Treasury stock**
Total shareholders’ equity(2,355)(2,196)(26,458)

859,994

848,333

10,220,880

14,78814,853

178,952

Accumulated other comprehensive income
Valuation difference on available-for-sale securities

1,145(1,370)(16,506)

Foreign currency translation adjustment(17,008)(22,649)(272,880)

Total accumulated other comprehensive income(1,073)(9,166)(110,434)

15,174

15,933

191,964

Deferred gains or losses on hedges

Minority interests

Total net assets
Total liabilities and net assets* Capital stock
Common stock
Authorized:
6,500,000,000 shares
Issued:2,590,715,295 shares as of March 31, 2012 / 2,684,193,295 shares as of March 31, 2011** Treasury stock: 6,005,359 shares as of March 31, 2012 / 5,899,491 shares as of March 31, 2011

874,094

855,100

10,302,410¥1,829,661¥1,863,885$22,456,446

47

48 Consolidated Financial Statements

Consolidated Statements of Income
Years ended March 31, 2012 and 2011

Thousands of
U.S. dollars

Millions of yen

2011

2012

2012

¥1,535,242¥1,754,257$21,135,627

Cost of sales

974,7811,215,427

14,643,699

Gross profit

560,460

538,829

6,491,916

374,919393,689

4,743,241

Net sales

Selling, general and administrative expenses
Supply and sales expenses

63,09068,064820,048

438,009461,754

5,563,301

122,451

77,075

928,614

Interest income

1,215

1,368

16,482

Dividends income

1,541

1,798

21,663Equity in earnings of affiliates

3,605

4,989

60,108Rent income

1,641

1,628

19,614

Miscellaneous income

8,891

5,783

69,675

16,895

15,568

187,566

Interest expenses

9,689

10,184

122,699

Adjustments of charges for construction of distribution facilities

2,361

2,567

30,928General and administrative expenses
Total selling, general and administrative expenses
Operating income
Non-operating income

Total non-operating income
Non-operating expenses

Miscellaneous expenses
Total non-operating expenses
Ordinary income

5,747

4,272

51,47017,79817,023205,096

121,548

75,620911,084

39,9273,010

36,265Extraordinary income
Gain on sales of noncurrent assets

726

—

—

40,6533,010

36,265

Impairment loss

834

1,143

13,771

Loss on disaster

3,268

—

—

—

2,833

34,133

2,100

—

—

503

—

—

Gain on sales of investment securities
Total extraordinary income
Extraordinary losses

Loss on reduction of noncurrent assets
Loss on valuation of investment securities
Product compensation extraordinary expenses

6,707

3,977

47,916

Income before income taxes

155,494

74,654899,446

Income taxes — current

27,522

22,704

273,542

Total extraordinary losses

Income taxes — deferred
Total income taxes
Income before minority interests
Minority interests in income
Net income¥

31,901

4,620

55,66359,42427,324329,205

96,07047,329570,229

603

1,268

15,277

95,467¥46,060Yen$

554,940
U.S. dollars

2011

2012

2012

¥35.63¥17.70

$0.21

9.00

9.00

0.11

Amounts per share of common stock
Net income
Cash dividends applicable to the year

* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥83 per U.S. dollar, the prevailing exchange rate on March 30, 2012. 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.

Consolidated Financial Statements

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2012 and 2011
Shareholders’ equity
Capital stock
Balance at the beginning of current period
Changes of items during the period
Total changes of items during the period
Balance at the end of current period
Legal capital surplus
Balance at the beginning of current period
Changes of items during the period
Changes of items during the period
Balance at the end of current period
Retained earnings
Balance at the beginning of current period
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 current period
Treasury stock
Balance at the beginning of current 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 current period
Total shareholders’ equity
Balance at the beginning of current period
Changes of items during the period
Dividends from surplus
Net income
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Total changes of items during the period
Balance at the end of current period
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Balance at the beginning of current 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 current period
Deferred gains or losses on hedges
Balance at the beginning of current 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 current period
Foreign currency translation adjustment
Balance at the beginning of current 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 current period
Total accumulated other comprehensive income
Balance at the beginning of current 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 current period
Minority interests
Balance at the beginning of current 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 current period
Total net assets
Balance at the beginning of current period
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 current period

Thousands of
U.S. dollars

Millions of yen

2011

2012

2012

¥141,844¥141,844$ 1,708,964—
141,844—
141,844—
1,708,964

2,065

2,065

24,880

—
2,065

—
2,065

—
24,880657,387

718,439

8,655,892(25,549)
95,467(1)(7,919)(943)
61,052
718,439(23,683)
46,060—(34,196)—(11,819)
706,620(285,337)
554,940—(412,000)—(142,398)
8,513,494(1,986)(2,355)(28,373)(8,314)
25
7,919
(369)
(2,355)(34,046)
8
34,196158(2,196)(410,193)
96
412,000
1,904(26,458)

799,310

859,994

10,361,373(25,549)
95,467(8,314)23(943)
60,683859,994(23,683)
46,060(34,046)
8—(11,661)
848,333(285,337)
554,940(410,193)
96—(140,494)
10,220,880

20,175

14,788178,169(5,386)(5,386)
14,78864
64
14,853771
771
178,952

1,690

1,145

13,795

(544)
(544)
1,145

(2,516)(2,516)(1,370)(30,313)(30,313)(16,506)(7,290)(17,008)(204,916)(9,717)(9,717)(17,008)(5,640)(5,640)(22,649)(67,952)(67,952)(272,880)

14,575(1,073)(12,928)(15,649)(15,649)(1,073)(8,092)(8,092)(9,166)(97,494)(97,494)(110,434)

12,404

15,174

182,819

2,769
2,769
15,174759
759
15,9339,145
9,145
191,964

826,291874,094

10,531,253(25,549)
95,467(8,314)23(943)(12,879)
47,803¥874,094(23,683)
46,060(34,046)
8—(7,333)(18,994)¥855,100(285,337)
554,940(410,193)
96—(88,349)(228,843)$10,302,410* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥83 per U.S. dollar, the prevailing exchange rate on March 30, 2012. 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.

4950 Consolidated Financial Statements

Consolidated Statements of Cash Flows
Years ended March 31, 2012 and 2011

Thousands of
U.S. dollars

Millions of yen

2011

2012

Income before income taxes¥ 155,494¥ 74,654

Depreciation and amortization

145,389

144,4382012

Net cash provided by (used in) operating activities

Impairment loss
Amortization of long-term prepaid expenses
Loss on retirement of property, plant and equipment
Loss (gain) on sales of noncurrent assets
Loss on reduction of noncurrent assets
Increase (decrease) in provision for retirement benefits
Increase (decrease) in provision for safety measures
Interest and dividends income$

899,446
1,740,217

834

1,143

13,771

3,946

4,067

49,000

3,248

2,917

35,145(39,849)(2,920)(35,181)—

2,833

34,133(34,104)(11,291)(136,036)

(184)

2,217

26,711(2,757)(3,166)(38,145)
122,699

Interest expenses

9,689

10,184Equity in (earnings) losses of affiliates(3,605)(4,989)(60,108)

Decrease (increase) in notes and accounts receivable — trade(7,095)(52,333)(630,518)

Decrease (increase) in inventories

8,181(7,960)(95,904)
263,699

Increase (decrease) in notes and accounts payable — trade(52,523)

21,887

Increase (decrease) in accrued consumption taxes(5,260)1,111

13,386

Decrease (increase) in accounts receivable — other

24,227(7,180)(86,506)(14,157)(871)(1,175)

Other, net(7,512)

5,323

64,133

Subtotal

197,248

179,759

2,165,771

Decrease (increase) in lease receivables and lease investment assets

Interest and dividends income received

6,900

10,140122,169

Interest expenses paid

(9,840)(10,217)(123,096)(31,963)(29,864)(359,807)

162,345

149,818

1,805,036

Payments into time deposits(5,847)(2,247)(27,072)

Proceeds from withdrawal of time deposits

7,115

3,435

41,386

Purchase of investment securities(21,737)(1,133)(13,651)

Purchase of property, plant and equipment(137,624)(124,063)(1,494,735)

Purchase of intangible assets(13,191)(16,323)(196,663)(47)(1,550)(18,675)

Purchase of long-term prepaid expenses(2,814)(1,354)(16,313)

Proceeds from sales of noncurrent assets

653

46,488560,096

Income taxes paid
Net cash provided by (used in) operating activities
Net cash provided by (used in) investment activities

Payments for transfer of business

Payments of long-term loans receivable(3,188)(7,053)(84,976)

Collection of long-term loans receivable

1,719

1,710

20,602Other, net

2,656

280

3,373

(172,305)(101,810)(1,226,627)

Net cash provided by (used in) investment activities
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable

8,915(1,225)(14,759)

Increase (decrease) in commercial papers

15,000(15,000)(180,723)

Proceeds from long-term loans payable

17,33968,258822,386

Repayment of long-term loans payable(33,541)(19,555)(235,602)

Proceeds from issuance of bonds

40,00040,000481,928

Redemption of bonds(20,000)(30,000)(361,446)

Purchase of treasury stock(8,314)(34,046)(410,193)

Cash dividends paid

(25,524)(23,671)(285,193)

Other, net(1,087)(1,213)(14,614)(7,212)(16,454)(198,241)

Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents(3,716)(1,518)(18,289)

Net increase (decrease) in cash and cash equivalents(20,889)

30,034

361,855

Cash and cash equivalents at beginning of year

112,868

92,0481,109,012

68

—

—

¥ 92,048¥ 122,083$ 1,470,880

Increase in cash and cash equivalents from newly consolidated subsidiary
Cash and cash equivalents at end of year

* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥83 per U.S. dollar, the prevailing exchange rate on March 30, 2012. 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.

Consolidated Subsidiaries andEquity–Method Affiliates

Editorial Policy

Consolidated Subsidiaries and Equity–Method Affiliates
As of March 31, 2012

Main Consolidated Subsidiaries
In fiscal 2011, the Company revised its editorial policy for its annual reports. The new policy calls for the stringent selection andconcentration of information, such as financial data, business strategy explanations, and information on other areas of impor-Company

Business

Capital(¥ million)

Equity owned
by Tokyo Gas(%)

FY2011 Net sales (¥ million)[% of outside sales]

Operating income(¥ million)

tance, to better facilitate investors’ efforts to analyze the Company. For additional information, please refer to the following tools

Tokyo Gas Urban Development
Co., Ltd.

Real estate leasing

11,867100.0

29,224and websites.

Ohgishima Power Co., Ltd.

Generation and supply of electricity

5,350

75.0

Nagano Toshi Gas Co., Ltd.

City gas business in Nagano Prefecture

3,800

89.2

ENERGY ADVANCE Co., Ltd.

Energy service, district heating and cooling, cogeneration orders, and maintenance

3,000

100.0

Gastar Co., Ltd.

Production, sales, and maintenance of gas appliances

2,450

66.7

29,700[43.7]

1,992

Tokyo LNG Tanker Co., Ltd.

Sea transport of LNG and LNG carrier leasing

1,200

100.0

17,118[35.1]

3,293

Tokyo Gas Energy Co., Ltd.

Sales of liquefied petroleum gas (LPG)

1,000

100.0

33,694[76.2]

5

Capty Co., Ltd.

Installation of gas supply lines, water supply anddrainage lines, air conditioning systems, new construction, and construction of gas mains and service
lines

1,000

100.0

54,649[33.6]

883

Tokyo Gas Chemicals Co., Ltd.

Sales of gas for industry and chemicals and development of LNG cryogenic utilization technology

1,000

100.0

18,264[71.9]

580

Chiba Gas Co., Ltd.

Supply of city gas to Yachiyo City, Narita City, andsurrounding cities

480

100.0

17,903[96.4]

799

TG Information Network Co., Ltd.

Information processing services, software development, and sales of computer equipment, etc.

400

100.0

19,608[2.9]

311

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services with a particularfocus on energy-related work

100

100.0

53,179[83.6]

2,965

Nijio Co., Ltd.

Procurement and sales of natural gas and electricity

47

100.0

66,939[21.1]

3,975

Details of Challenge Vision 2020
The Tokyo Gas Group’s Vision for Energy and the Future ~Challenge 2020 Vision~(Released November 2011)
http://www.tokyo-gas.co.jp/IR/english/library/pdf/vision/vision2020_01.pdf

CSR Activities
Tokyo Gas Group CSR Report
http://www.tokyo-gas.co.jp/csr/index_e.html

Financial and Industry Data (EXCEL Spreadsheet Data Available)[34.6]

4,276

59,933[25.2]

962

13,263[100.0]744

70,771[95.6]

744

Number of consolidated subsidiaries: 66

Investors’ Guide
http://www.tokyo-gas.co.jp/IR/english/library/invguid_e.html

Other Subsidiaries
TOKYO GAS AUSTRALIA PTY LTD, Tokyo Gas International Holdings B.V., Tokyo Gas Toyosu Development Co., Ltd., Tokyo Gas Bajio B.V., TOKYO GASDARWIN LNG PTY LTD, Park Tower Hotel Co., Ltd., Tokyo Gas Shale Investment Ltd., Tokyo Gas Yokosuka Power Co., Ltd., Tachikawa Urban Center

Quarterly Financial Results
Consolidated Financial Results Bulletin
http://www.tokyo-gas.co.jp/IR/english/library/earn_e.html

Co., Ltd., Tokyo Gas Lease Co., Ltd., Tokyo Gas Baypower Co., Ltd., Tokyo Gas-Mitsui & Co. Holdings Sdn. Bhd., Tokyo Gas Yamanashi Co., Ltd., Tokyo
Oxygen and Nitrogen Co., Ltd., Tokyo Gas Lifeval Chiba Co., Ltd., Tsukuba Gakuen Gas Co., Ltd., Tokyo Carbonic Co., Ltd., TOKYO GAS QCLNG PTYLTD., TOKYO GAS PLUTO PTY LTD, Tokyo Gas Lifeval Sagamihara Co., Ltd., TOKYO GAS GORGON PTY LTD, TOKYO GAS ICHTHYS PTY LTD., Japan
Super Freeze Co., Ltd., Miho Gas Co., Ltd., Tokyo Gas Telemarketing Co., Ltd., Tokyo Gas LPG Terminal Co., Ltd., Shoei Gas Co., Ltd., Kawasaki Gas
Pipeline Co., Ltd., Tokyo Gas Chemicals Sales, Inc., Tokyo Gas Auto Service Co., Ltd., Living Design Center Co., Ltd., Tokyo Gas Remodeling Co., Ltd.,Tokyo Gas Lifeval Minami-Tama Co., Ltd., TOKYO GAS WA258P PTY LTD, Washinomiya Gas Co., Ltd., Urban Communications, Inc., Tochigi Gas Co.,
Ltd., Capty Tech Co., Ltd., Tokyo Gas Pipeline Co., Ltd., Tokyo Gas Facility Service Co., Ltd., TGI Financial Solutions Co., Ltd., Tokyo Gas Lifeval MinamiSetagaya Co., Ltd., Tokyo Gas Lifeval Higashi-Ohta Co., Ltd., Tosetz Co., Ltd., Tokyo Kiko Co., Ltd., Enelife Carrier Co., Ltd., Tokyo Gas Lifeval Kazusa
Co., Ltd., Tokyo Auto Gas Co., Ltd., Showa Unyu Co., Ltd., Tokyo Rare Gases Co., Ltd., TGE (Shanghai) LNG Engineering CO., LTD., Capty-Livelic Co.,
Ltd., TG Europower B.V.

Equity-Method Affiliates
TOKYO TIMOR SEA RESOURCES INC.
GAS MALAYSIA SDN. BHD.
East Japan Housing Evaluation Center Co., Ltd.
Bajio Generating VOF
MT Falcon Holdings Company, S.A.P.I. de C.V.
Numerical targets for fiscal 2012 are based on information available when the figures wereannounced (April 27, 2012) and on the judgment of management. The Company undertakes
timely disclosures to Tokyo Stock Exchange of the latest information, which it also releaseson the IR page of its web site (http://www.tokyo-gas.co.jp/IR/english/ir_e.html).

51

Tokyo Gas Co., Ltd. Annual Report 2012

Our Vision and Strategy
Annual Report 2012

Person responsible for publication:
Hisashi Nakamura
General Manager, Investor Relations Sect.,Finance Dept., Tokyo Gas Co., Ltd.
For inquiries regarding planning and editing of this report:
Investor Relations Sect., Finance Dept.,
Tokyo Gas Co., Ltd.
1-5-20 Kaigan, Minato-ku, Tokyo 150-8527, Japan
TEL: +81-3-5400-3888
FAX: +81-3-5472-3849
E-mail: tgir@tokyo-gas.co.jp

This annual report is printed on Tokyo Gas Recycled Paper (made from recycled paper from Tokyo Gas offices, trimmings fromafforestation activities, and reused and unused wood materials) using vegetable oil ink that contains low levels of organic solvents.

Printed in JapanTokyo Gas Co., Ltd.