CHARACTERISTICS OF THE CITY GAS BUSINESS IN JAPANAs a result of its environmental friendliness and stable supply environment, natural gas is increasingly used
in a wide range of applications. In comparison with Europe and North America, natural gas still accounts
Tokyo Gas Co., Ltd. Annual Report 2009

Annual Report 2009for only a lower share of primary energy consumption in Japan. Accordingly, in the years ahead the relative

Tokyo Gas Co., Ltd.

growth potential of natural gas in comparison with other forms of energy is expected to be substantial.
In Japan, which is dependent on imports of LNG as the resource for city gas, pipeline networks areindependently installed in each area where LNG terminals are built, and city gas is produced, distributed,and sold through these systems. Pipeline networks are principally built in large urban areas with highpopulations, while in outlying regions, natural gas is supplied through such means as tanker trucks.

Topics: Overview of the gas rate adjustment system
Fluctuations in gas resource costs and residential gas rates at Tokyo Gas (example)
C (Mar.–May)
3 month moving average(¥/t)(¥/Month)Upperlimit 160%C (Aug.)

86,100B (Feb.–Apr.)
Standard averagegas resource cost

Upperlimit 160%
6,318

B (Jul.)A (Jan.–Mar.)A (Jun.)53,810

5,398

123

45678

9

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

The price of LNG is significantly influenced by crude oil prices and exchange rate fluctuations. Consequently, the gas resource
costs borne by city gas suppliers are substantially influenced by changes in these areas. The gas rate adjustment system wasintroduced to promptly adjust gas rates1 to reflect such exogenous factors (gas resource cost fluctuations). The system is intended
to increase rate transparency and to clarify the efforts of suppliers to increase management efficiency.
Under this system, the impact of fluctuations in gas resource procurement costs on the revenues and expenditures of gas
companies is neutral over the medium to long term2.
1 In general, gas rates comprise the base rate + specific unit price (unit rate x gas usage volume), and under the gas rate adjustment system, fluctuations inresource costs are reflected in the unit rate component of gas rates by adjustment amount.
2 There is a time lag between the payment for gas resources and the reflection of the gas resource costs in gas rates. Consequently, in a single fiscal year,
there can be under-recovery or over-recovery in relation to gas resource costs stemming from fluctuations in crude oil prices and exchange rates.

The section inside this cover provides further details and explanation of gas rates as well as an explanation of the features ofSTABILITY ANDGROWTHINTEGRATION AND
EXPANSION ALONG
THE LNG VALUE CHAIN

Contents
01

Printed in Japan

Special Feature 1
Four Keys to theFuture Growth Potential of Tokyo Gas

06

Financial Highlights

07

Overview by Segment

08

To Our Shareholders and Investors
Special Feature 2
Tokyo Gas Group Medium–Term
Management Plan for FY2009–201313

1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan
http://www.tokyo-gas.co.jp/index_e.html
This report is printed on recycled paper from Tokyo Gas offices.

the Company’s business model.

20

Review of Operations
20 Gas Segment
27 Gas Appliances Sales Segment
Installation Work Segment
Real Estate Rental Segment
28 Other Business Segment
29 Technology Development

30363841
6970

Corporate Governance
CSR
FAQ
Financial Section
Consolidated Subsidiaries andEquity-Method Affiliates
Investor Information

Japan’s Gas Rate System

The Tokyo Gas Business Model

Two Sectors of Japan’s Gas Market

Gas Usage Volume Share for theRegulated and Deregulated
Sectors in Japan’s City Gas Market

Japan’s city gas market is divided into the regulated sector, comprising small-volume
customers, and the deregulated sector, which is made up of large-volume customers andTokyo Gas is Japan’s largest city gas supplier, with 10.51 million customers. Our service area encompasses the Tokyo metropolitan area
and the surrounding Kanto region, a market with huge demand and high growth potential.
As a city gas supplier, we do more than just deliver gas to customers. Our operations extend from participation in upstream LNG
projects to transport by LNG tanker, conversion to city gas at LNG terminals, gas supply through pipelines, sales of gas appliances, andwholesale businesses.

safety at customer sites. Our establishment of an LNG value chain from upstream businesses to downstream businesses sets us apart

In the regulated (small volume) sector, city gas companies designated by the Minister offrom other gas suppliers around the world.

Economy, Trade and Industry are permitted monopolistic supply within their supply districts.

37%

At the same time, supply and safety obligations and gas-rate regulations are imposed on
those companies.
The deregulated (large volume and wholesale) sector comprises customers with annual63%gas usage of 100,000 m3 or more. Gas suppliers are allowed to freely enter this sector andLNG Value Chain of Tokyo Gas

are not restricted to their supply areas. Gas rates are determined through negotiations
between suppliers and customers. For large-volume customers, Tokyo Gas also utilizes ascheme to reflect gas resource costs in gas rates.
Deregulated sector
Regulated sector

Rate Revisions

Tokyo Gas Rate Revisions
Date of revision

Revision
percentage

etc., are also subject to revision. Tokyo Gas believes that our customers, as well as share-December 10, 1999

–2.00%

holders, are important stakeholders. With the objective of mainly returning to our custom-

February 15, 2001

–3.02%

ers some of the savings from increased management efficiency, we have revised rates five

January 1, 2005

–5.18%

times over the past 10 years. Our policy is to conduct rate revisions so that it will have

February 21, 2006

–0.28%

maximum effect in the competitive business environment.

April 15, 2008

–1.51%In addition to the portion that reflects changes in gas resource cost, the basic charge rates,

Natural gas resource developmentProcurement / Transportation

Participation in upstream projects, such as
the Darwin, Pluto, and Gorgon projects• Overseas gas-related operations, such as
supply, retail sales, and electric powergeneration••

LNG transportation with carriers operatedby Tokyo Gas

Average revision percentage for regulated rates
overall in Tokyo and other districts

Production /Power Generation•

Changes in the Gas Rate Adjustment System•

City gas production
LNG power plant business

Given the dramatic, significant fluctuations in gas resource costs in recent years, the gas rate adjustment system was reviewed with theobjectives of moderating the scale of the changes in gas rates while ensuring that changes in costs are promptly reflected in the rates.
As a result, a new system was introduced in May 2009. Under this system, the unit price is adjusted each month.
This change will contribute to more stable management conditions for suppliers. As noted above, gas resources costs are affectedby external factors such as crude oil prices and exchange rates. These costs will be reflected more smoothly in gas rates, and the newsystem reduces the influence of profits on single-year results.

(Reference) Comparison of Gas Rate Adjustment Systems

Sales / Services

City gas transport

Residential / commercial and others / industrial city gas supply• Electric power retail• Energy services•With a gas sales volume of 13,942 million m3, Tokyo Gas has a share of more than 40%

The Companyʼs Gas Sales Volumeof the total gas sales volume for all city gas suppliers in Japan. By sector, through the(Year ended March 2009)•Former System

New SystemC (Mar.–May)(¥/t)

3 month moving average

(¥/t)

Upper
limit 160%(¥/Month)Upperlimit 160%

6 months later

86,10086,100+2,690Standard
averagegas resource
cost

53,810101112123456789 month–2,690

Average gas resource cost
Adjustment of specific unit price
When the fluctuation of gas resource cost is within ± 5% of standard
average gas resource cost, the gas rate adjustment system is not applied.

Upper
limit 160%

C (Aug.)B (Feb.–Apr.)

Standard averagegas resource cost

6,318

B (Jul.)A (Jan.–Mar.)A (Jun.)53,8105,398

fiscal year ended March 2001, the residential sector accounted for the largest share of
the Company’s sales volume, but thereafter, sales volume in the industrial sector exceed-

1234

5

Transportation by pipeline
Transportation by LNG tanker truck• Wholesaling to other gas companies•6789ed the volume in the residential sector and has accounted for the largest share of themonth

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

Company’s sales volume.

Total
13,942 million m3(45MJ/m3)
24.9% Residential
21.6% Commercial
and others
40.3% Industrial
13.2% WholesaleJapan’s Gas Rate System

The Tokyo Gas Business Model

Two Sectors of Japan’s Gas Market

Gas Usage Volume Share for theRegulated and Deregulated
Sectors in Japan’s City Gas Market

Japan’s city gas market is divided into the regulated sector, comprising small-volumecustomers, and the deregulated sector, which is made up of large-volume customers andTokyo Gas is Japan’s largest city gas supplier, with 10.51 million customers. Our service area encompasses the Tokyo metropolitan area
and the surrounding Kanto region, a market with huge demand and high growth potential.
As a city gas supplier, we do more than just deliver gas to customers. Our operations extend from participation in upstream LNG
projects to transport by LNG tanker, conversion to city gas at LNG terminals, gas supply through pipelines, sales of gas appliances, andwholesale businesses.

safety at customer sites. Our establishment of an LNG value chain from upstream businesses to downstream businesses sets us apart

In the regulated (small volume) sector, city gas companies designated by the Minister offrom other gas suppliers around the world.

Economy, Trade and Industry are permitted monopolistic supply within their supply districts.

37%

At the same time, supply and safety obligations and gas-rate regulations are imposed on
those companies.
The deregulated (large volume and wholesale) sector comprises customers with annual63%

gas usage of 100,000 m3 or more. Gas suppliers are allowed to freely enter this sector andLNG Value Chain of Tokyo Gas

are not restricted to their supply areas. Gas rates are determined through negotiations
between suppliers and customers. For large-volume customers, Tokyo Gas also utilizes ascheme to reflect gas resource costs in gas rates.
Deregulated sector
Regulated sector

Rate Revisions

Tokyo Gas Rate Revisions
Date of revision

Revision
percentage

etc., are also subject to revision. Tokyo Gas believes that our customers, as well as share-

December 10, 1999

–2.00%

holders, are important stakeholders. With the objective of mainly returning to our custom-February 15, 2001

–3.02%

ers some of the savings from increased management efficiency, we have revised rates five

January 1, 2005

–5.18%

times over the past 10 years. Our policy is to conduct rate revisions so that it will have

February 21, 2006

–0.28%

maximum effect in the competitive business environment.

April 15, 2008

–1.51%In addition to the portion that reflects changes in gas resource cost, the basic charge rates,

Natural gas resource development

Procurement / Transportation

Participation in upstream projects, such as
the Darwin, Pluto, and Gorgon projects• Overseas gas-related operations, such as
supply, retail sales, and electric power
generation••

LNG transportation with carriers operatedby Tokyo Gas

Average revision percentage for regulated rates
overall in Tokyo and other districts

Production /Power Generation•

Changes in the Gas Rate Adjustment System•

City gas production
LNG power plant business

Given the dramatic, significant fluctuations in gas resource costs in recent years, the gas rate adjustment system was reviewed with theobjectives of moderating the scale of the changes in gas rates while ensuring that changes in costs are promptly reflected in the rates.
As a result, a new system was introduced in May 2009. Under this system, the unit price is adjusted each month.
This change will contribute to more stable management conditions for suppliers. As noted above, gas resources costs are affectedby external factors such as crude oil prices and exchange rates. These costs will be reflected more smoothly in gas rates, and the newsystem reduces the influence of profits on single-year results.

(Reference) Comparison of Gas Rate Adjustment Systems

Sales / Services

City gas transport

Residential / commercial and others / industrial city gas supply• Electric power retail• Energy services•

With a gas sales volume of 13,942 million m3, Tokyo Gas has a share of more than 40%

The Companyʼs Gas Sales Volumeof the total gas sales volume for all city gas suppliers in Japan. By sector, through the(Year ended March 2009)•Former System

New System
C (Mar.–May)(¥/t)

3 month moving average

(¥/t)

Upper
limit 160%(¥/Month)Upperlimit 160%

6 months later

86,10086,100+2,690Standardaveragegas resource
cost

53,810101112

1

2

34

5

67

8

9 month–2,690

Average gas resource cost
Adjustment of specific unit price
When the fluctuation of gas resource cost is within ± 5% of standard
average gas resource cost, the gas rate adjustment system is not applied.

Upper
limit 160%

C (Aug.)B (Feb.–Apr.)

Standard averagegas resource cost

6,318

B (Jul.)A (Jan.–Mar.)A (Jun.)53,8105,398

fiscal year ended March 2001, the residential sector accounted for the largest share of
the Company’s sales volume, but thereafter, sales volume in the industrial sector exceed-

12

3

4

5

Transportation by pipeline
Transportation by LNG tanker truck• Wholesaling to other gas companies•6789ed the volume in the residential sector and has accounted for the largest share of themonth

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

Company’s sales volume.

Total
13,942 million m3(45MJ/m3)
24.9% Residential
21.6% Commercial
and others
40.3% Industrial
13.2% Wholesale