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 are
independently 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 costUpper
limit 160%
6,318

B (Jul.)A (Jan.–Mar.)A (Jun.)53,810

5,398

1

2

3

4

5

6

7

8

9

month

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.

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 of

STABILITY ANDGROWTHINTEGRATION AND
EXPANSION ALONG
THE LNG VALUE CHAIN

Contents
01

Printed in Japan

Special Feature 1
Four Keys to the
Future 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

30
36
38
41
69
70

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

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 are
independently 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 costUpper
limit 160%
6,318

B (Jul.)A (Jan.–Mar.)A (Jun.)53,810

5,398

1

2

3

4

5

6

7

8

9

month

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.

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 of

STABILITY ANDGROWTHINTEGRATION AND
EXPANSION ALONG
THE LNG VALUE CHAIN

Contents
01

Printed in Japan

Special Feature 1
Four Keys to the
Future 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

30
36
38
41
69
70

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 the
Regulated 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 and

LNG 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 new
system 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+2,690Standard
averagegas resource
cost

53,810

10

11

12

1

2

3

4

5

6

7

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-

1

2

3

4

5

Transportation by pipeline
Transportation by LNG tanker truck• Wholesaling to other gas companies
•

6

7

8

9

ed 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 the
Regulated 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 and

LNG 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 new
system 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+2,690Standard
averagegas resource
cost

53,810

10

11

12

1

2

3

4

5

6

7

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-

1

2

3

4

5

Transportation by pipeline
Transportation by LNG tanker truck• Wholesaling to other gas companies
•

6

7

8

9

ed 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

SPECIAL FEATURE 1

Four Keys to the Future
Growth Potential of Tokyo Gas

Fact 1

Fact 2

Fact 3

GROWTHPOTENTIAL

ENVIRONMENTALFRIENDLINESSSERVICE AREA

18%

55%

40%

Fact 4COMPREHENSIVE
STRENGTH

No.1

01

Fact 1GROWTH POTENTIAL
Until February 1995, city gas suppliers in Japan were allowed regional monopoly supply for all of theircustomers, but were subject to various regulations, such as supply obligations and rate controls. However,against a background of deregulatory initiatives and the introduction of the principle of competition in
Japan and overseas, the deregulation of the gas supply industry was commenced in stages from March
1995, with the objectives of promoting competition among suppliers, increasing management efficiency,
and expanding the energy choices available to customers. As a result, the growth opportunities available
to suppliers expanded.
Gas and Electricity Deregulation Schedule and Share of Total Volume in Deregulated Fields
Before 2004

City Gas Industry

2004

3
53% 1 million mor more(Annual volume)

Large-scale plants (entire manufacturingindustry) / large-scale commercial facilities

Major areas

56%(Contracted maximum demand)

500,000 m3
or moreMedium-sized plants (chemicals /metals plants, etc.) /large urban hotels / large-sized hospitals

26% 2,000 kW
or moreElectric Power Industry

2007

40%

3
63% 100,000 m
or moreSmall-sized plants (textile and machinery plants, etc.) /hospitals / business hotels

500 kWor more50 kW
63% or moreIn the gas industry, the scope of deregulation was extended to customers with annual contracted volumes of more than 2 million m3 a year in 1995 and those with annual
contracted volumes of more than 1 million m3 a year in 1999. Figures for share of total volume are based on fiscal 2007 data. (Source: The Japan Gas Association)
In the electricity industry, meanwhile, the scope of deregulation was extended to customers with annual consumption of more than 2,000 kW in 2000. (Source: Agency for
Natural Resources and Energy, the Market Monitoring Subcommittee 1st Report, April 2005)

Gas Sales Volume (Results and Forecasts)

18%(Million m3)
15,00012,000

9,000

6,000

3,000

0
Years ended
March 3100
Residential

01

02

03

Commercial and others

04
Industrial

05

06

07

08

09

Wholesale

10

11

12

13

14

Forecasts

Growth in the Deregulated Sector
In addition to the deregulation of the city gas supply industry, the electric power industry
was also deregulated at the same time. The deregulation of both gas and electric supply
made it possible for other companies to supply gas in our service area. On the other hand,
it also enabled Tokyo Gas to supply gas and electricity to customers in the service areas ofother companies. In this setting, the Company’s growth is supported by new operationalpillars. These include the power generation business, which draws on existing infrastructure, and cogeneration systems, which use gas and supply heat and electricity. The
Company will aim for sustained growth as an integrated energy business that supplies
energy and heat in addition to its core business—the supply of city gas—in the Tokyo
metropolitan area and the Kanto region.

02

EXPECTING

18% GROWTHIN GAS SALESVOLUME DURING
THE NEXT 5 YEARSFact 2ENVIRONMENTAL FRIENDLINESSIn comparison with other fossil fuels, the combustion of natural gas produces limited emissions of carbon
dioxide (CO2) and nitrogen oxide (NOx), and no emissions of sulfur oxide (SOx). Natural gas is a form ofenergy with an extremely low environmental burden. Accordingly, the Company believes that its operations—promoting the use of natural gas by extending pipelines and expanding markets—contribute to
the development of environmentally friendly society.

Comparison of Emissions (Coal = 100)

CO2

NOx

100
80

100
70

Coal

Oil

60

100
70

Coal

Oil

40

CO2 Reduction Effect from Using
Natural Gas for Industrial Furnaces

SOx

Coal

Oil

Natural gas＋
Conventional
burner0
Natural gas

Natural gas

Heavy oil A＋
Conventional
burnerNatural gas

100
–25%

75

45
Forecast for Global Energy Supply Under Various IEA Scenarios

Primary Energy Supply(million tons crude oil equivalent)

9,000

Even in the scenario under which
the atmospheric concentration of CO2
in 2050 is reduced to the lowest level,
the use of natural gas is expected
to increase.

6,000

+34%
–27%

–18%

3,000

–30%
Total:Up to –55%

Natural gas＋
High-efficiency
burnerEffect of convertingto natural gas(Converting from coal, oil, etc.,
to natural gas)

Reduction in CO2 emissions
Reduction of about 25% from oil

0Natural gas

Oil

Coal

Nuclear power

Biomass

Other renewableenergy2005 Actual
Baseline scenario: Current conditions continue
ACT Map 2050 scenario: Atmospheric concentration of CO2 in 2050 is reduced to 550 ppm or lower
Blue Map 2050 scenario: Atmospheric concentration of CO2 in 2050 is reduced to 450 ppm or lower

According to the Intergovernmental Panel on Climate Change (IPCC), to prevent a variety of adverse
factors leading to climate change on a global scale, the atmospheric CO2 concentration needs to be
reduced to less than 450 ppm (IPCC Fourth Assessment Report).

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

Further CO2 reductions

Strong Demand for Clean Energy
Under the Blue Map 2050 scenario announced by the International Energy Agency (IEA)
calling for CO2 emissions to be cut in half by 2050, the use of environmentally superior
natural gas is expected to increase. In recent years, companies have announced their own
energy-saving and CO2 reduction targets, and there is a notable trend toward theaggressive introduction of energy-saving/new energy facilities. The shift toward the use ofnatural gas as a fuel has begun to support the Company’s growth. With a focus on
methods of using new energy in a low-carbon society, the Company is developing andpromoting highly efficient appliances that use city gas. We are also nurturing technologies to realize a reduced environmental burden. These have led, for example, to our

CO2 EMISSIONS FROMGAS CAN BE REDUCED

55%

TO
LESS
THAN CO2 EMISSIONSFROM OIL

achievement of a world first with the market introduction of “ENE-FARM,” a residentialuse fuel cell.

03

Fact 3SERVICE AREA
Even among Japan’s city gas suppliers, who all handle the same environmentally friendly natural gas,
Tokyo Gas has a key strength in its location in the Kanto area. This is the market with the highest energy
demand in Japan and a region that is expected to continue to grow in the years ahead. Supported bythis strength, Tokyo Gas is positioned to achieve continued growth in both number of customers andgas sales volume in the future.

Breakdown of GDP of Japan by
Major Area (Year ended March 2007)

Tochigi

Gunma

Hitachi-Moka Line
HitachiLNG Terminal
Gunma Line

IbarakiNaganoSaitama
Saito Line

Total: ¥518.8 trillion
Chiba-Kashima LineCentral Line II

YamanashiTokyo
Yokohama Line II

Kanagawa

Minami Fuji Line

Ohgishima
LNG Terminal
New Negishi Line
NegishiLNG Terminal

39.0% The Tokyo area: Tokyo, Kanagawa, Saitama,
Chiba, Ibaraki, Tochigi, Gunma, Yamanashi,
and Nagano prefectures
15.8% The Osaka area: Osaka, Hyogo, Kyoto, Shiga,
Nara, and Wakayama prefectures
10.0% The Nagoya area: Aichi, Gifu, and Mie
prefectures
Source: Cabinet Office, Government of Japan

Sodegaura
LNG Terminal

Chiba

Share of Tokyo Gas of Total City
Gas Sales Nationwide (Year ended March 2009)

Shizuoka

Tokyo Gas Group Service Area
Tokyo Gas Group service area
Service areas of wholesale customers
Tokyo Gas high-pressure transmission pipelines
Tokyo Gas high-pressure transmission pipelines under construction
Tokyo Gas-invested high-pressure transmission pipelines
Tokyo Gas LNG terminals
High-pressure transmission pipelines of other companies

43.4% Tokyo Gas Total: 13,942 million m3
10.8% Residential
9.4% Commercial and others
17.5% Industrial
5.7% Wholesale

Japan Total: 32,097 million m3
Source: The Japan Gas Association web site,(Gas Sales Volume JGA Newsletter)

Substantial Latent Demand and Growth Potential
There are a large number of city gas suppliers in Japan—about 210—but the three largest
account for approximately 80% of the total city gas sales volume. Tokyo Gas has a market
share of 43%, the largest share of any of these companies.
The location of a supplier’s service area has a significant influence on its operational
scale. The Kanto area is Japan’s largest economic region, accounting for about 40% ofJapan’s GDP, and even though Japan faces population decline overall, the Kanto area is
one of the few regions in Japan that is expected to benefit from inward migration.
Moreover, a key geographical feature of the Kanto region is that it is relatively easy toextend pipelines out to the peripheral industrial regions. In the future, we will make fulluse of this geographical advantage as we work to uncover potential demand that exists
in the area extending 200 km from Tokyo and to provide gas to more customers.

04

KANTO AREA:

40% OF
JAPAN’S GDP

Fact 4COMPREHENSIVE STRENGTH
We are leveraging the business opportunities stemming from a deregulated competitive environment,
environmentally friendly natural gas, and our promising operational base in the Kanto region. Moreover,
we are drawing on the strength of our global LNG value chain, extending from upstream to downstream,and providing customers with a wide range of value and services related to energy. Moving forward, as
the No. 1 gas supplier in Japan in terms of gas sales volume, Tokyo Gas will also strive to be No. 1 incomprehensive strength.

12People Supporting the Comprehensive Strength of the Tokyo Gas Group

1 Procurement / Transportation
Safety inspection on an LNG tanker. Using ourown fleet of seven vessels, we have increased our
procurement capabilities. We obtain more than
10 million tons of LNG a year from regions suchas Australia, Malaysia, and Brunei, representing
the second-largest LNG import volume in Japan.

2 Transport of city gas
through pipelines
Maintenance and management of high-pressure
gas pipelines. Supporting the foundation of safegas transport. The pipeline network of Tokyo Gas
extends to 57,000 km.

3

4

3 Engineering
Introducing gas facilities and conducting
combustion tests at the plants of customers who
have converted to the use of natural gas as a fuel.
In the industrial sector, we provide total solutions
that extend from proposing gas facilities tooperating, maintaining, and upgrading them.

4 Gas appliance installationand inspection
A Tokyo Gas LIFEVAL employee inspects gas
appliances at a customer’s residence. Tokyo Gas
LIFEVAL is the integrated point of customer contact
for our efforts to carefully meet diverse customer
needs in the residential sector.

Providing Strong Benefits through Our LNG Value Chain
and Sales Capabilities

CONSEQUENCETokyo Gas conducts an integrated energy business, with natural gas as its core energy
source. The Company leverages its comprehensive strengths at each stage of the LNG
value chain. In LNG procurement, we have created a portfolio that supplements 10 longterm projects with short-term and medium-term projects, and this way we have achieved
stable procurement that can respond flexibly to future changes in the operating environment. With a focus on future growth, we are aggressively expanding terminals and

No.1
IN COMPREHENSIVE
STRENGTH

pipeline networks.
We have established a sales system in the residential sector that is based on close
links to local communities and provides one-stop solutions to meet increasingly diverseand sophisticated customer needs. In the commercial and industrial sectors, we areworking to expand gas demand through multi-energy supply, which involves combinations of electricity and other forms of energy, centered on natural gas; advanced energy
engineering capabilities; and energy services, including optimal utilization of facilities
and maintenance.

05

FINANCIAL HIGHLIGHTSTokyo Gas Co., Ltd. and Consolidated Subsidiaries
For the years ended March 31

Thousands of
U.S. dollars1(except
otherwise stated)

Millions of yen(except otherwise stated)

2009

2008

2007

2006

2005

2009

¥1,660,162¥1,487,496¥1,376,958¥1,266,501¥1,190,783$16,940,428

Operating income

65,20470,048

162,315

112,345

145,349

665,346

Net income

41,70842,487

100,699

62,114

84,047425,591

Net income

15.63

15.94

37.50

23.48

31.47

0.15

Net income (Diluted)

15.37

15.50

35.69

21.70

28.24

0.15

Net assets

284.72289.49293.11

270.46244.73

2.90

8.00

8.00

8.00

7.00

7.00

0.08

For the Years
Net sales

Amounts per share ofcommon stock (¥ / $)Cash dividends applicableto the year
At Year-end
Total assets¥1,764,185¥1,703,651¥1,692,635¥1,693,898¥1,668,734$18,001,887

Interest-bearing debt

593,230

558,716

525,467

559,911624,105

6,053,367

Total net assets

784,616

780,455

806,045

738,486

657,396

8,006,285¥ 182,791¥ 184,908¥ 233,841¥ 198,490¥ 224,318$ 1,865,214—

RatiosOperating cash flow 2
Operating income to net sales (%)

3.9

4.7

11.8

8.9

12.2

Net income to net sales (%)

2.5

2.9

7.3

4.9

7.1

—

ROE3 (%)

5.4

5.4

13.2

9.0

13.5

—

ROA4 (%)

2.4

2.5

5.9

3.7

5.0

—

Equity ratio (%)

43.8

45.1

47.0

43.0

38.9

—

D/E ratio5 (times)

0.77

0.73

0.66

0.77

0.96

̶

1
2
3
4
5

U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥98=U.S.$1, the prevailing exchange rate as of March 31, 2009.
Operating cash flow = net income + depreciation (including amortization of long-term prepayments)
ROE = net income / total equity (average of positions at start and end of fiscal year)
ROA = net income / total assets (average of positions at start and end of fiscal year)
D/E ratio = interest-bearing debt (year-end) / total shareholders’ equity (year-end)

Net Sales

Operating Income /Operating Income to
Net Sales(¥ billion)(¥ billion)(%)(¥ billion)

(%)

(%)

1,800

200

40

150

20

20

150

30

15

15

10

10

5

5

1,660.1

Net Income /Net Income to Net Sales

1,200

ROE / ROA

100

100

20

65.2

600
50

50

41.7

10

3.9
0

0

0

05

06

07

08

09

05

06

07

08

09

Operating income (left)
Operating income to net sales (right)

5.4

2.5
2.4
0

0

05

06

07

08

09

Net income (left)
Net income to net sales (right)

0

05
ROE

06

07

08

09

ROA

All graph data for years ended March 31

06

OVERVIEW BY SEGMENT

Segment

Sales Ratio / Operating Income Ratio

Sales / Operating Income(%) Year ended March 31, 2009(¥ billion) Years ended March 31

Sales Ratio
Operating Income Ratio

Gas Sales
Tokyo Gas uses its three LNG terminals along the shores of Tokyo Bay toSales (left)
Operating Income (right)
300

1,500

gasify LNG, its main gas resource. It sells city gas to more than 10 million

1,257.5

customers, primarily in the Kanto region, through a pipeline network of
1,000

about 57,000 km. (External sales ratio: 97.0%)

200

The gas sales volume declined by 1.9% year on year, to 13,942 million m3.

110.8

Due to higher unit prices under the gas rate adjustment system, sales increased
by 15.7% year on year, to ¥1,257.5 billion.

83.5

Operating income declined by 0.7% year on year, to ¥110.8 billion, due toan increase in gas resource costs resulting from higher LNG prices.

68.8

500

100

0

0

07

See Page 20

Gas Appliance Sales

08

09
16

200

We sell gas cooktops, water heaters, gas air conditioning systems using hot
water, residential cogeneration systems, gas heat pump air conditioning

12

150

122.3

systems, and other products. The sales are mainly handled by the service
100

network of Tokyo Gas, LIFEVAL, Enesta, and Enefit. (External sales ratio: 95.8%)
As a result of economic conditions, the number of new projects declined and existingcustomers were reluctant to purchase gas appliances. Sales were down by 7.5%, to¥122.3 billion, and operating income decreased by 28.3%, to ¥2.0 billion.

1.6

8

50

4

2.0

6.7

0

0

07

08

09

See Page 27

Installation Work

120

12

80

8

This segment carries out construction, such as the installation of gas pipes
and valves on the sites of customers in our service area.
(External sales ratio: 93.4%)
Due to sluggish conditions in construction and to a decrease in starts and building
permits, sales fell by 14.4% year on year, to ¥49.0 billion, and operating income
declined by ¥1.8 billion, to –¥1.0 billion.

49.0
40

4

—
2.7

–1.0
0

0

07

See Page 27

Real Estate Rental

08

09
12

40

35.6

This segment is mainly involved in leasing, management, and related
activities for the Shinjuku Park Tower and other office buildings. These

9

30

7.4

activities are principally conducted by our consolidated subsidiary, Tokyo
Gas Urban Development Co., Ltd. In addition, this subsidiary leases land in

20

6

10

3

Toyosu, Ginza, and Gofukubashi, etc. (External sales ratio: 36.8%)
Sales increased by 1.3% year on year, to ¥35.6 billion, as a result of increased lease
income due to the GINZA gCUBE building, a commercial facility that was opened
in September.

5.6
1.9

0

0

07

Operating expenses increased due to higher removal expenses accompanying
renovation work at the Hamamatsucho head office building and other factors,
and operating income declined by 6.5%, to ¥7.4 billion.

08

09

See Page 27

Other Business

400

363.7

This segment includes energy services, facility construction and engineering,industry gas sales, LPG sales, system integration services, electric power,

30

300
20

credit and leases, and shipping. (External sales ratio: 72.5%)

13.4

200

New customers were acquired in the energy service business. In electric power
operations, Kawasaki Natural Gas Power Generation Co., Ltd. began operations in
April 2008. In shipping operations, a new ship was placed into service and shipping
revenue from the Company’s own fleet increased. Sales in this segment increased by
13.6% year on year, to ¥363.7 billion.
The worsening economic conditions resulted in declines in profits in such areas
as industry gas sales. However, operating income rose 5.6% year on year, to ¥13.4
billion, due to higher gross profit in shipping, etc.

10

10.2
19.9

100

0

0

07

08

09

See Page 28
Segment sales include intra-group transactions.

07

TO OUR SHAREHOLDERS AND INVESTORS

President Mitsunori Torihara

Fiscal 2008 in Review:
A Year of Dramatic Changes

crude oil price underwent dramatic—from January to March 2009, theand extremely unusual—fluctuations,amount by which gas rates wereFiscal 2008 (the year ended March

posting a record high of $147.27 peradjusted to reflect increased resource2009) was marked by unprecedented

barrel in July and subsequently falling

costs under the gas rate adjustmentchanges in the Company’s operating

to the $30 dollar level in December.

system was reduced by ¥4.2 billion, andenvironment. Due to the global

As the price of LNG, the resource forthat amount will be recovered throughrecession that began with the finan-city gas, is basically linked to the priceadjustments to rates in fiscal 2009.)

cial crisis in the United States in theof crude oil, these fluctuations had aAlso, the gas rate adjustment systemfall 2008, Japan’s economy under-

major effect on our revenues andwas itself revised, and a new systemwent a significant slowdown during

expenditures. In the second half of thewas implemented in May 2009. Under

the year, and there are still no clear

fiscal year, the LNG price began to

the new system, gas rates are reviewed

signs of a recovery. As a result,appreciate, favorably impacting oureach month and changes in resource

demand for city gas, which supports

performance. However, the time lag

prices are reflected more promptly inindustrial activities, declined mainly

under the gas rate adjustment system

the rates. In the same way, the gas rate

due to lower utilization rates at

had an adverse effect on our perfor-

adjustment system for large-volume

plants. Year on year, gas sales volume

mance in the fiscal year.

customers was reviewed from February

in the industrial sector was down

2009. The timing of the gas resource

about 2% for the full fiscal year andgas rate adjustment system, total net

price shift was advanced, and conse-

down more than 10% in the second

sales increased 11.6% from the previous

quently the risk that the changes in thehalf of the fiscal year, when theyear, to ¥1,660.1 billion. Nonetheless,gas resource price would affect income

economic recession became more

operating income and net income bothwas reduced.

apparent. Total gas sales volume,

declined, with operating income down

including that for the residential, com-

6.9%, to ¥65.2 billion, and net income

mercial and other sectors, declined

decreasing 1.8%, to ¥41.7 billion.

year on year for six consecutive

Against the background of thesemonths from October 2008, and it

dramatic fluctuations in LNG prices, indeclined 1.9% for the full fiscal year.

response to requests from the govern-Moreover, the dramatic fluctua-08

Due to higher unit prices under thement, we implemented special mea-

tions in crude oil prices were a major

sures to mitigate changes in gas rates in

influence on our operations. The WTI

the residential sector. (For the periodMajor Management Indicators in Medium-Term Management Plan
TEP

Operating Cash Flow(¥ billion)

ROE / ROA(%)

20

Fiscal 2007 ¥184.9 billion

8

15

Fiscal 2008 ¥182.7 billion

6

10
4
5

Fiscal 2009 – 2013
Total ¥1,060.0 billion

0

–5
FY

07

08

2

0
FY

13

07

08

Outlook

13
Outlook

TEP (Tokyo Gas Economic Profit) =net operating profit after tax prior to interest payments –cost of capital (invested capital x WACC)
WACC Fiscal 2007 results: 3.6%
WACC Fiscal 2008 results: 3.4%
WACC Fiscal 2013 outlook: 3.8%

ROE

ROA

ROE = net income / total shareholders’ equity(average of positions at start and endof fiscal year)
ROA = net income / total assets (average of
positions at start and end of fiscal year)

Preparing a Foundation
for Long-Term Growth

add value for customers. In addition, theas well as the ”evolution and advance-

integrated energy business is also ament of the integrated energy busi-

Even in this difficult operating envi-

long-term strategy for the development

ness strategy.”ronment, we are steadily implement-of operations in a wider supply area,

ing a variety of initiatives for future

centered on the region extending for aenvironmental change that we consid-

growth. As a Group providing energy

200-km radius around Tokyo. In fiscal

ered was the growth in social demands

to society, we continually make long-

2008, we steadily implemented key

for environmental conservation. The

term forecasts regarding future

initiatives targeting growth in integrated

first commitment period of the Kyoto

demand and move forward with theenergy operations, such as the expan-

Protocol came into effect in 2008, andestablishment of a sound supply

sion of LNG upstream and transport

discussions regarding the post-Kyoto

system. We are also working aggres-operations, the expansion of pipeline

framework are underway in the ap-

sively with the development ofsystems, the construction of large-scaleproach to COP15, the U.N. climate

technologies related to sophisticatedpower generation facilities, the en-conference, which will be held inenergy usage to ensure that we canhancement of energy service operations,

December 2009. Climate change

provide high-value-added products

and the establishment of a new fran-countermeasures are becoming more

and services to meet changing

chise system in order to improve theimportant. In this setting, we must

market needs.

services to local communities.

actively respond to the demands of

In formulating the plan, the first

The Group is aiming to achievewith natural gas at its core. The inte-

Background to the Formulationof the New Medium-Term
Management Plangrated energy business is a business

In January 2009, we formulated amodel for realizing optimal energy

medium-term management plan for

usage by customers, and by doing so,

fiscal 2009–2013. This plan targets an

we also aim to develop new demand. To

appropriate response to the economic

those ends, it includes being a multi-

recession discussed above, to fluctua-

energy supplier that provides access totions in the operating environment

gas, electric power, and heat, as well as

stemming from crude oil price move-an energy services provider offering aments, and to changes in the man-variety of one-stop energy solutions thatagement environment going forward,

sustained growth through the establishment of an integrated energy business,

WE ARE STEADILY
IMPLEMENTING A
VARIETY OF INITIATIVESFOR FUTURE GROWTH

09

As an “energy frontier corporate group” with operations centered on natural gas,
we endeavor to realize comfortable lifestyles and environmentally friendly cities,
and strive to ensure continued development while consistently earning the trustof customers, shareholders, and society—In accordance with this management philosophy, we will focus on the evolution
and advancement of the integrated energy business.

customers and society by further

changes in the gas resource procure-forcement of the synergy of All Tokyo

expanding the highly efficient usage ofment environment. The price of LNG isGas.” In this way, the new medium-

natural gas and providing optimal energy

possibly on a rising trend over theterm management plan targets theusage systems that offer high environ-

medium to long term due to such

evolution and advancement of themental value, utilizing renewable energy.

factors as increasing global demand andintegrated energy business.

Change in the structure of energy

the rise of resource nationalism. Accord-demand was another important point iningly, we need to enhance the LNG

the formulation of the plan. In thevalue chain, such as in upstream andindustrial and commercial sectors, wetransport operations, and by doing so,

The Role of Tokyo Gas
in Alleviating Environmental
Problems

expect a short-term decline in demand

we will strengthen our system for the

In terms of growth potential, thedue to the economic recession. How-

stable procurement of cost-competitive

most promising field is the business

ever, given the environmental merits of

LNG over the long term.

related to the reduction of environ-

Competition in energy markets

mental burdens. As an “energy

in the Kanto area for gas demand

continues to intensify. Particularly, in thefrontier corporate group” withswitching from oil to natural gas and forresidential sector, electric power compa-

operations centered on natural gas,

power generation. By expanding

nies are aggressively promoting all-

we have a management philosophy

infrastructure and aggressively develop-

electric houses. In response, we need tothat targets the realization of com-ing potential demand, we expect

bolster our overall competitiveness, notfortable lifestyles and environmentallyindustrial and commercial demand tolimited to our gas price competitiveness,friendly cities. We strive to ensure

become a major source of future

but also technology, product, proposal,

continued development based on thegrowth. In the residential sector, there isand other capabilities that enable us totrust of customers, shareholders, anda trend toward slow growth in energy

respond appropriately to diverse cus-society. In accordance with thisdemand over the long term due totomer needs.

philosophy, we are implementing anatural gas, there is still a large potential

sluggish housing starts, a decrease invariety of initiatives to create higher
environmental value.

the average number of people perchanges in the environment, we willhousehold, the diffusion of energy-

develop our operations with an empha-

saving appliances, and an increase in

sis on the “three E’s”—Eco-friendly

these initiatives is the May 2009 start ofhousing that is more airtight and better(creation of value emphasizing themarketing of the “ENE-FARM” residen-

insulated. Our important challenges

environment), Excellent service (im-tial-use fuel cell cogeneration system,

include bolstering sales for the purpose

provement of value for customers), andwhich has been highly anticipated notof expanding new demand in the Kanto

Expansion (rigorous in-depth cultivation

only by the national government but

area, where the population is still

and widening of markets). At the same

also by the housing industry and local

expected to grow, and taking steps totime, we will focus on two initiatives

communities. We have demonstrated

steadily increase demand.

that support the three E’s: ”strengthen-that “ENE-FARM” reduces energy

ing the LNG value chain” and ”rein-

consumption by 33% and CO2 emissions

Furthermore, we must respond to10

In consideration of these kinds of

One of the most noteworthy of45% in comparison with conventional

Gas will support alliances among

previously divided among Enesta andsystems. For a typical household—aindustry, government, and academia

Tokyo Gas Customer Service. Now,

detached house with four people—thisand aggressively invest resources inTokyo Gas LIFEVAL provides one-stop

is equivalent to an annual reduction intechnological development based on

customer service for a variety of

CO2 emissions of 1.5 tons (1 kg pera long-term viewpoint.

needs. We have divided our base of

person per day). “ENE-FARM” willapproximately 10 million customers in
the Tokyo metropolitan area into 65

gases, and we will do our utmost to

Brand Strength Based on
Relationships of Trustwith Customers

promote its diffusion.

Our close relationships with custom-of these blocks through joint invest-

ers, which have been cultivatedment by the Company and the former

sectors, meanwhile, we will develop

throughout our history of more than

Enesta. We expect to complete theenergy services with higher environmen-

120 years, and our brand strength,

establishment of the new system intal value. In addition to cogeneration,

which is represented by the words

October 2009. Through this system,

these services will utilize renewable“security,” “safety,” and “reliability,”

we will further strengthen our rela-energy, including sunlight and solar

will become increasingly important

tionships with customers, counter theheat. In this way, we will make steadysources of competitive advantage inaggressive sales efforts by electric

progress toward the realization of athe years ahead. To fully leverage

power companies to promote a shift

low-carbon society. Also, in regional

these strengths and accurately meetto electricity, and work to achieve

redevelopment projects, Tokyo Gas will

increasingly diverse and sophisticatedsustained increases in the market

strive to build optimal energy systems at

customer needs, we are rebuilding

share earned by gas.

the local community level through the

our sales and customer service systemuse of the area-wide, networked energy

with a focus on close links to local

system “Smart Energy Network.” These

communities. Since April 2008, we

systems will allow flexible exchange of

have been steadily establishing newenergy among residences, office

Tokyo Gas LIFEVAL operations.

buildings, and large commercial facili-

Through Tokyo Gas LIFEVAL, we areties, such as hospitals and hotels.

restructuring and integrating the sales

certainly play an important role in
reducing climate change contributing

In the industrial and commercial

To move forward with this type ofand costomer service functions, which

advanced energy usage, it will be

are key points of contact with cus-

necessary to accelerate the develop-

tomers. These functions, which

ment of innovative new technologies,

include gas service related construc-such as high-efficiency appliances andtion, sales and maintenance of gas

optimal energy systems that utilize

appliances, meter reading, and peri-

renewable energy. Accordingly, Tokyo

odic gas facility safety checks, wereservice blocks, and will establish
Tokyo Gas LIFEVAL operations in each

WE FULLY LEVERAGE
OUR BRAND STRENGTH,
WHICH IS REPRESENTED
BY THE WORDS“SECURITY,” “SAFETY,”
AND “RELIABILITY”

11

All Tokyo Gas Initiatives

strategy in such fields as LNG up-

ers through dividends and purchases

To realize sustained growth as a

stream and transport operations,of treasury stock totaling 60% of net

multi-energy company with naturalenergy services, and power genera-

income. In regard to dividends, ourgas at its core, it is essential that wetion. On this foundation, we will draw

priority is to maintain stable dividend

leverage All Tokyo Gas synergies, noton the synergies of All Tokyo Gas topayments, with gradual increases over

only limited to Group companies, butwork toward the achievement of thethe long term in line with growth inalso cooperating companies, involved

medium-term management plan.

income. This approach also underscoreswith the LNG value chain, fromour unstinting efforts to steadily

resource procurement to customer

plans, our policy regarding the alloca-

implement the initiatives in the medi-

sales and service. We also need totion of cash flow is clearly spelled out

um-term management plan to achievestrengthen the All Tokyo Gas man-in the current medium-term manage-

sustained growth in the years ahead.

agement foundation by further

ment plan, with priority given toenhancing human resources andinvestment in future growth and thetechnologies. In these endeavors,

provision of returns to shareholders.

we will focus on the newly estab-

For shareholder returns, we remain

lished Tokyo Gas LIFEVAL and ourcommitted to our policy of a total

affiliated companies, which are pillars

payout ratio of 60%. This policy entailsof the integrated energy operations

the provision of a return to sharehold-

Allocation of Cash Flow During
the Period of the Medium-Term
Management Plan

Five year total: about ¥1,070.0 billion*
85% Investment / loan
14% Shareholders’ return
1% Reduction of interest-bearing debt

* Operating cash flow + other cash flow

12

On the other hand, as in past

President Mitsunori Torihara

Capex, Investment, and Loan

Five year total: about ¥900.0 billion
16% Upstream / overseas / LNG fleet
32% Demand development
29% Infrastructure
8% Others
15% Business base

WE WILL DRAW ON
THE SYNERGIES OF ALL
TOKYO GAS TO
WORK TOWARD THE
ACHIEVEMENT OF
THE MEDIUM-TERM
MANAGEMENT PLAN

SPECIAL FEATURE 2

Tokyo Gas Group Medium-Term
Management Plan for FY2009–2013
EVOLUTION AND
ADVANCEMENTOF INTEGRATEDENERGY BUSINESS

Through the enhancement of the integrated energy business,offering multi-energy supply retaining natural gas at thecore, and energy services offering one-stop energy solutions,Tokyo Gas prepares itself for future patterns of energy use
and the development of society.

Growth Potential 10 Years into the Futureadvancement of the integrated energy business.” While looking

Under our previous medium-term management plan, we worked

ahead to the latter half of the coming decade, by strategicallytoward the rapid establishment of the integrated energy business.

allocating management resources, and by taking steps to reinforce

Through a variety of measures that were steadily implemented

our business foundations, we will strive to be a resilient corporate

throughout the period covered by the plan, we worked to creategroup that flexibly adapts to the future business environment in

new growth fields and were able to realize strong competitiveness.

order to achieve sustained growth.

Such new fields have included upstream operations, LNG transportation, and electric power.
While we do not anticipate any change in the advantage andFramework for the Medium-Term
Management Plan

importance of natural gas as an energy resource, we are seeing

To achieve further evolution and advancement of our integratedchanges in our operating environment that will have a major effectenergy business with natural gas at its core, we will conduct

on our business development. These include further increases inoperational development with an emphasis on the “three E’s:”—social expectations regarding environmental conservation, intensi-

Expansion (rigorous in-depth cultivation and widening of markets),

fied competition among different sources of energy, changes in

Eco-friendly (creation of value emphasizing the environment), and

LNG procurement conditions, and the influence of the economic

Excellent service (improvement of value for customers). The three

slowdown on energy demand over the short term. In this setting,E’s will be supported on a foundation comprising two compo-

we will implement the Group medium-term management plan for

nents: “strengthening the LNG value chain” and “reinforcementfiscal 2009–2013 (from the year ending March 2010 to the yearof the synergy of All Tokyo Gas.”

ending March 2014), for which the theme is “evolution andStrategies

Overview of Medium-Term Management Plan

Further evolution and advancement of the integrated energy business with natural gas at its core
Priority approaches for evolution and advancement – the “three E’s”

Initiatives

Expansion
Rigorous in-depth cultivation andwidening of markets

Eco-friendly
Creation of value emphasizing
the environment

Excellent Service
Improvement of value for customers

Strengthening of operational foundation for realization of the three E’s
Strengthening of the LNG value chain

Reinforcement of the synergy of All Tokyo Gas

Target vision

Heightening natural gas value

Widening and deepening of business

A resilient corporate group that flexibly adapts to the future business environment in order to achieve sustained growth13

Priority Approaches – The Three E’s

Expansion – Rigorous In-Depth Cultivation and Widening of Markets

Approaches thus far
Diffusion of natural gas use over a
wider area within a 200-km radiusaround Tokyo in the Kanto region
One-stop supply of multi-energy
services (gas, electricity, etc.)

Priorities

Cultivation of new demand within the wide-area radius andaugmentation of the wide-area infrastructure
Demand development through rigorous in-depth cultivationof the residential market
Diffusion and expansion of natural gas use over a wider area
through locally rooted gas companies

Development and Expansion ofIndustrial Demand

Initiatives in the Residential-Use Market

Japan’s energy markets are presenting increasingly difficult

power will intensify. In response, we will strive for a further

conditions due to such factors as the economic slowdown and theincrease in the number of customers by stepping up marketing

declining population. Nonetheless, within the 200-km area

efforts targeting new residential units. Moreover, we will further

including Tokyo and surrounding prefectures, there is abundant

bolster Tokyo Gas Group-wide sales initiatives, targeting housedemand, mainly from the industrial sector. Accordingly, thorough-builders and other sub-users. Further, through strategic investment

going development and expansion of natural gas demand is thein pipelines, we will expand our supply areas and aim to secure

most important challenge in the Company’s medium-term man-new customers. We expect the number of customers to reachagement plan.

11.2 million by the end of fiscal 2013.

At this point, we believe that potential demand in the Kanto

In the residential sector, competition between gas and electric

Also, within the 200-km Kanto area radius, market charac-

area is about 9 billion m3, including thermal demand, which weteristics differ based on region. Accordingly, focusing on our

are targeting through conversion from other fuels, and electric

wide-area branches and related city gas companies, we will

power demand, which we are targeting through cogeneration andbuild an operational system closely linked to various regions,other systems. By securing that potential demand, over the course

cooperate with peripheral gas suppliers, and bolster our market-of the medium-term management plan, we forecast growth in gas

ing capabilities.

sales volume of more than 3% per annum. Thus, volume isforecast to reach ¥16.4 billion m3 in fiscal 2013.

9 Billion m3 Growth Potential
Potential Industrial and Commercial Demand
within a 200-km Radius around Tokyo
100–200 km radius area
2 billion m3
100 km radius area
7 billion m3

Total 9 billion m3

100 km Radius Area

100–200 km Radius Area

1.9 billion m3

0.3 billion m3

7 billion m3

5.1 billion m3

2 billion m3

1.7 billion m3

The Company’s estimate
Conversion from other fuels, etc.
Cogeneration / power generation use

14

Conversion from other fuels, etc.
Cogeneration / power generation use

LNG tanker trucks

Tokyo Gas Yokosuka Power

Expand Integrated Energy Business—
Bolster Electric Power and Energy Services
Under the new medium-term management plan, we willfurther expand and boost the competitiveness of ourelectricity business, which supports our multi-energy supply
activities. In addition to the three large-scale power stations
already in operation, the plan foresees the startup of
Ohgishima Power by the end of fiscal 2009. As a result, asof fiscal 2010 our share of the capacity of these power
stations will be about 1,300 MW. In addition to conventional power retailing, we will work to expand operations
by establishing a sales portfolio that includes market transactions. We will also aim to expand gas business synergies.

Steady Growth in Operational Scale

Chiba-Kashima LineIn the energy service business, we will increase ourcompetitiveness by leveraging our ability to provide onestop solutions. Related issues include achieving the bestenergy mix, facility selection, operation, safety management, finance, support for energy saving, and regionalenergy services.

Outlook for Gas Sales Volume and Number of Customers

Expanding Electric Power Operations / Bolstering
Competitiveness(Billion m3, 45MJ/m3)

Major Electric Power Plants in Operation(Millions)Average annual
growth rate of 3%

18

11.5

11.0
12
10.5

Plant

Capacity

Percentage ofshares held

Tokyo Gas Baypower

100 MW100%

In operation
since October 2003

Tokyo Gas Yokosuka
Power

240 MW

75%

In operation sinceJune 2006

Kawasaki Natural Gas
Power Generation

840 MW

49%

In operation sinceApril 2008

State of operation

10.0
6Large-Scale Power Plants under Construction
Plant

0
FY

0

08

09

10

11

12

Ohgishima Power

Capacity
1,220 MW

Percentage ofshares held
75%

State of operation
Commencing at endof fiscal 200913

ResultGas sales volume (left)

Residential
Industrial

Number of customers (right)

Commercial and others
Wholesale

Establishment of a system in which our share ofcapacity is about 1,300 MW

15

Priority Approaches – The Three E’s

Eco-friendly – Creation of Value Emphasizing The Environment

Approaches thus far
Contribution to reduced environmental burden in energy use
through the promotion of natural
gas utilization and the development
and diffusion of gas appliancesand systems

Priorities

Contribution to the realization of a low-carbon society throughincreased sales of natural gas, which has excellent environmental features; as well as aggressive initiatives in such areas as theprovision of goods and services that use new energy and theenhancement of energy-saving through the supply of newenergy and area-wide / networked energy usage.

Extensive Adoption of the “ENE-FARM”
Residential-Use Fuel Cell

Further Creation of Environmental ValueThe Group has developed, diffused, and expanded equipment

expected from the second half of the coming decade, as well as toand systems for the advanced use of environmentally friendly natu-

expansion of growth opportunities. With these factors in mind, we

ral gas, especially high-efficiency systems that reduce the burden

will take steps to integrate new sources of energy and natural gas

on the environment. In the residential sector, the “ENE-FARM”

as well as to achieve further reductions in environmental burden /We are giving careful consideration to patterns of energy usage

residential-use fuel cell, which represents these systems, will be

CO2 emissions. These will be key steps toward the realization of a

deployed to the market for a full-scale commercial roll out under

low-carbon society. Specifically, from the current fiscal year, we will

the medium-term management plan. In comparison with previous

implement full-scale initiatives in double power generation

systems, environmental friendliness is a strength of this system,

combining solar power with “ENE-FARM.” In addition to thewhich reduces CO2 emissions by 1.5 tons a year per household*.

optimization of individual appliances/energies, we will also target

We will leverage this strength and work to achieve further reduc-the construction of “smart energy networks” that integratetions in cost and size. We are aiming for sales of 42,000 units byelectricity, thermal, gas, and renewable energies to facilitate

the end of fiscal 2013. We will position “ENE-FARM,” which offers

optimal area-wide / networked energy usage.

a one-stop supply of electricity and heating, as our main strategic
product in order to realize a low-carbon society. Through its
adoption, we will take the initiative in working for a transition to ahydrogen-based society in the future.
* The Company’s trial calculation based on verification testing and assuming four
people per household.

Realization of a Low-Carbon Society

Smart Energy Networks

Reduction of CO2 Emissions through Diffusion andExpansion of the “ENE-FARM” Residential-Use Fuel Cell
(Thousand t/Year)80

Condominiums

63,000 t

60

60

45

LNG receiving terminals
Biogas supply

Electricity grid(Thousand units)

CO2 emissions reduction of
1.5 tons per household per year

Solar power generation /Solar heat collector

Solar power generation

Heat transmission line

District coolingplant

Fuel cells

42,000 units

City gas network
40

30

20

15

CGS

Steam absorption
chiller
0
FY

0

09

10

11

12

Fuel cells

13

Amount of CO2 reduction (left)
Number of units installed (cumulative total) (right)

16

Ordinary
power supply

Office buildings

Fuel cells

Hospitals and hotels, etc.

Priority Approaches – The Three E’s

Excellent Service – Improvement of Value for Customers

Approaches thus far
Establishment of new energy
service companies (Tokyo Gas
LIFEVAL) rooted in the local
community
Proposal of diverse solutions andvalue to customers through multienergy supply and energy services
Concentration on periodic inspection of customer gas facilities andsystematic renovation of gas pipes

Priorities

Improvement of customer satisfaction through the proposal ofvalue, the provision of timely services, and the proposal of higher quality solutions that cater to the needs of each customer
Further heightening of the value of the “safety, security, andreliability” brand by reinforcing gas appliance and pipeline
safety measures as well as countermeasures for earthquakes
and other natural disasters

Establishment and Promotion of the Setup
for Tokyo Gas LIFEVAL

Providing Added Value to Our Industrial
and Commercial Customers

As a measure to strengthen marketing in the residential sector, all

In response to the increasingly sophisticated and diverse needs offunctions, which used to be separated by type of service, haveour customers, we will take full advantage of the direct sales, tech-

been integrated into newly set-up Tokyo Gas LIFEVAL. Leveraging

nical, and engineering capabilities that we have cultivated in order

all points of contact with customers, such as periodic gas facility

to propose higher value.

safety checks and meter reading, we will provide various services
that offer thoroughgoing responses to diverse needs and imple-

Enhancing “Safety, Security, and Reliability”

ment one-stop value proposals. In this way, we will aim for even

We will take steps to improve the quality of assets throughhigher customer satisfaction. From April 2008, we have moved

ongoing investment in upgrading production and supply facilities,

ahead with the roll out of regionally linked marketing systems

such as replacement of aging pipes, together with the strengthen-through LIFEVAL. By October 2009, we plan to have LIFEVAL set

ing of measures to assure the safety of gas appliances. In this way,

up in some 65 service blocks in all, in line with our original plans.

we will strive to further heighten the brand value symbolized by
the words “safety, security, and reliability.”

Focused on Improving Customer Satisfaction
Tokyo Gas LIFEVAL One-Stop Services

Increasing Value Added through Tokyo Gas Group
Comprehensive Strengths
Provision of Value to Customers in Line with Facility Life Cycle
Needs / demands
Understanding of the latest customer needs / wishes

System selection
Periodic gas facility
safety checks

Opening / closing ofgas taps

Proposals regarding gas
appliances and facilities

Repair of gas
appliances

Installation of gas
appliances

Cooking classes
and events

Gas construction

Meter reading

Showrooms

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

Operation / maintenanceOperational support / maintenance in line with customer needs
Monitoring of energy-saving diagnoses
Provision of operation / maintenance services
Risk management
Safety services (strengthening of periodic gas facility safety checks)

Delivery of solutions for customer needs

17

INITIATIVES TO DEVELOP BUSINESS FOUNDATIONSStrengthening of the LNG Value Chain
Active Augmentation of the Trunk Infrastructure with a Focus on the Future
To achieve the evolution and enhancement of the integrated energy business through initiatives centered on the three E’s, key points will
include the augmentation of wide-area trunk infrastructure to secure long-term demand and to expand operations.
In addition to the Chiba-Kashima Line project, which is currently under construction, we will investigate and implement pipeline
construction projects with a focus on securing potential demand in the northern Kanto area. These projects include the new constructionof the Saito Line. With an eye to expanding natural gas demand and building a more stable supply system for the second half of thecoming decade and thereafter, we will begin to consider the construction of new LNG terminals and pipelines to link the new terminals
to existing networks.

Stable LNG Procurement that can Respond to Changes in the Environment
To realize stable procurement of competitive LNG, in addition to existing long-term contracts, we will participate in the start-up of new
projects, such as Pluto and Gorgon, and at the same time we will take steps to acquire upstream interests. In these ways, we will implement initiatives in overseas operations related to the LNG value chain. In addition, we will bolster our in-house fleet of LNG vessels, aiming
to reduce LNG transport costs and expand business in the transport of LNG for other companies.

Major Infrastructure Formation Plan

 Hitachi-Moka Line Hitachi

LNG Terminal

Gunma Line I

Gunma Line II (Plan) Saito Line

Central Line II Chiba-Kashima Line
Yokohama Line IINew Negishi Line Tokyo Gas high-pressuretransmission pipelines, etc.
High-pressure transmission
pipelines of other companies
Planned pipelines
Tokyo Gas Group service area

Ohgishima
Terminal,
No. 4 LNG Storage Tank


Pressure Increase at
the Negishi Terminal

Objectives

Line

1 Gunma Line I
Enhancement of wide-area
infrastructure

Enhancement of foundations
for stable supply

18

2 Chiba-Kashima Line
3 Saito Line
4 Hitachi Terminal and
Hitachi-Moka Line
5 Ohgishima Terminal, No. 4
LNG Storage Tank
6 Pressure Increase at the
Negishi Terminal

Scheduled start of service

Fiscal 2009
Fiscal 2011
Around fiscal 2015
Around fiscal 2017
Fiscal 2013

7 Central Line II

Fiscal 2013
Fiscal 2010

8 New Negishi Line

Fiscal 2013

9 Yokohama Line II

Fiscal 2013

Reinforcement of the Synergy of All Tokyo Gas
Consolidated Group Management
Tokyo Gas conducts business in a wide range of areas within the LNG value chain, fromupstream to downstream. To realize the steady evolution and advancement of the integrated energy business, we must reinforce and consolidate the comprehensive strengths of

Outlook for Results ofConsolidated Subsidiaries

the Tokyo Gas Group and supporting companies.
In regard to our human resources base, we will take steps to enhance skills through(¥ billion)
800(¥ billion)
80

personnel exchange programs within the Group. Tokyo Gas LIFEVAL has an importantrole in the current medium-term management plan, and we will implement a human

600

60

400

40

200

20

resource development program especially for Tokyo Gas LIFEVAL in order to further
improve the quality of this system.
Regarding business execution systems, since the previous medium-term management
plan, we have been strategically investing funds in the fields of upstream operations,overseas projects, energy services, and the power supply business. During the period
covered by the current medium-term management plan, we expect to see a certain level ofresults from these investments, which will make a contribution to growth and higher
profitability within the Group as a whole. We are targeting an increase in operating income

0
FY

0

08

13
Outlookat consolidated subsidiaries in fiscal 2013 to more than ¥40 billion—more than double theSales (left)

Operating income (right)

results in fiscal 2008.

Financial Strategy and Key Indicators in the Medium-Term Management Plan
By steadily implementing the key initiatives under the medium-term management plan, we should generate cash flow of about¥1,070.0 billion yen over the five years from fiscal 2009 to fiscal 2013. We will aggressively invest this cash flow in upstream,
infrastructure, and demand development projects while providing appropriate returns to shareholders.
While investing vigorously to realize sustained future growth, we will implement a balanced financial strategy, with consideration for investment efficiency, financial soundness, and shareholder return, and in fiscal 2013 we expect an ROA of 3.7%, a D/E
ratio of 0.69, and an ROE of 7.7%. In providing returns to our shareholders, our aim is to avoid reducing dividends and to work
to increase dividends over the long term. We are targeting a total payout ratio of 60%, including treasury stock acquisitions.

Major Management Indicators (Consolidated)

Main Data (Consolidated)

Fiscal 2008

Fiscal 2013 (plan)

182.7

Five year plan: 1,060.0

ROA (%)

2.4

3.7

ROE (%)

5.4

7.7

Operating cash flow (¥ billion)*

TEP (¥ billion)(4.8)* TEP (Tokyo Gas Economic Profit) =net operating profit after tax prior to interest payments –cost of capital (invested capital x WACC)
WACC Fiscal 2008 results: 3.4%
WACC Fiscal 2013 outlook: 3.8%

18.0

Fiscal 2008

Fiscal 2013 (plan)

City gas sales volume(billion m3, 45MJ/m3)

13.9

16.4

Total net sales (¥ billion)

1,660.1

1,720.0

Total assets (¥ billion)

1,764.1

1,920.0

Interest-bearing debt (¥ billion)

593.2

640.0

Equity ratio (%)

43.8

48.4

D/E ratio (times)

0.77

0.69

1,225.7

1,180.0

Reference: Non-consolidated
gas sales (¥ billion)

PremisePlan for fiscal 2009–2013: Crude oil price: $70 per barrel; exchange rate:¥100 to the dollar

19

REVIEW OF OPERATIONS

Gas Segment
In the year under review, gas sales volume was down 1.9% year on year, to 13,942 million m3,
due to such factors as a decline in demand stemming from a warm winter and the economic
slowdown. On the other hand, gas sales rose 15.7%, or ¥170.5 billion year on year, to ¥1,257.5
billion, due to higher unit prices under the gas rate adjustment system. However, as a result ofhigher gas resource procurement costs stemming from increases in LNG prices, which continued
from the previous term, operating expenses were up 17.6%, to ¥171.3 billion, and operating
income was down 0.7%, to ¥110.8 billion.

Influence of Rising Gas Resource Costs
on Revenues / Expenditures

Influence of Temperature Changes
on Gas Sales Volume

In general, the prices of LNG imported into Japan are linked to

In the first half of the year ended March 2009 (summer), tempera-

crude oil prices. Consequently, under the influence of higher crude

tures were 0.5ºC lower on average than in the previous fiscal year.

oil prices, gas resource costs increased from the year ended MarchIn the second half (winter), however, the average temperature was

2008. Also, LNG prices reflect the average crude oil import prices

0.5ºC higher than in the previous year. Accordingly, in regard to air

in Japan from several months earlier. As a result, although crudeconditioning demand in the commercial sector, cooling demand in

oil prices experienced a downturn starting in summer 2008, LNG

the first half and heating demand in the second half were adverse-

prices continued to increase through the end of 2008, which also

ly affected. In addition, gas sales volume in the residential sector,

had an influence on the rise in gas resource costs.

where heating and hot water demand increases in the second half

Under the gas rate adjustment system (see “Characteristics ofof the fiscal year, was also negatively affected.

the City Gas Business in Japan” inside the front cover), changes ingas resource costs are reflected in gas rates and thereby recovered.

Outlook for the Year Ending March 2010

However, a certain period of time is needed before LNG prices are

We forecast a small increase in gas sales volume in the year endingreflected in gas rates and as a result, several months are required

March 2010, due to such factors as a rise in the number of new

until gas resource costs are recovered through gas rates. For most of

housing starts in the residential sector. In regard to economic

the year ended March 2009, the rise in gas resource costs preceded

trends, the difficult conditions seen in the January-to-March period

the rise in gas rates, and consequently, the recovery of gas resourceof 2009 are expected to continue throughout the fiscal year, andcosts was insufficient. As in the previous fiscal year, gas resource

consequently gas sales volume is expected to decline year on year

costs were under-recovered in the year ended March 2009.

in each of the commercial, industrial, and wholesale sectors.
Overall, gas sales volume is forecast to decrease year on year.

Gas Sales Volume by Sector(Consolidated)(Million m3)
15,000Temperature(Otemachi, Tokyo)

Results: Gas Sales Segment( ºC)(¥ billion)
1,500

35

1,257.530

12,000

1,200

999.5

25
9,000

1,087.0

900
20
15

6,000

600

10
3,000

300
5

0
Years ended
March 3107
Residential
Industrial

20

08

09

Commercial and others
Wholesale

0
Month

203.5
111.6

4

5

6

7

8

9 10 11 12 12

30Years ended
March 31

Year ended March 2008
Year ended March 2009
Average temperature in the year ended March 2008:
First half: 22.6ºC; second half: 10.6ºC; full year: 16.6ºC
Average temperature in the year ended March 2009:First half: 22.1ºC; second half: 11.1ºC; full year: 16.6ºC

07
Net sales

08

110.8
09

Operating income

Residential Sector
Overview

In this setting, in the residential sector, Tokyo Gas will leverage

In the residential sector, gas is principally used for household

its points of contact with its customers to implement thoroughheating and hot water as well as for cooking appliances, such as

market cultivation and will work to maintain and expand gas sales

gas ranges and ovens.

volume per customer. At the same time, we will strive to achieve

The Kanto area, which the Company has positioned as a
strategic area, is recording continued growth, and growth in thegrowth in total gas sales volume by increasing the number ofcustomers through aggressive marketing activities.

number of customers is expected to exceed 100,000 a year.
However, in recent years there has been a decline in the number of

Initiatives in Recent Years

people per household due to trends toward fewer children andEstablishment of Tokyo Gas LIFEVAL

nuclear families. In addition, there has been an increase in housing

Tokyo Gas has invested more than one-third of the equity in Tokyo

air tightness and insulation. As a result, gas sales volume per

Gas LIFEVAL, a new regional energy company, and promoted its

household unit is following a gradual declining trend. Also,establishment. Tokyo Gas LIFEVAL was established with the aim ofcompetition with all-electric housing, which is being promoted

building close relationships with customers by responding carefully

principally by electric power companies, is intensifying.

to their diversifying lifestyles and needs. Under Tokyo Gas LIFEVAL,

Residential Gas Sales Volume per
Residence and Number of Customers（m3/residence/year 45MJ/m3）(Millions)

450

11

300

10

150

9

0
Years ended
March 31

0

07

08

09

Tokyo Gas LIFEVAL’s service

Residential gas sales volume per residence (left)
Number of customers (right)
Figures for residential gas sales volume per customer
are non-consolidated figures for Tokyo Gas.

21

the sales and service functions that comprise points of contact
with customers, such as maintenance and sales of gas appliances,periodic gas facility safety check, and meter reading, are being
restructured and integrated. Excluding the wide-area markets,
we have established a system based on the division of our service
area in Tokyo, Kanagawa, Chiba, and Saitama prefectures into
approximately 65 service blocks. Following up on the 27 blocks
established in the fiscal year ended March 2009, we established
23 blocks in April 2009, giving Tokyo Gas LIFEVAL a total of 50
blocks. In October 2009, we plan to complete the establishmentof all of the blocks.
Start of general sales of “ENE-FARM” residential-use fuel cell
“ENE-FARM,” which provides a means to reduce CO2 emissions in
the residential sector, is a fuel cell cogeneration system thatgenerates electricity by separating hydrogen from city gas. Having
completed four years of large-scale verification testing, in May
2009 we achieved a world first with the start of general sales ofthese systems for residential use. “ENE-FARM” can make asignificant contribution to the realization of a low-carbon society.
At the same time, together with “ECOWILL” (a residential use gas
engine cogeneration system), “ENE-FARM” has been positioned by
Tokyo Gas as a strategic product that will facilitate the development of the new market for in-house power generation and will
support increased gas sales volume in the future. Over many years,
Tokyo Gas has built relationships of trust with housing developers,
housing construction companies, building contractors, architects,
and others. Leveraging these relationships, we will focus our“ENE-FARM” sales efforts on new detached housing. Also, during
the period covered by the medium-term management plan for

Residential-use fuel cell “ENE-FARM”

fiscal 2009 – 2013, we will work to reduce costs and to improveease of installation, aiming for a cumulative total of 42,000
installed units in fiscal 2013 and laying the foundation for fullscale diffusion.

Rate Initiatives
In the fiscal year ended March 2009, we implemented two rate-related initiatives in the regulated sector, comprising smallvolume costomers. First, rates were lowered in April 2008. Under the medium-term management plan for fiscal 2006–2010,
we took steps to reduce fixed costs through increases in management efficiency. We also promised to return, during thecourse of the plan, the results of those initiatives to gas users, who are as important stakeholders as shareholders. We havefulfilled that promise. This revision was a reduction averaging 1.51% in our tariffs for the entire regulated sector, encompassing both service and optional agreement tariffs in Tokyo, the largest district in number of customers. This rate reduction had
the effect of reducing gross profit by approximately ¥8.9 billion in the fiscal year ended March 2009. Also, one-fourth of thegas rate increase under the gas rate adjustment system for January to March 2009 was not adjusted in this period. This will
have the effect of reducing profit for the fiscal year ended March 2009 by ¥4.2 billion. We implemented special measures toadjust this evenly over the year from April 2009 to March 2010. In this way, we have taken steps to mitigate the scale of theincrease in gas rates stemming from the dramatic rise in the price of crude oil, and to meet the request of the national
government to stabilize living conditions for consumers.
A new gas rate adjustment system was introduced from May 2009. Please see “Characteristics of the City Gas Business in Japan” inside the front cover.

22

Natural gas cogeneration system using a leading-edge, high-efficiency gas engine (Makuhari District Heating and Cooling Center)

Commercial and Others, Industrial, Wholesale Sectors
Overview

Wholesale sector

Commercial and others sector

In the wholesale sector, we supply gas on a wholesale basis,

In the commercial and others sector, in line with the diverse needs

principally to 26 gas suppliers in the Kanto region (as of theof a wide range of customers, such as offices, schools, hospitals,

end of March 2009, excluding companies to which Tokyo Gas

and commercial facilities, gas is used in customized cogeneration

supplies LNG).

systems, gas air conditioning systems (absorption cooling andheating systems and gas heat pump air conditioning systems),

Initiatives in Recent Years

cooking equipment, and water heating equipment.

Commercial and others sector
With competition between gas and electricity intensifying, Tokyo

Industrial sector

Gas is making proposals for the optimal mix of energy systems to

In the industrial sector, we conduct sales of gas to customers withmeet customer needs. These activities involve the overall coordina-factories that use furnaces, boilers, and the like, and sell gas fortion of systems, including low-energy consumption, low-cost

power generation use to Independent power producers andsystems, such as cogeneration systems, as well as air conditioning,2

hot water, and cooking systems. In doing so, we work in coopera-

1Power producers and suppliers .

tion with wholly owned subsidiary ENERGY ADVANCE Co., Ltd.
1 Independent electric power companies that conduct wholesale electric
power supply
2 Companies, other than electric power companies, that supply electricity
to meet large-volume demand

to leverage energy services, such as ESCO operations, which cover
everything needed to conduct energy-saving renovations, including
technologies, facilities, human resources, and financial resources.
In addition to providing one-stop solutions encompassing a wide

Gas Sales Volume
in the Commercial and Others Sector

Gas Sales Volume
in the Industrial Sector(Million m3)(Million m3)

4,000

6,000

(Million m3)

5,732
5,336

3,000

2,972

3,126

Gas Sales Volume
in the Wholesale Sector
5,623

2,000

1,500

2,000

3,000

1,000

1,000

1,500

500

07

08

09

1,840

08

09

1,554

3,011
4,500

0
Years ended
March 31

1,828

0Years ended
March 31

07

08

09

0
Years ended
March 3107

23

range of energy-related services, we have worked to promote andyear, and we are forecasting a decline of about 10% year on year.

increase the efficiency of district heating/cooling systems, which

However, the trend toward low-carbon technologies continues toare drawing attention as high-efficiency methods of using energy.

grow, and as a result, we anticipate further progress in the shift

In the fiscal year ended March 2009, gas sales volume declined

to natural gas in tandem with a recovery in economic conditions.

year on year due primarily to the temperature-related effects of a

In response to this demand, we will work to increase gas sales

cool summer and warm winter and to reduced utilization rates ofvolume by extending pipelines to the Kashima and Northern Kanto

existing facilities in line with energy-saving measures. However,regions and by bolstering gas supply through LNG tanker trucks.

we will continue to propose superior energy services, with a focus
on cultivating fuel conversion and redevelopment projects in

Wholesale sector

urban areas and on meeting gas facility replacement demand,

To expand wholesale business, a framework that enables thewhich is expanding.

development of both wholesale gas suppliers and Tokyo Gas overthe long term is necessary. Tokyo Gas supports large-volume sales

Industrial sector

in the service areas of wholesale gas suppliers, and through the

In recent years, public demands for global warming countermea-

Gas Network Consortium, which is composed of 41 general gas

sures and other environmental initiatives have been continually

suppliers, mainly our wholesale gas customers, Tokyo Gas isstrengthening, and the higher price of crude oil has also had an

working to find common ground on various challenges and toeffect. In this setting, the shift to the use of natural gas as a fuelimplement measures targeting the resolution of those challenges.

in the industrial sector has progressed, and as a result, sales inIn the fiscal year ended March 2009, large-volume demand fromthe first half of the fiscal year ended March 2009 were favorable.

wholesale customers declined due to the economic slowdown,

However, in early fall, industrial production declined as inventories

but this was offset by development of new demand fromwere reduced under the influence of the economic recession,

wholesale gas suppliers and by facility expansions by existingand plant utilization rates were reduced, centered on the steel,customers. Consequently, gas sales volume was up 0.7% year on

machinery, and chemical industries. Gas sales volume saw sub-year, to 12 million m3, representing the only year-on-year increase

stantial declines. In the fiscal year ending March 2010, theof any sector.

economic slump is expected to have an effect throughout the

Breakdown of Gas Sales Volume by Industry
Commercial, Public, and Medical Use(Year ended March 2009)

Industrial Use (Year ended March 2009)

(%)

(%)

15.3% Company / office10.3% Wholesale / retail sales
17.0% Restaurant
5.6% Lodge / hotel
1.0% Beauty salon
2.8% Amusement place
1.1% Laundry
9.7% District heating and cooling
5.3% Other
23.0% Public
8.9% Medical

Penetration of Natural Gas Cogeneration Systems

Penetration of Gas Air Conditioning(Thousand kW)
1,500

12,000

1,000

8,000

500

4,000

0
Years ended
March 3105
Industrial use(Thousand kW)

06

07

08

Consumer use

A portion of cogeneration system capacity has been changed fromindustrial use to commercial use as of March 31, 2009.

24

21.3% Machinery / metal
3.1% Ceramics
12.9% Chemicals
10.3% Food
39.9% Power generation
12.4% Other

09

0
Years ended
March 31

05

06

07

Absorption typeGas heat pump air conditioning system

08

09

LNG Vessel “Energy Frontier”

Procurement and Transportation
Overview

from in April 2009, has been added to our long-term contract

More than 95% of the city gas supplied by Tokyo Gas is sourced

projects, thereby diversifying our LNG procurement sources, andfrom LNG, with 2% from LPG used to adjust caloric value, and thefrom the year ending March 2010, we plan to procure from Pluto

remainder from domestic natural gas and other sources. To realize

and Gorgon in Australia as well.

stable gas resource procurement, the Company is working todiversify its sources of LNG and currently has 10 long-term LNG

Expansion of upstream and transportation operations

contracts in six countries. We are also taking steps to facilitate

In addition to initiatives in the procurement of cost-competitive

flexible, competitive resource procurement in line with demand,

LNG, Tokyo Gas has upstream interests in projects from which LNG

such as increasing the FOB ratio, which makes possible transport

is procured—3% in the Darwin project and 5% in the Pluto

cost reductions through the use of our own vessels, and increasing

project. By participating in upstream projects, we acquire a variety

flexibility in volumes through changes in destinations and flexibleof know-how and facilitate flexible responses to changes in theincreases in transaction volumes in accordance with contracts.

operating environment, such as increase in crude oil prices. We
have also established our own fleet of tankers, which comprised

Initiatives in Recent Years

seven vessels as of May 2009, and we use that fleet to transport

Initiatives targeting stable procurement

LNG. These vessels are used not only for long-term LNG contracts

Since the second half of the fiscal year ended March 2009, gas

but also for transport of LNG procured via short-term contracts.

demand has declined due to the economic slump, but we are

Through these initiatives, we have increased procurement flexibility

utilizing the flexibility of the amount sourced from long-term LNG

and hiked the FOB ratio to 50%, thereby contributing to lower

projects, and consequently we are conducting procurement in line

procurement costs.

with demand fluctuations. Sakhalin II, which we began to source

Tokyo Gas LNG Imports by Country of Origin
Tokyo Gas Long-Term LNG Contracts(Thousand tons)
Country

2007

Years ended March 31
2008

Malaysia

3,309

3,767

4,482

(40.2%)

Australia

3,395

3,289

2,847

(25.5%)

Brunei

1,514

1,405

1,257

(11.3%)

Indonesia

626

740

742

(6.6%)

Qatar

598

715

631

(5.7%)

Others

749

958

1,203

(10.7%)

Total

10,191

10,874

Sakhalin

2009

11,162 (100.0%)

Tokyo
Qatar

BruneiMalaysia
Indonesia
New LNG project
Existing LNG project

Pluto
GorgonDarwinNWS

25

Tokyo Gas Sodegaura LNG Terminal

Production, Supply, and Infrastructure
Overview

Pipeline network development

Tokyo Gas receives about 11 million tons of LNG a year at three

The high-pressure trunk pipelines circling the Tokyo metropolitan

LNG terminals along the shores of Tokyo Bay and delivers city gas

area and the three LNG terminals work together to support theto its customers through a pipeline network of about 57,000 km—

reliable supply system of Tokyo Gas. To meet long-term demand

greater than the circumference of the earth. After LNG is received

growth, we have built the Chuo Trunk Line I, which runs north toat the terminals, it is transferred to LNG tanks that have a total

south through the middle of, and connects to, the trunk lines

storage capacity of about 3.4 million kl. It is regasified to naturalcircling Tokyo. The construction of this line was completed ingas using vaporizers, LPG is added to adjust the caloric value, andDecember 2008, a year ahead of initial plans. To secure demand

it is transported through the pipelines.

and expand operations from the second half of the 2010s, we willconsider and implement measures to expand the trunk infrastruc-

Initiatives in Recent Years

ture in the wide service area during the period covered by the

LNG terminals

medium-term management plan.

The Company’s LNG terminals are among the largest in the world,
and to respond to growth in demand for natural gas and to

Capital expenditures

increase supply stability, Tokyo Gas continues to undertake capitalIn the year ended March 2009, capital expenditures increased byinvestment. In November 2009, we will start construction of a

¥7.9 billion, or 5.7%, year on year, to ¥145.9 billion. On a non-

250,000-kl LNG tank, the largest in the world, at the Ohgishimaconsolidated basis, major capital investment activities include

terminal, with a target completion date of October 2013. The

supply facility projects—such as construction of trunk pipelines,

Company has also started investigation for constructing a fourth

construction of supply pipelines, and replacement of existing gas

LNG terminal in Hitachi, anticipating continued demand growth

pipelines—which totaled ¥83.1 billion, and terminal construction

from the 2010s in the 200-km radius of the Kanto region.

facilities, which totaled ¥8.8 billion. During the period covered by
the medium-term management plan, targeting expansion ofdemand over the medium-to-long term, we will allocate about¥580.0 billion for capital expenditures and investment and loans
with the objectives of developing demand and increasing production, supply, and infrastructure development.

Major Capital Investment Projects in the Year Ended March 2009
Project nameProduction facilities: ¥8.8 billion (Negishi LNG Terminal BOG facilities, etc.)• Distribution facilities: ¥83.1 billion(Chiba-Kashima Line, ¥8.9 billion; Chuo Trunk Line, ¥5.8 billion; New Negishi Line and¥106.5 billion
Yokohama Line II, ¥5.6 billion; newly constructed supply pipelines, ¥11.1 billion;
replacement of existing gas pipelines, ¥15.1 billion)• Service and maintenance facilities, etc.: ¥14.6 billion (System related: ¥7.0 billion, etc.)• Tokyo LNG Tanker, LNG tanker construction expenses: ¥8.5 billion
Total: ¥42.2 billion• ENERGY ADVANCE, cogeneration systems, ¥8.0 billion¥145.9 billion (after eliminations)•Tokyo Gas

Consolidated subsidiaries
Total:

26

Gas Appliance Sales Segment
To encourage customers to use gas more comfortably, we sell gas
appliances that are produced by other companies to specifications
determined by Tokyo Gas. For residential customers, we offer gas
cooktops, water heaters, gas air conditioning systems using hot
water, residential-use cogeneration systems, floor heating systems,
mist saunas, in-home power generation systems, and otherappliances. For industrial customers, we principally offer gas heatpump air conditioning systems. These residential and industrial
appliances are sold through such channels as affiliated companies
and cooperating companies. In the fiscal year ended March 2009,
we recorded lower sales and profits in this segment. Sales were
down 7.5% year on year, to ¥122.3 billion, and operating income
declined 28.3%, to ¥2.0 billion.

Mist sauna “MiSTY”

Installation Work Segment
This segment carries out construction, such as the installation ofgas pipes and valves on the sites of customers in our service area.
In the year ended March 2009, conditions in the housing
market worsened due to the influence of the economic recession.
The number of new housing starts in our service area declined
16.9%, to 217,000, and the number of installations undertakenby the Company declined. In addition, due in part to increasedmaterial prices, sales were down 14.4% year on year, to ¥49.0
billion, and the segment recorded an operating loss of ¥1.0 billion,
compared with operating income of ¥0.8 billion in the year ended
March 2008.

Real Estate Rental Segment
This segment‘s business primarily involves leasing and manage-

2010s, we are currently moving ahead with development planningment for the Shinjuku Park Tower and other office buildings. Thesein cooperation with a partner developer. In addition, the GINZA

activities are conducted by Tokyo Gas Urban Development Co.,

gCUBE building was opened in September 2008.

Ltd. In the year ended March 2009, sales were ¥35.6 billion, andoperating income was ¥7.4 billion.
Real estate operations are positioned to support increased
competitiveness in our integrated energy business, the corebusiness of Tokyo Gas. Results from the real estate business areused in the Company‘s core operations, and in regard to large scale
properties for which asset prices are expected to rise, we willconduct development to fully leverage the potential of the property
while limiting risk. Development funds are, as a general rule, fromreal estate sales, and there is no influence on core operations.
Major development projects will utilize a site of about 3.2
hectares in Tamachi and a site of about 20 hectares in Toyosu thatare suitable for development. With the objective of recording
business income from both of these properties in the middle of the
Shinjuku Park Tower

27

Other Business Segment
Overview

as one facet of measures to strengthen the value chain. In June

This segment includes energy services, facility construction and2008, we put the Energy Navigator, our sixth vessel, into service.

engineering, industry gas, LPG, system integration, electric power,

Due to the increase in the number of vessels and other factors,

credit and leases, and shipping operations.

Tokyo LNG Tanker Co., Ltd., which manages and operates theCompany’s fleet, recorded increased shipping revenues and higher

Initiatives in Recent Years

income. In May 2009, our seventh vessel, the Energy Confidence,In the year ended March 2009, energy services sales increased

was placed into service.

due to a higher number of new projects undertaken by ENERGY

In the year ending March 2010, the economic recession is

ADVANCE Co., Ltd. In electric power operations, Kawasaki Natural

expected to have an adverse effect on the revenues of ENERGY

Gas Power Generation Co., Ltd. began operation of its first unit in

ADVANCE Co., Ltd., Tokyo Gas Chemical Co., Ltd., and other

April 2008 and its second unit in October 2008. Consequently, we

companies. In addition, increases in depreciation accompanying

increased our share of the capacity of power generation projects

the introduction of our seventh vessel and higher charter fees will

to about 400 MW. As a result, sales increased, but due to higher

have an adverse effect on the operating income of Tokyo LNG

fuel costs and other factors, income declined. In shipping opera-

Tanker. As a result, we expect both sales and operating income intions, we are taking steps to bolster the capacity of our own fleet

the other business segment to decline year on year.

Kawasaki Natural Gas Power Generation

LNG Vessel “Energy Navigator”

Overview of Major Companies in the Other Business Segment (Years ended March 31)
Field

Major companies

Net sales

2009

2008

(¥ billion)

2009

2008

Change(%)(¥ billion)

Energy services

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

107.9

73.1

47.5

1.7

1.0

64.6

Industrial gas, etc.

Tokyo Gas Chemicals Co., Ltd.,Tokyo Oxygen and Nitrogen Co., Ltd.

38.0

39.0

(2.7)

1.4

2.1

(32.4)

LPG, etc.

Tokyo Gas Energy Co., Ltd.

38.9

38.6

0.7

0.2

0.0

498.1

System integration, etc.

TG Information Network Co., Ltd.

19.9

18.8

5.5

0.6

0.5

8.6

Electric power

Tokyo Gas Yokosuka Power Co., Ltd.,Tokyo Gas Co., Ltd.

30.3

15.5

95.5

(0.9)

(0.6)

—

Credit and leases

TG Credit Service Co., Ltd.

13.2

13.9

(4.8)

1.5

1.5

(3.2)

Shipping

Tokyo LNG Tanker Co., Ltd.

15.8

11.5

37.0

2.8

1.6

80.3

Facility construction, engineeringand others

Tokyo Gas Engineering Co., Ltd., Capty Co., Ltd.

99.4

109.4

(9.1)

5.8

6.3

(7.5)

363.7

320.3

13.6

13.4

12.7

5.6

Total

28

Operating income

Change(%)

TECHNOLOGY DEVELOPMENT

Strategic Direction of Technology Development

improvements in this technology, such as cost reductions, targeting

In technology development, we focus on three areas:

its use in multiple dwelling units in the second half of the 2010s,(1) the creation of appealing concepts and the development ofand will strive to foster its full-fledged diffusion. We will also

products that give concrete form to the value created by those

proceed with development and verification testing of solid oxide

concepts, (2) the development of innovative environmental

fuel cell (SOFC) technologies, which have the potential to offer

technologies that will contribute to the realization of a low-carbon

superior durability and cost savings. We have developed solar-society, and (3) technologies that support the operational plat-

powered hot water systems as a technology that uses renewableforms for stable administration of gas operations and for realiza-

energy and contributes to progress toward a low-carbon society.

tion of higher-level usage and cost reductions. In the fiscal year

From November 2008, we conducted the world‘s first onsite

ended March 2009, the Company allocated about ¥9.1 billion to

verification testing of CO2 separation and collection during the
production of hydrogen. This technology cuts CO2 emissions intechnology development.

half while maintaining production efficiency of about 80%, thereby

Major Initiatives

heightening the possibility of city gas usage in the future low-

Through the development of products that reflect consideration

carbon society.

for the understanding and materialization of customer needs,

In platform technologies, we work to make it possible forwe provide customers with systems and appliances incorporating

natural gas to be delivered safely to the customer and to be used

innovative environmental technologies.

without worries. To that end, we will continue to deepen, pass along,In the year ended March 2009, we completed large-scale

and utilize infrastructure construction technologies, maintenanceverification testing of a residential-use polymer electrolyte fuel cell

management technologies, combustion engineering-related tech-(PEFC) (sales name: “ENE-FARM”), and made significant progress

nologies, and gas quality management technologies, among others.

toward the market introduction stage. We will continue to make

The Technology Development Strategy of Tokyo Gas
Creation of Appealing Concepts andDevelopment of Appealing Products

Development of Innovative Environmental Technologies

Residential sector

Innovative energy-saving technologies for high-level use of city gas
Development of next-generation“ENE-FARM”(polymer electrolyte fuel cell)

Development of technologies
related to understanding
customers
Development of proposal-style
lifestyle products
Effectiveness and efficiency
testing
Commercialization
with consideration for quality

Renewable energy technologies, low-carbon technologies

New cooktop “My Choice”

Commercial and industrial sectors
Customer support technologies that contribute to retentionof existing customers and development of technologies that
increase the safety ofgas systems
Development of technologies
that utilize solar heat andbiomass.

Incomplete combustion warning
sensor for commercial kitchens

Development of SOFC
(solid oxide fuel cell)
Development of several hundred
kW class MCFC
(molten carbonate fuel cell)combined cycle system

Technologies using
biomass
Technologies for systems
combining solar heat/solar batteries withgas systems

Solar heat hot water system for
condominium housing

Technologies for thehighly efficient production
and use of hydrogen
CO2 separation, collection,transport, and processing
technologies

Technologies related to“Smart Energy Network”
composed of distributed
power sources

Hydrogen station

Technologies Supporting Our Operational Platforms
Production
Long-term facility
usage, increased
quality of terminal
operations, etc.

Pipelines
Maintenance of
security levels andoptimization of
security investment

MetersDevelopment ofservices using
ultrasonic meters,
etc.

29

CORPORATE GOVERNANCE

Our Fundamental Concept ofCorporate GovernanceInitiatives to Strengthen Corporate Governance

As an “energy frontier corporate group” that focuses on natural gas, Tokyo Gas has a management philosophy that aims at
the realization of comfortable lifestyles and environmentallyfriendly cities. We work to ensure continued development
while consistently earning the trust of customers, shareholders, and society. Based on this philosophy, our fundamental
concept of enhancing corporate governance is intended toachieve a continuous increase in our corporate value by
maximizing the value provided to all of our stakeholders.
We are also endeavoring to develop systems and measures
to further augment corporate governance, and are implementing them with a commitment to management legality,
soundness, and transparency. Tokyo Gas continues to emphasize the importance of accurate decision making, clear separation of management functions and executive functions,efficient business operations, strengthening of auditing andmonitoring functions, and clarification of management andexecutive responsibilities.

In accordance with our fundamental concept of corporate
governance, we have implemented the following ongoingmeasures to build an optimal corporate governance system
for the Company and to further strengthen this system.

2002

The number of directors was significantly reduced (from 30 to 15).
Outside directors were invited to join the Board of Directors.
An executive officer system was introduced.
• The term of office for each officer was shortened to one year.
• The Management Ethics Committee, which is chaired by the
President, was established. This committee aims at creating an
open atmosphere in the organization and promoting transparent
management systems, through the discussions relating tocompliance in general.
•••

The Enterprise Risk Management System was introduced.

2003

•

2005

•

2006

・In order to meet the requirements of the Internal Control
Reporting System based on the Financial Instruments andExchange Law, the Internal Control Promotion Committee wasestablished.

2008

•

The Advisory Committee was established to discuss mattersrelating to candidates for director positions, officer remuneration,and other similar issues.
• The officer remuneration system was revised, with principal
measures including the abolition of retirement benefits, theintroduction of a performance-linked remuneration scheme, andthe establishment of share-purchasing guidelines.

The Risk Management Committee was established.
The evaluation related to the internal control reporting system
was completed.
• The IR system was reevaluated, and the IR Department wasestablished. As a result, IR activities were strengthened and therisk management functions that had been dispersed throughout
various departments were combined in the IR Department.
•

Corporate Governance Structure
Customers

Shareholders / Investors

Local Community

General Shareholders’ Meeting
Appointment
Appointment

ReportAdvisory Committee2

MonitorCollaboration

Report submission
Management Ethics Committee

Audit

Collaboration

Internal Audit Dept.

Board of Corporate
Auditors 3

Independent Auditors

Board of Directors1
Inquiry

ReportAppointment

Report submission

AnswerPresident (Corporate
Executive Committee4 )ReportApproval

Deliberation
and report

Settlement and monitor

Report submission

CSR Promotion Committee

Other In-House Committees
Audit

Stakeholders

30

Risk Management Committee

Environmental Committee

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

1
2
3
4

Customer Satisfaction Promotion Committee

Investment Evaluation Committee

Collaboration

Audit

Safety Committee

General Shareholders’ Meeting

Board of Directors: 11 directors (3 outside directors, and 8 internal directors)
Advisory Committee: 2 outside directors, and 1 outside auditor, Chairman, and President
Board of Corporate Auditors: 5 corporate auditors (3 outside auditors, and 2 internal auditors)
Corporate Executive Committee: President, 2 Executive Vice Presidents, 10 senior executive
officers (3 of the representative directors also serve as President and Executive Vice Presidents.)

Add to agenda and report
Decision and risk monitoring
Tokyo Gas Co., Ltd.

Business Operations

Management Structure
In June 2002, we reduced the number of directors dramatically (from a maximum of 30 to a maximum of 15) so as tostreamline and speed up management decision making. In
order to clarify the separation between management andexecutive functions and to strengthen the decision-making
and management functions of the Board of Directors, we
invited three outside directors, all of whom have extensive
expert knowledge, to join the Board. The outside directors
monitor the appropriateness of management activities in a
flexible and objective manner. We have created a structurethat supports prompt and effective decision making while
maintaining proper management transparency. We have alsoestablished the Advisory Committee to discuss mattersrelating to candidates for director positions, officer remuneration, and other similar issues. This committee is comprised ofoutside directors, outside auditors, and Tokyo Gas directors.
As of the end of June 2009, there were 11 directors.
Tokyo Gas has adopted an executive officer system thatprovides clearly defined accountability. By delegating substantial authority to the executive officers, the system also
supports speedy execution by the executive officers ofoperational matters, based on major business operation plans
and the like determined by the Board of Directors. As of theend of June 2009, there were 23 executive officers.
In addition, to assist the Board of Directors, we have set
up the Corporate Executive Committee as a deliberative body.
It comprises the President, the Executive Vice Presidents, andthe senior executive officers. It deliberates in advance on
agenda items for upcoming meetings of the Board of Directors and on important matters related to management. Afterin-depth discussion at these weekly meetings, the President
makes final decisions on such management issues. In order toestablish clear lines with regard to the directors’ management
accountability and the executive officers’ operational accountability, we have set their respective terms of office at
one year.
The three outside auditors and two corporate auditors
strictly audit the legality and appropriateness of the performance of duties by the directors from a position of complete
independence. Further, they actively make recommendations
at Corporate Executive Committee and Board of Directors toenhance the effectiveness of monitoring.

Internal Control System
Under our internal control system, the Board of Directors,
which includes three independent outside directors, determines the basic policies for the development of the importantbusiness operations plans and the internal control systems
and monitors the performance of the directors. In accordancewith the basic policies determined by the Board, the executive
officers act to carry out business operations as well as todevelop and operate the internal control system. We haveestablished the Corporate Executive Committee as a deliberative body to assist the Board. This body undertakes priordiscussions on the agenda for upcoming meetings of theBoard and deliberates on important matters related to
management.
The five corporate auditors, three of which are outside
auditors, monitor the performance of the directors’ duties.
In addition, the Internal Audit Department, independentlyof business units, monitors the business activities in eachsegment of Tokyo Gas and its consolidated subsidiaries, aswell as the state of the development and operation of internal
control and risk management. To implement specialized
audits efficiently, the Internal Audit Department has developed a structure of four groups, specializing in financial,
operational, information system, and compliance audits. In
April 2009, an internal control group was newly establishedto evaluate the effectiveness of internal control regarding
financial reporting.

Reforming the Remuneration System
In 2005, Tokyo Gas restructured its officer remuneration
system and published details of the new system with the aimof further enhancing management objectivity and transparency as well as clarifying the management responsibility forbusiness performance. The main features of the new system
are as follows:
1. Abolition of retirement benefits
Retirement benefits for directors have been abolished.
Yearly retirement benefits have been integrated intomonthly payments to officers.
2. Introduction of a performance-linked remuneration scheme
A performance-linked remuneration scheme that reflects
Company-wide and divisional performance for the previous
term has been introduced for the monthly payment of
directors who double as executive officers.

Total Remuneration for Directors andCorporate Auditors(Fiscal 2008)
Millions of yen

Thousands of
U.S. dollers

Remuneration for
11 directors

461

4,704

Remuneration for
6 corporate auditors*

106

1,081

Total

567

5,785

*

Including one auditor who retired after the General Shareholders’ Meetingin June, 2008

Compensation for Independent Auditors(Fiscal 2008)
Millions of yen

Thousands of
U.S. dollers

Remuneration forauditing services

307

3,132

Remuneration
for non-auditing services

34

346

Total

341

3,479

31

3. Share purchasing guidelines
All directors, excluding outside directors, will acquire Tokyo
Gas shares each month through the Employee Shareholding Association. The amount purchased is determinedaccording to our newly introduced share purchasing
guidelines. The ownership of such shares will be retained
during the terms of office of the directors.

Enterprise Risk Management System
In fiscal 2003, the Group established the Enterprise Risk
Management (ERM) system, which includes risk management
regulations and documented rules concerning major risks that
require management intervention.
The IR Department’s Risk Management Group wasestablished to promote overall risk management, and approximately 100 Risk Management Promotion Officers have been
deployed in Tokyo Gas and its consolidated subsidiaries, andin this way ERM is promoted. Under this risk management
system, every year, we review risks, evaluate fluctuations in
the importance of risks, and assess the implementation andimprovement status of countermeasures. This system facilitates the steady implementation of the ERM-PDCA (Plan-DoCheck-Act) cycle.
Furthermore, in fiscal 2008, the Risk Management
Committee was established to assess, manage, and evaluate
the status and operation of the ERM system and to improve
the level of ERM on a Group-wide basis. This committee
checks the status and operation of the ERM system, including
periodic risk reviews, reports to the Corporate Executive Committee and the Board of Directors, and secures the necessary
approvals.
As a result of the establishment of the ERM system,
we can identify and clarify the most recent major risks,
which reflect changes in the management environment, andwe can provide appropriate disclosure of risk information to
the capital markets and other major stakeholders. Also, as aresult of periodic monitoring through the Corporate Executive Committee and Board of Directors’ meetings, we canimplement appropriate responses to risks that are becoming
more diverse, complex, and advanced.

Crisis Management System
Because the Company provides public services that comprisea lifeline, for many years we have also had a crisis management system that serves as a response system in the eventthat a risk-related event actually occurs. Specifically, we haveformulated Emergency Response Organization Regulations.
In the event of the occurrence of any type of crisis, theEmergency Response Organization responds to the situation
immediately in accordance with the Emergency Response
Organization Regulations. Possible crises include major natural
disasters, such as earthquakes, or production or supply disruptions arising from major accidents at pipelines or terminals,
as well as influenza, terrorism, failures in mission-critical IT
systems, and compliance problems. Moreover, periodic
training is conducted for major risk response measures.

Promoting Compliance
Our stance is reflected in three basic policies calling for thefostering of compliance awareness, the cooperation of each
workplace with compliance efforts based on the Group policy, and the establishment of compliance PDCA cycles.
We have established the Management Ethics Committee,
chaired by the President. This committee discusses at the
management level basic compliance policies and all aspects ofcompliance initiatives by the Group, monitors the implementation of compliance-related measures, and confirms activity
programs from the following year and thereafter. We havealso established the Compliance Department, a specialized
unit that provides leadership in compliance-related activities.
These include development of compliance promotion systems
for each unit, awareness and educational campaigns about
the code of conduct, compliance risk reduction measures,
maintenance of advisory systems, and the distribution of information within and beyond the Tokyo Gas Group companies.
In addition to continuous education about activities
related to our code of conduct revised in 2004, we aremoving forward with a compliance casebook designed for applying the code of conduct to various problems in the workplace, so as to achieve the permeation of compliance.

Major Risks Requiring Management Intervention
Risks associated with accidents,
disasters, etc.

32

Gas resource procurement difficulties, natural disasters, accidents accompanying gas manufacture andsupply, supply impairments, problems in the areas of assurance of gas safety and the quality of gas
appliances and other products, damage due to rumors caused by gas accidents at other firms

Market fluctuation risksMarket price and interest rate fluctuations affecting real estate and financial assets

Risks accompanying
business execution

Risks related to established business (changes in the environment of gas resource procurement, risks
associated with insufficient or excessive recovery of gas resource costs, decrease in gas sales due toclimate change, reduction in existing demand, decrease in demand accompanying intensified competition, delay in the establishment or start of business by new regional energy companies, failure to achieve
technology development goals, changes in laws, regulations, institutions, or national/local energy policy),delayed cultivation of new markets, inability to recover investments

Risks related to information
management and system operation

Leakage of personal information, shutdown or malfunction of mission-critical IT systems, interruption of
telephone service at call centers

Risks related to corporate social
responsibility

Conformance with new environmental regulations, etc., compliance violations, insufficient customer
satisfaction or customer service

Compliance risk countermeasures include internal andexternal advisory systems. By operating these systems effectively, we are endeavoring to ensure that compliance-related
problems are discovered and resolved quickly so that our
corporate self-regulatory processes will continue to function
effectively. Dedicated to auditing the observance of laws,
regulations, and corporate ethics, the Compliance Audit Group
has also been established within the Internal Audit Depart-ment. It has been steadily working to mitigate risks by implementing follow-up audits to verify progress in tackling concerns identified at first auditing.
We monitor the effectiveness of Group compliancepromotion activities by conducting regular complianceawareness surveys of all employees. The results of thesesurveys are reflected in initiatives for the following years.

Compliance Structure
Board of Directors
President

Corporate Auditors

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

Internal Audit Dept.

Compliance Dept.
Instruction / report

Support / report

Each division / business unit
Compliance audit (risk understanding)

ReportConsultation / notification

Compliance Committee

Each department of Tokyo Gas

Subsidiaries & affiliates

Report / consultation

Report / consultation

Employee

Enhancement of IR Activities

Group Management Structure

As distinctive characteristics of the IR activities of Tokyo Gas,
our top management diligently participates in our IR activities.
In addition to disclosing a wide range of information, we also
engage in interactive communication with investors. We
believe that through these activities, we can put stock market
expectations and the opinions to good use in the management of the Company and enhance discussion of the thinkingof our management with all of our investors. In so doing, we
eliminate the gap between our true corporate value and themarket assessment of the Company. Based on this belief,
primarily in the period after the announcement of our
financial results, we have been engaged in IR activities
including visits by top management to institutional investors
in Japan and overseas. Briefings and individual meetings arealso used as opportunities for wide-ranging discussions.
Tokyo Gas has always disclosed its short-, medium- andlong-term management targets as well as the specific management strategies and action plans adopted to achieve thesetargets. We have also actively shared information about ourbusiness performance and progress towards goals. Among
our disclosure activities, we will continue to improve andexpand the content of our annual report, investors’ guide,
IR website, and Tokyo Gas Newsletter.

The Tokyo Gas Group currently consists of Tokyo Gas Co.,
Ltd., together with 57 subsidiaries and four equity-method
affiliated companies. With the deregulation of the energy
sector, Tokyo Gas now faces escalating competition fromboth inside and outside the industry. In April 2004, we
introduced the “Strategic Business Unit” (SBU) system,
which is designed to focus all of the resources of the Tokyo
Gas Group on the task of surviving and succeeding in an
increasingly competitive environment. Under this structure,
Tokyo Gas corporate divisions are linked with Group companies to form business units in each business area. The divisions and companies work closely together on tasks ranging
from the formulation of business strategies to the allocationof management resources and the management of operations, all under the responsibility of unit managers. The aimof this cooperative approach is to maximize our Grouppotential and further strengthen our competitiveness.

33

BOARD OF DIRECTORS AND CORPORATE AUDITORS

Director, Chairman

Representative Director, President

Representative Director, Executive Vice President

Norio Ichino

Mitsunori Torihara

Tadaaki Maeda

April 1964
June 2003

April 1967
June 2003

April 1970
April 2004

April 2006
April 2007

Joined the Company
President, Representative Director, andExecutive President
Director and Vice Chairman of the Board
Director and Chairman of the Board

April 2004

April 2006

June 2004

April 2006
April 2007

Joined the Company
Senior Executive Officer, Chief Executive ofEnergy Resources Div. and in charge of Internal
Audit Dept.
Director, Senior Executive Officer, Chief Executiveof Energy Resources Div. and in charge of Internal
Audit Dept.
Representative Director, Executive Vice President
and Chief Executive of Strategic Planning Div.
Representative Director, Executive Vice President,
Chief Executive of Energy Production Div., and in
charge of Environmental Affairs Dept.

Representative Director, Executive Vice President

Director, Senior Executive Officer

Director, Senior Executive Officer

Tsuyoshi Okamoto

Shigeru Muraki

Toshiyuki Kanisawa

April 1970
April 2006

July 1972
April 2006

April 1972
April 2006

April 2007

April 2009

Joined the Company
Director, Senior Executive Officer, Chief
Executive of Corporate Communication Div.
and in charge of Compliance Dept., Internal
Audit Dept.
Representative Director, Executive Vice President,
and in charge of Personnel Dept., Secretary
Dept., General Administration Dept.,
Compliance Dept., and Internal Audit Dept.
Representative Director, Executive Vice President,
and in charge of Personnel Dept., Secretary
Dept., General Administration Dept., andCompliance Dept.

April 2007

June 2007

Joined the Company
Senior Executive Officer and Chief Executive ofTechnology Development Div.
Senior Executive Officer, Chief Executive ofEnergy Solutions Div. and General Manager ofVolume Sales Dept. of Energy Solutions Div.
Director, Senior Executive Officer and Chief
Executive of Energy Solutions Div. and General
Manager of Volume Sales Dept. of Energy
Solution Div.

Director, Senior Executive Officer

Director, Senior Executive Officer

Tsutomu Oya

Michiaki Hirose

April 1975
April 2004

April 1974
April 2008

April 2006
June 200934

Joined the Company
Representative Director, Executive Vice President,
Chief Executive of Strategic Planning Div. and in
charge of Internal Audit Dept. and Compliance
Dept.
Representative Director, Executive Vice President,
Chief Executive of Corporate Communication
Div. and in charge of Compliance Dept.
President, Representative Director, andExecutive President

Joined the Company
Executive Officer, and General Manager ofAir-conditioning and Commercial Customer
Development and Sales Dept. of Energy Sales
and Service Div., and Acting General Manager
of Volume Sales Dept. of Energy Sales andService Div.
Senior Executive Officer and Chief Executive ofEnergy Resources Div.
Director, Senior Executive Officer and Chief
Executive of Energy Resources Div.

April 2009

June 2009

Joined the Company
Senior Executive Officer and in charge ofCorporate Planning Dept., Investor Relations
Dept., Finance & Managerial Accounting Dept, Accounting Dept., Affiliated Companies Dept., and
Gas Industry Privatization Research Project Dept.
Senior Executive Officer and in charge ofCorporate Planning Dept. and AffiliatedCompanies Dept.
Director, Senior Executive Officer and in charge ofCorporate Planning Dept., Corporate Communications Dept., and Affiliated Companies Dept.

April 2007
June 2007
April 2009

Joined the Company
Senior Executive Officer, and Chief Executive ofResidential Sales Div.
Senior Executive Officer, and Chief Executive ofResidential Sales Promotion Div.
Director, Senior Executive Officer, and Chief
Executive of Residential Sales Promotion Div.
Director, Senior Executive Officer, and Chief
Executive of Housing Development Div.

AuditorYasunori Takakuwa

AuditorKunihiro Mori

Outside Auditor

Shoji Mori
(Vice Chairman, Institutefor International SocioEconomics Studies)

Outside Auditor

Yukio Masuda(Standing Consultant,
Mitsubishi Corporation)

Outside Auditor

Masayuki Osawa(Administrative Director of
Yokohama City Silver Human
Resources Center)

MESSAGE FROM OUTSIDE DIRECTORS

Outside Director

Outside Director

Outside Director

Kazumoto Yamamoto

Katsuhiko Honda

Sanae Inada

Current position
June 2005

Current position
June 2007

Current occupation Attorney
June 2007
Director of the Company

Advisor, Asahi Kasei Corporation
Director of the Company

As a nation, Japan has a long history,
traditions, and culture, and companies,
too, have their own histories, traditions,and cultures. As a result, I do not believethat there is any single, fixed way of implementing management and corporate
governance, because management cannot
ignore those distinctive company characteristics. It is important to clarify the purpose of a company’s business activities,
and to search for the style of management
and governance that are best suited tothat purpose. As a company that helps to
support the framework of society, Tokyo
Gas bears an important responsibility tomaintain and expand its business operations over the long term. To do that, however, it is essential that the Company is notcontent with activities intended to simply“support.” Rather, we must implementbold initiatives designed to foster“change” over the long term. The Company faces high expectations in the fields
of energy usage and supply, especially inregard to how they will change the structure of society and what role they will playin that process.

Advisor, Japan Tobacco Inc.
Director of the Company

If we do not fulfill our responsibilities tofour groups of stakeholders—customers,society, investors, and employees—then
we will not be able to achieve our company mission of sustained development.
This is a fundamental element of management that applies to any company, anywhere in the world. Tokyo Gas is a “public
utility” that provides social infrastructure,but I believe that the public interest aspectof a company’s operations is not intrinsic
to the company itself but rather is granted
to the company by the customers who
support it. In the midst of severe changes
in our operating environment, it is important that we continually develop productswith high value added and increase management efficiency, without letting thefact that we are a public utility become an
excuse for avoiding operational reforms.
As an outside director, it is my role tooffer a third-party perspective, reflecting
on whether or not our management isfocused on the groups of stakeholders
I mentioned and offering advice.

President

Mitsunori Torihara

Ensuring that a company’s ongoing management and development is conducted inaccordance with social norms and ethics isthe purpose of corporate governance andcompliance. Tokyo Gas supports the public
interest through the supply of city gas,
and the Company’s managers must set an
example of that conduct. I also think that
top executives should have pride in managing a leading company in the industry,
and they should present a management vision for 10 years into the future. The reason is precisely because we are in an environment of fierce competition among
forms of energy. As a city gas supplier inthe growing Kanto region, Tokyo Gas
meets a substantial part of Japan’s energy
needs. Moreover, the Company has asignificant responsibility to publicly display
an image of the future of energy. As anatural gas pioneer, Tokyo Gas needs tomake full use of the environmental superiority of natural gas. Active discussions areheld at the Company’s Board of Directors
meetings, and I will continue to offer myopinion with an awareness of my role as
an outside director of a company that
supports society.
Executive Officers

Norikazu Hoshino
Dispatched to the Japan Gas Association

Akio Maekawa

Mikio Itazawa

Coordinator, Energy Solution Div.

Chief Executive of Pipeline Network Div.

Koichi Aonuma

Tadaaki Maeda

Hirokazu Hayashi

Chief Executive of Energy Production Div. and in chargeof Environmental Affairs Dept.

Chief Executive of Regional Development Marketing Div.

General Manager, Sales Marketing II Dept.
of Housing Development Div.

Kazuo Yoshino

Yutaka Kunigo

Tsuyoshi Okamoto

In charge of Investor Relations Dept., Finance & Managerial
Accounting Dept., and Accounting Dept.

General Manager, Industrial Gas Sales Dept.
of Energy Solutions Div.

Hisao Watanabe

Masahiro Mikami

Chief Executive of Technology Development Div. andInformation Technology Div.

General Manager, General Administration Dept.

Hiroaki Kubota

Manabu Fukumoto

General Manager, Energy Production Dept.
of Energy Production Div.

Executive Vice Presidents

In charge of Personnel Dept., Secretary Dept., General
Administration Dept., and Compliance Dept.

Senior Executive Officers

Shigeru Muraki
Chief Executive of Energy Solutions Div. and General
Manager of Volume Sales Dept.

Toshiyuki Kanisawa
Chief Executive of Housing Development Div.

Tsutomu Oya
Chief Executive of Energy Resources Div.

Michiaki Hirose
In charge of Corporate Planning Dept., Corporate
Communications Dept., and Affiliated Companies Dept.

In charge of Purchasing Dept., Real Estate Management
Dept., Major Site Development Dept.,
and Internal Audit Dept.

Matsuhiko Hataba
Chief Executive of Residential Sales Promotion Div.

Kenichi Enkaku
Representative Senior Managing Directorof ENERGY ADVANCE Co., Ltd.

Hidefumi Takahashi
General Manager, Kanagawa service branch,
Residential Sales Promotion Div.

Hideaki Obana
General Manager, Corporate Communications Dept.

Hiroaki Kobayashi
General Manager, Customer Safety Dept.
of Residential Sales Promotion Div.

35

CSR

Environmental Initiatives

Basic Policy
Our environmental philosophy states that the “The Tokyo Gas Group will promote the harmonious use of energy
to contribute to the protection of regional and global environments as well as to the sustainable development ofsociety.” This philosophy is reflected in our four environmental policies, and we are striving to serve as a leader inenvironmental management as we play an active role in helping to solve global environmental problems.
1 Reduce the environmental impact of customers’ energy use
2 Reduce the total environmental impact of Tokyo Gas’ business activities
3 Strengthen environmental partnerships with local and international communities
4 Advance R&D in environment-related technologies

Initiatives in Fiscal 2008
In order to carry out the Environmental Policies, we have created Environmental Protection Guidelines in three major
categories. First, global warming prevention guidelines are intended to reduce CO2 emissions resulting from the increased
use of natural gas. Second, resource recycling promotion guidelines focus on reducing the environmental impact of theCompanyʼs activities through the implementation of the “3Rs” (reduce, reuse, recycle). Third, green purchasing guidelines
promote consideration for the environment when purchasing the materials, construction work, or services necessary forbusiness activities. With these guidelines, we established concrete environmental targets and have been striving to meetthem. For example, in fiscal 2008 we reduced the level of CO2 emissions generated by customers by 721 tons. From fiscal
2009, we have enhanced our environmental guidelines with the addition of three new guiding principles, namely biodiversity maintenance, environmental communication, and environment-related technology development.
As part of our CSR efforts, in September 2007 we established the Tokyo Gas Environmental Support Fund in commemoration of having reached the 10 million customer mark. With the goal of contributing to solving global and regional environmental
problems and helping to realize a sustainable society, the Fund provides support for groups active in environmental preservation. In fiscal 2008, the Fund contributed a total of ¥10 million to 13 groups.
For further details of the environmental initiatives being carried out by Tokyo Gas, please refer to the ECO page on the Company’s website and the Tokyo Gas
CSR Report 2008.
Access! ECO URL: www.tokyo-gas.co.jp/env/
CSR Report 2008 URL: www.tokyo-gas.co.jp/csr/report_e/index.html

Results for Fiscal 2008 and Targets for Fiscal 2010

GlobalWarmingResource
Recycling

Green
Purchasing

Reduction of CO2 emissions from customers’ facilities
Unit energy use in gas production facilities (per unit of gas production)
Unit energy use in district cooling / heating systems (per heat sales volume unit)
Unit energy use at power plants (per unit of power transmitted)
Unit energy use in Tokyo Gas business offices (per city gas sales volume unit)
Zero emissions at production plants
Other waste (construction waste, etc.)
Reduction ratio of waste paper
Recycling of waste paper
Sheets of copy paper used per person per year
Excavation spoil ratio
Green procurement ratio
Number of affiliated companies that have already introduced an electronic
catalog purchasing system* Annual average reduction ratio

36

Target for fiscal 2010

Results for fiscal 2008

8.00 million tons
1% or more reduction
1% or more reduction
1% or more reduction
1% or more reduction
10 sites/10 sites
More than 91%
10% reduction fromfiscal 2005
More than 85%
5,000
16%
More than 70%

7.21 million tons
0.8% reduction*
1.0% reduction*
1.4% reduction*
4.3% reduction*
13 sites/15 sites
83%

49 companies

44 companies

1.9% reduction
89%
6,570
18%
66%

Safety Initiatives

Basic Policy
Tokyo Gas has established the following three key policies for the safe use of gas equipment.
1 Increase the use of equipment that does not cause numerous incidents of accidents,
gas leaks, or malfunctions, and of functional equipment to minimize such incidents(“hard” countermeasures)
2 Educate customers on the correct use of equipment and carry out regular inspections(“soft” countermeasures)
3 Establish emergency response protocols to be executed should a gas leak occur(emergency response countermeasures)

Initiatives in Fiscal 2008
Among our “hard” countermeasures, in fiscal 2008 we continued the “Switchover Promotion Campaign” that we began
in January 2007, targeting water heaters and bathtub water heaters not equipped with incomplete combustion avoidance devices. As part of the campaign, we agree to bear part of the cost of switching to safe appliances. Since thecampaign began, we have spent ¥2.4 billion, and the number of targeted appliances has decreased from 298,000 units
to 172,000 units.
Moreover, we continue to loan ventilation alarms without charge to ensure the safety of customers using gas equipment
in commercial kitchens, an initiative we began in November 2006. A number of accidents occurred in commercial kitchens in
2008, and accordingly we have increased our visits to customers. By the end of March 2009, out of our target of 150,000
alarms, we had installed 83,600 alarms.
Among our “soft” countermeasures, as required by the Gas Utility Industry Law, we implement periodic gas facility safety
checks for each of our customers once every 40 months. These gas facility safety inspections include checking gas pipes forleaks and testing exhaust equipment. In addition to enhancing these inspections, we are also working to promote awarenessof safe gas usage through communication with customers.
For emergency response countermeasures, we have full-time personnel with specialized skills in such areas as gas leaks.
These personnel are deployed to our Gas Light 24 emergency response bases, from which we are able to rapidly respond to
emergencies 24 hours a day, 365 days a year.
To ensure the safe supply of gas, we have been systematically replacing aging pipes, such as gray cast-iron pipes andgalvanized gas pipes, with safer polyethylene pipes. We spent ¥15.1 billion on these replacements in fiscal 2008. We havealready announced our intention to complete the replacement of gray cast-iron pipes and galvanized gas pipes by fiscal 2015,
and are striving to advance this deadline as much as possible.
For further information on Tokyo Gas safety initiatives, please refer to the Tokyo Gas CSR Report 2008, which is available on the Tokyo Gas website.

Gas Light 24

Safety control center

Polyethylene pipes

37

FAQ

Q1

How does Tokyo Gas structure its rates?

The Company’s gas rate system is divided into the following three categories.
Service agreement

In cases in which Tokyo Gas supplies gas through the pipelines to meet general demand,
the rate schedule is “regulated” under the service agreement used to require the approval of
the Minister of Economy, Trade and Industry (METI). Under the amendments to the Gas Utility
Industry Law in 1999, however, it became possible to change these rates simply by notifying
the Minister, provided that these changes do not adversely affect any customers.

Optional agreement

Tokyo Gas is permitted to offer rates and service terms other than those outlined in the above
service agreement. This enables the Company to make efficient use of its gas production andsupply facilities and to improve its management efficiency. These agreements must be reported to the Minister, and the selection of this option is up to the customer.

Large-volume supply

Under the Gas Utility Industry Law, the conditions for gas rate setting and market entry forservice providers in the large-volume market are being gradually deregulated. Effective from
April 2004, customers who used 500,000 m3 or more qualified as large-volume customers.
Moreover, from April 2007, the designation point for large-volume customers shifted to
100,000 m3 or more.

“Regulated” rates are calculated using a total cost principle1. A simplified version of this calculation is given below.

Operating cost, etc. ＋
2

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

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

Deductions, etc.

=

Profit from gas appliancesales, etc.
Profit from real estatebusiness, etc.

Total fair cost
Represents an appropriate
profit added to an appropriate
cost under efficientmanagement

1 Total cost principle: For a specific period (1 to 3 years), a fair return is added to the necessary and appropriate costs for the relevant period and gas rates are set onthat basis (total cost). In this way, rates are calculated in accordance with METI rules.
2 Fluctuations in foreign exchange rates or crude oil prices are reflected in the meter rate gas unit price every month in accordance with the gas resource costadjustment system. (Please refer to “Characteristics of the City Gas Business in Japan” on the inside front cover.) Consequently, the impacts of such fluctuations onrevenue and expenditure will be neutral in the medium to long term.

Q2

What processes are used by Tokyo Gas when making
investment decisions?

Since fiscal 2003, Tokyo Gas has made decisions on new businesses, the continuation of businesses, and exits frombusinesses through Tokyo Gas Economic Profit (TEP), and decisions on investments through Net Present Value (NPV) andInternal Rate of Return (IRR). These three indicators are used as common standards throughout the Tokyo Gas Group.
TEP is an original evaluation method for ensuring that the amount of profit exceeds the cost of capital.
The Investment Evaluation Committee assesses plans that involve investment, equity participation, or debt guarantees on
the basis of risks and returns. The results of these deliberations are reflected in decisions at the Corporate Executive Committeeor the Board of Directors. Derivative transactions are subject to market risk management rules.
Corporate Executive Committee meetings are held each week and are attended by executives at the senior executive
officer level and above, as well as the two corporate auditors. Final decisions on important management issues are made after
in-depth discussion, including deliberations by the Investment Evaluation Committee in the case of investment decisions. To
follow the results and monitor projects in which investments have been made, Tokyo Gas evaluates the situation regularly in theInvestment Evaluation Committee and reports findings at the Corporate Executive Committee.

38

Q:1
Q 3 What is your relationship with Tokyo Electric Power Company (TEPCO)?

Tokyo Gas and TEPCO source about 70% of the total volume of their LNG purchases from joint LNG projects and arejoint participants in projects based on upstream interests. Joint purchasing strengthens our bargaining power, since we
can contract for large volumes.
Two of our three LNG terminals, the Negishi and Sodegaura Terminals, are operated jointly with TEPCO. This allows us toreduce capital investment and operating costs. We can also improve operating rates through load leveling based on differences between peak demand patterns for electric power and gas. These advantages are reflected in lower production costs
per unit of gas.
At the marketing level, however, Tokyo Gas and TEPCO are competitors. In the commercial and industrial sectors, TEPCO
has moved into the gas market, and Tokyo Gas and TEPCO are engaged in the competition for gas demand. Also, in the residential sector, the competition with all-electric systems has intensified. As a result of in-depth development focusing on major
sub-users and initiatives to build close relationships with customers, centered on LIFEVAL, which we began to establish fromfiscal 2008, we are working to hold the percentage of newly built houses with all-electric systems in our service area to aminimum.
Tokyo Gas responds to various forms of competition by going beyond the supply of individual energy products, such as gas
and electric power. Our ultimate goal is to provide our customers with optimal value by responding to their real needs, including
their energy service needs.

Q4

What is the definition of the ”energy service business”?

In the energy service business, energy service providers build and own facilities such as cogeneration systems, andprovide one-stop energy services, such as electricity and heat. This type of service is drawing attention on account of its
major advantages for customers. These include ease of implementation stemming from lack of need for a large initialinvestment, a high level of environmental performance, and reduced energy costs. Also, this is a field with growing
appeal as a business due to improvements in system efficiency.
In 2002, Tokyo Gas moved to expand its involvement in the energy service business by establishing a wholly owned
subsidiary, ENERGY ADVANCE Co., Ltd. The company operates very efficiently by capitalizing on the LNG procurement systems
and advanced engineering capabilities of the Tokyo Gas Group, making the most of the high added value that can be achieved
with cogeneration systems. It targets environmentally concerned customers, especially in the Kanto region, where demand ishigh. This company’s energy services, which were introduced in 2003, have achieved the leading position in the industry, with
297 contracts at the end of March 2009.

39

Q5

What do you see as the role of the power generation
business within the integrated energy business?

Tokyo Gas has established its power generation business as a multi-energy supply measure to provide all forms ofenergy that customers require in a one-stop manner. We intend to achieve an optimal mix with facilities such as cogeneration systems.
Furthermore, we believe our power generation business has a number of strengths.
(1) It allows for competitive fuel procurement backed by our bargaining power.
(2) Power plants are located close to demand areas utilizing existing infrastructure such as LNG terminals.
(3) Synergy effects with the gas business are possible, such as improved terminal utilization rates and one-stop services.
Currently, we have four power plants in operation, under construction, or planned (refer to the table below), with ourshare of generating capacity of 1,300 MW.
Moreover, from a standpoint of developing renewable energy, we installed a wind farm with a capacity of 1,990 kW inside
our Sodegaura Terminal in October 2005. We are also constructing a wood chip biomass electric power plant with a capacity of
13,600 kW in Agatsuma-gun, Gunma Prefecture, with the objective of starting operations in fiscal 2010.

Tokyo Gas Baypower Co., Ltd.

100 MW

In operation since October 2003

Tokyo Gas Yokosuka Power Co., Ltd.

240 MW

In operation since June 2006

Kawasaki Natural Gas Power Generation Co., Ltd.

840 MW

In operation since April 2008

1,220 MW

Commencing in March 2010

Ohgishima Power Co., Ltd.

Q6

What is the view on M&As involving Tokyo Gas?

Tokyo Gas is already supplying wholesale gas to 36 other gas suppliers in its service area (including the companies towhich Tokyo Gas supplies by inland vessels and tanker trucks). We are aggressively developing the wholesale supply
business, which earns income with high capital efficiency, without focusing on M&As.
As for M&As, we might consider entering into a capital partnership after evaluating the corporate value of the company
in question, if a company were to approach us with such a proposal, or if a government-owned gas business were to become
privatized.
Last year, we carefully examined the privatization of the city gas business in Sendai. However, due to the increasing
uncertainty of the business outlook since last autumn, we opted not to participate in that endeavor. Recently, a variety of
government-owned gas businesses are being privatized. Using the experience we have gained through our acquisitions of the
Nagano City, Konosu City, and Yotsukaido City gas businesses, we will consider participating in bidding if we are convinced,
after conducting thorough due diligence, that the business will enhance our corporate value and increase benefits to ourcustomers.

40

FINANCIAL SECTION

Contents
42

TWELVE-YEAR SUMMARY

44

MANAGEMENT’S DISCUSSION AND ANALYSIS

50

BUSINESS RISKS

52

CONSOLIDATED BALANCE SHEETS

54

CONSOLIDATED STATEMENTS OF INCOME

55

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

56

CONSOLIDATED STATEMENTS OF CASH FLOWS

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

68

INDEPENDENT AUDITORS’ REPORT69

CONSOLIDATED SUBSIDIARIES AND EQUITY-METHOD AFFILIATES

70

INVESTOR INFORMATION

For purposes of presentation, from this annual report, all amounts lessthan one billion yen or one million yen have been rounded down, andhundredths of a percentage point have been rounded to the nearest whole
number. Therefore, the figures presented in this report may differ fromthose presented in the annual reports in past years. In addition, all graphs
and tables represent fiscal years ended March 31 of the respective years.

41

TWELVE-YEAR SUMMARY
Years ended March 31

Millions of yen, except per share amounts

2009

2008

2007

2006

2005

¥1,660,162¥1,487,496¥1,376,958¥1,266,501¥1,190,783

1,257,574

1,087,044

999,521910,320834,658

Gas appliance sales

122,363132,236

135,407

130,825

135,108

Installation work

49,09457,32559,22959,74664,794

For the Years
Net sales
Gas sales

Real estate rental

35,63735,16934,03434,187

34,701Other business

363,783

320,361

285,407

252,595

234,720

Operating income

65,20470,048

162,315

112,345

145,349

Net income

41,70842,487

100,699

62,114

84,047

Depreciation*

141,083

142,421

133,142

136,376

140,271

Capital expenditures**145,929

138,006

124,556

119,435

107,529

Free cash flow

36,862

46,902

109,285

79,057116,789

Amounts per share ofcommon stock (Yen)
Net income

¥

15.63

¥

15.94

¥

37.50

¥

23.48

¥

31.47

Diluted net income

15.37

15.50

35.69

21.70

28.24

Net assets

284.72289.49293.11

270.46244.73

8.00

8.00

8.00

7.00

7.00

¥1,764,185¥1,703,651¥1,692,635¥1,693,898¥1,668,734

Interest-bearing debt

593,230

558,716

525,467

559,911624,105

Total net assets

784,616

780,455

806,045

—

—

—

—

—

728,231648,766

Operating income to net sales

3.9%

4.7%

11.8%

8.9%

12.2%

Net income to net sales

2.5%

2.9%

7.3%

4.9%

7.1%

ROE

5.4%

5.4%

13.2%

9.0%

13.5%

Cash dividends applicableto the year

At Year-End
Total assets

Total shareholders’ equity

Ratios

ROA

2.4%

2.5%

5.9%

3.7%

5.0%

Equity ratio

43.8%

45.1%

47.0%

43.0%

38.9%

Notes: 1 Segment sales include intra-group transactions.
2 Free cash flow = net income + depreciation* – capital expenditures*** including amortization of long-term prepayments** purchases of tangible fixed assets + purchases of intangible fixed assets + long-term prepayments
3 Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new accounting standard for presentationof net assets (“Accounting Standard for Presentation of Net Assets in the Balance Sheet and its Implementation Guidance” issued
by the Business Accounting Deliberation Council on December 9, 2005.)

42

2004

2003

2002

2001

2000

1999

1998

¥1,151,824¥1,127,633¥1,097,589¥1,086,770¥ 992,255¥ 997,766¥1,009,154

831,114

792,453

750,438

740,731

672,069

674,996686,648

133,873

142,635

149,203

146,516

127,916

133,925

127,880

68,03370,56871,337

71,90768,651

68,81771,060¥35,44336,34637,55137,60137,841

37,61638,978172,160

158,326

156,011

159,577

158,819

155,044

154,601

152,287

123,294

110,607

103,659

69,23372,302

76,48444,78759,201

51,911

27,595

26,69817,764

17,240146,895

141,027

145,564

150,374

140,306

143,009—

107,441

111,988

105,296111,397

124,975

151,126—

84,241

88,24092,17866,57242,029

9,647

—

16.44

¥

21.18

¥

18.47

¥

9.82

¥

9.50

¥

6.32

¥

6.14

14.98

19.11

16.66

9.13

8.84

5.94

5.76

221.53208.65200.75

196.72172.33149.98148.67

7.00

6.00

6.00

6.00

5.00

5.00

5.00

¥1,666,828¥1,676,064¥1,702,712¥1,797,669¥1,805,086¥1,707,446¥1,720,683

682,744731,301

775,894

870,347

957,085

911,901

911,000

—

—

—

—

—

—

—

598,453

579,706

564,077552,790484,239

421,443

417,755

13.2%

10.9%

10.1%

9.5%

7.0%

7.2%

7.6%

3.9%

5.3%

4.7%

2.5%

2.7%

1.8%

1.7%

7.6%

10.4%

9.3%

5.3%

5.9%

4.2%

4.1%

2.7%

3.5%

3.0%

1.5%

1.5%

1.0%

1.0%

35.9%

34.6%

33.1%

30.8%

26.8%

24.7%

24.3%

43

MANAGEMENT’S DISCUSSION AND ANALYSIS

Summary
Due to such factors as a decline in demand due to a warm winter and an economic slowdown,gas sales volume was down 1.9%, to 13,942 million m3.
With higher unit prices under the gas rate adjustment system, gas sales increased, and net sales
were up 11.6%, to ¥1,660.1 billion. On the other hand, operating expenses increased due to suchfactors as higher gas resource costs accompanying higher LNG prices and an increase in amortization of the actuarial differential on retirement benefits. Operating income was down 6.9% year
on year, to ¥65.2 billion, and net income declined 1.8%, to ¥41.7 billion.

The Company’s Operating Environment in
the Year Under Review
In the fiscal year ended March 31, 2009, the following threefactors had a major influence on the operations of Tokyo Gas(hereafter “the Company”).
Economic Slowdown Resulting from the Global Recessionthat Began with the U.S. Financial Crisis
Through the first half of the fiscal year, conditions were favorable worldwide. Japan’s manufacturing industry enjoyed good
operating conditions, and in terms of industrial gas sales volume, existing customers increased their utilization and wemade progress with new customer development. Overall, gassales volume was on a growth track. However, the global
financial crisis stemming from the subprime loan problem in
the United States marked a turning point, and from September,the global economic recession became serious, resulting in a
sharp downturn for the Japanese economy. Consequently,
there was a major slowdown in Japanese industrial activity,
centered on export industries, and our gas sales volume forindustrial use began to decline from October.

fiscal year, the average temperature was 0.5ºC lower than in
the previous fiscal year, and the lower temperature resulted inincreased demand for hot water in the residential sector but
lower demand for air conditioning in the commercial sector.
In the second half, the average temperature was 0.5ºC higher
than in the previous year, and the higher temperature resulted
in decreased demand for heating and hot water in the residential sector and for air conditioning in the commercial sector.
Prices of Crude Oil and LNG(US$/MMBtu)
25(US$/barrel)
150

20

120

15

90

10

60

5

30

0

08/4 567

8

9

10 11 12 09/1 2

All Japan LNG prices (Trade statistics) (left)

30

JCC prices (Trade statistics) (right)

Yen–Dollar Exchange Rate
(Yen/US$)115

Dramatic Fluctuations in the Prices of LNG Due to Changes
in the Price of Crude Oil and Exchange Rates
In the first half of the fiscal year, due to strong demand and an
influx of speculative funds, the price of WTI crude oil posted arecord high of $147.27 per barrel in July. Nevertheless, due tothe global economic recession following the subprime shock,crude oil demand rapidly declined, and the price fell to $49.66
at the end of March, after reaching the $30 dollar level at one
point during the year. LNG, which accounts for the majority of
our resources, is linked to the Japan Customs-cleared Crude(JCC) price, so dramatic fluctuations in the crude oil price havea major effect on the Company’s revenues and expenditures.
The yen–dollar exchange rate moved in the ¥100 range
through October, and subsequently the yen appreciated from
November, reaching the ¥90 level in January and February. The
trend toward yen appreciation in the second half of the fiscal
year reduced LNG import prices, and worked to lower gas
resource costs.
Influence of Temperature Changes on Gas Sales Volume
For residential heating and hot water demand and for commercial air conditioning demand, the volume of gas sales issignificantly affected by temperature. In the first half of the

44

110

105

100

95

90

08/4 567

8

9

10 11 12 09/1 2

3

Sales Trends in the Core Gas Business
Down 1.9% year on year
Residential Sector
In the first half of the fiscal year, low temperatures resulted inincreased demand for hot water. In the second half, however,when gas demand is seasonally higher, high temperatures
resulted in decreased demand for hot water and heating. As aresult, sales volume decreased by 61 million m3, or 1.8%, to
3,468 million m3.

Commercial and Other Sectors
Gas sales volume was down 115 million m3, or 3.7%, to 3,011
million m3. Temperatures were lower year on year in the firsthalf of the fiscal year and higher in the second half.
Consequently, air conditioning demand declined. In addition,
the economic recession had a partial effect.
Industrial Sector
In the first half of the fiscal year, existing customers increased
their utilization and we made progress with new customer
development. As a result, sales volume recorded favorable
growth. However, from October, under the influence of theeconomic recession stemming from the subprime loan problem, there was an increase in customers who reduced theirplant utilization rates, with a focus on the steel, machinery,and chemical industries. Consequently, for power generationuse, gas sales volume rose 227 million m3, or 10.9%, to 2,303
million m3. However, for general industrial use, gas sales volume was down 335 million m3, or 9.1%, to 3,320 million m3.
Overall, gas sales volume in the industrial sector was down 109
million m3, or 1.9% year on year, to 5,623 million m3.
Wholesale Sector
Starting from the fiscal year ended March 31, 2009, twowholesale gas suppliers made a contribution to gas sales volume for the full fiscal year. (Supply to Noda Gas was started inAugust 2007, and to Tatebayashi Gas in November 2007.) As aresult, on a consolidated basis, there were a total of 26 wholesale gas suppliers. In addition, new demand by wholesale gas
suppliers was developed, and the utilization by existing customers was increased. As a result, gas sales increased by 12
million m3, or 0.7%, to 1,840 million m3.
Consequently, overall gas sales volume was down 273 million
m3, or 1.9%, to 13,942 million m3.

10,0005,000

05■■ Residential■■ Industrial

06

07

Gas Sales Segment
Higher sales and lower income resulting from increasein gas resource costs partially canceled out higher unit
prices under the gas rate adjustment system
The gas sales volume in the fiscal year under review was down
1.9%. However unit prices were increased under the gas rateadjustment system, and gas sales were up ¥170.5 billion, or
15.7%, to ¥1,257.5 billion. Factors such as a steep rise in prices
for LNG and higher gas sales volumes led to an increase in gas
resource costs. As a result, operating expenses increased by¥171.3 billion, or 17.6%, despite our efforts to reduce overhead
expenses. Operating income decreased by ¥0.8 billion, or
0.7%, to ¥110.8 billion.
Gas Appliance Sales Segment
Sales and expenses down, lower sales and profits
Due to a decline in the number of new installations in our service area and to the reluctance of existing customers topurchase gas appliances, sales declined by ¥9.9 billion, or
7.5%, year on year, to ¥122.3 billion. Operating expenses were
down ¥9.1 billion, or 7.1%, and operating income fell ¥0.8 billion, or 28.3%, to ¥2.0 billion.
Installation Work Segment
Decline in number of projects, lower sales and profits
The number of new construction projects declined due to sluggish conditions in construction and to a decrease in starts andbuilding permits, and sales were down by ¥8.2 billion, or 14.4%
year on year, to ¥49.0 billion. Operating expenses decreasedby ¥6.3 billion, or 11.2%, to ¥50.1 billion, and operating
income declined by ¥1.8 billion, or 232.7%, to –¥1.0 billion.
Real Estate Rental Segment
Decline in profit due to higher operating expenses
Sales increased by ¥0.4 billion, or 1.3%, to ¥35.6 billion.
A particular factor here was the contribution made by increased
lease income due in part to the GINZA gCUBE building, which
was opened in September. Operating expenses rose ¥0.9 billion, or 3.6%, to ¥28.1 billion. As a result, operating income
decreased ¥0.5 billion, or 6.5%, to ¥7.4 billion.

Gas Sales Volume by Sector(Million m3, 45MJ/m3)
15,0000Years ended
March 31

resource costs resulting from higher gas sales volumes and asteep rise in the price of LNG as well as an increase in amortization of the actuarial differential on retirement benefits.

08

09■■ Commercial and others■■ Wholesale

Analysis of Income
Income continued to decline under the influence of
higher gas resource costs, lower gas sales volumes, andan increase in amortization of the actuarial differential
on retirement benefits.
Gas sales increased by 15.7% in the fiscal year ended March 31,
2009, due to higher unit prices under the gas rate adjustment system. Results from other segments included an increase in sales inthe energy services business. Total net sales increased by ¥172.7
billion, or 11.6%, from the previous year, to ¥1,660.1 billion.
Operating income fell by ¥4.8 billion, or 6.9% year on year,to ¥65.2 billion. Reasons for the decline included increased gas

Other Business Segment
Energy service and shipping businesses expanding
Sales of other business segment increased by ¥43.4 billion, or
13.6%, to ¥363.7 billion, due to the expansion of the energy
service business, to higher sales in the power generation business accompanying the operational start of the Kawasaki
Natural Gas Power Generation Co., Ltd., and to a rise in shipping revenue as a result of an increase in the number of vessels.
Operating expenses rose by ¥42.8 billion, or 13.9%, due to suchfactors as higher fuel prices in the power generation business.
As a result, operating income was up ¥0.7 billion, or 5.6%, to¥13.4 billion.
Non-Operating Income and Expenses, Extraordinary
Income and Losses, and Net Income
Total non-operating income was down ¥3.2 billion, to ¥15.6
billion. Accompanying higher crude oil prices, overseas LNG
development operations recorded increased profits, and as aresult equity in earnings of affiliates increased. Nonetheless, other45

income declined due to the influence of the appreciation of the
yen and to lower miscellaneous income. Total non-operating
expenses were up ¥0.4 billion, to ¥22.5 billion.
In terms of extraordinary income, we recorded gain on
adjustment for changes of “Accounting Standard for Lease
Transactions,” gain on transfer of benefit obligation relating toemployees’ pension fund, and gain on transfer of business,due in part to the dissolution of a joint venture in the industrial
gas business. As a result, total extraordinary income was up¥5.5 billion, to ¥10.7 billion.
Total extraordinary losses were down ¥1.2 billion, to ¥1.0
billion, due in part to a decline in loss on reduction of noncurrent assets.
As a result, net income was down ¥0.7 billion, or 1.8%, to¥41.7 billion.
Business Results by Segment (¥ million)
Sales
Years ended March 31

2009

2008

2007

1,257,574

1,087,044

999,521

Gas Appliance Sales

122,363

132,326

135,407

Installation Work49,09457,32559,229Real Estate Rental

35,63735,16934,034

Other Businesses

363,783

320,361

285,407

Gas Sales

1,828,452

1,632,228

1,513,599

Elimination or Corporate

Total(168,290)(144,731)(136,641)

Consolidation

1,660,162

1,487,496

1,376,958

Operating income
Years ended March 31

2009

2008

2007

Gas Sales

110,857

111,663

203,566

Gas Appliance Sales

2,086

2,909

1,169

Installation Work

(1,099)

828

1,750

Real Estate Rental

7,442

7,963

6,731

Other Businesses

13,482

12,768

13,847227,065

132,768

136,133

Elimination or Corporate

Total(67,563)(66,084)(64,750)

Consolidation

65,20470,048

162,315

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

Contribution to Net Sales by Segment
Years ended March 31

2009

2008

Gas Sales

68.8%

66.6%

+2.2 point

Gas Appliance Sales

6.7%

8.1%

-1.4 point

Installation Work

2.7%

3.5%

-0.8 point

Real Estate Rental

1.9%

2.2%

-0.3 point

Other Businesses

19.9%

19.6%

+0.3 point

ChangeNet Income and Net Income Per Share(¥ billion)
120

(Yen)
40

90

30

60

20

30

10

0
Years ended
March 3105■■ Net income (left)

46

06

07

08

Net income per share (right)

09

0

Financial Position and Liquidity
AssetsTotal assets increased by ¥60.5 billion, or 3.6% year on year, to¥1,764.1 billion. Total property, plant and equipment declined¥13.2 billion, to ¥1,110.8 billion. Due to an increase in otherintangible assets, total intangible assets amounted to ¥26.0
billion. Investments and other assets decreased by ¥13.8 billion, to ¥215.1 billion. A major factor in this decline was adecrease of ¥22.2 billion in investment securities, to ¥109.1
billion, due to the sluggish stock market.
Total current assets were up ¥84.8 billion, to ¥412.1 billion.
This was attributable to the following factors. In response to
global financial uncertainty, cash and deposits were up ¥20.8
billion from a year earlier. Due to the influence of the economic
slump from October, gas sales volume declined rapidly, andconsequently, the LNG inventories that had been prepared forthe winter season, when gas demand generally increases, did
not decline in line with expectations. As a result, raw materials
and supplies increased ¥22.1 billion. Moreover, other current
assets rose ¥22.8 billion.
Liabilities
Total liabilities rose ¥56.3 billion, to ¥979.5 billion. Total noncurrent liabilities rose ¥16.5 billion, to ¥633.2 billion due to anincrease in long-term loans payable caused by new fundingneeds, such as for overseas investment, offset by a decrease inbonds payable. Total current liabilities rose ¥39.7 billion, to¥346.3 billion. Principal factors in this increase included a riseof ¥24.8 billion in current portion of noncurrent liabilities, due
in part to the shift of the status of bonds from the category of
noncurrent liabilities to that of current liabilities.
Net Assets
Total net assets rose ¥4.1 billion, to ¥784.6 billion. Treasury
stock declined ¥40.4 billion, from ¥42.7 billion to ¥2.3 billion.
As a result, total shareholders’ equity was up ¥37.3 billion, to¥772.5 billion. In valuation and translation adjustments, valuation difference on available-for-sale securities was down due
to sluggish stock market conditions, and foreign currencytranslation adjustment was down due to a decline in assets ofoverseas consolidated subsidiaries and equity-method affiliates
due to the appreciation of the yen. Consequently, total valuationand translation adjustments were down ¥34.0 billion, to –¥0.2
billion. Minority interests were up ¥0.8 billion, to ¥12.2 billion.
Changes in Treasury Stock
The policy for shareholder return highlighted in the mediumterm management plan entailed the following: To achieve a“60% total payout ratio,” in conjunction with dividends, wewill acquire treasury stock, and the acquired stock will subsequently be canceled.
Treasury stock declined ¥40.4 billion, to ¥2.3 billion. Open
market purchases of treasury stock of ¥9.9 billion (23.98 million shares) were offset by the cancellation of treasury stock
totaling ¥11.6 billion (24.00 million shares). The fifth unsecured
convertible bonds (conversion price: ¥339) were scheduled forredemption at the end of March 2009, and requests for conversion to shares of common stock reduced treasury stock by¥38.9 billion (80.55 million shares).

Equity Ratio
Minority interests did not change significantly, and as a result,in the same way as net assets, total shareholders’ equity* wasup slightly, rising ¥3.2 billion, or 0.4%, to ¥772.3 billion. On
the other hand, total assets increased 3.6%, and as a result,the equity ratio declined 1.3 percentage points, to 43.8%.
* Total shareholders’ equity = Net assets – Minority interests

Interest-Bearing Debt
In the fiscal year ended March 31, 2009, interest-bearing debt
increased by ¥34.5 billion, or 6.2%, to ¥593.2 billion, becauseof the increase in the demand for funds, particularly for newcapital investments and for gas resource costs. As a result, theD/E ratio rose 0.04 point, to 0.77.
Credit Ratings
To secure financial flexibility in regard to liquidity on hand andcapital policy, and to secure access to financial resources
through the capital markets, the Company believes that it isnecessary to maintain its credit rating at a certain level. In
order to smoothly raise funds from capital markets, Tokyo Gas
Co., Ltd. has acquired ratings from Standard & Poor’s, Moody’s,
and Rating and Investment Information Inc. (R&I), a rating
agency in Japan. As of July 2008, the ratings were as follows.
S&P
AA (stable)
Moody’sAa1 (stable)
R&I
AA+ (stable)
Capital Expenditures and Depreciation
Capital expenditures rose ¥7.9 billion, or 5.7%, to ¥145.9 billion. This increase was principally attributable to higher
investment in new trunk lines for the purpose of stable supply
and to an increase in pipeline investment for the purpose of
demand development. Depreciation declined ¥1.3 billion, or
0.9%, to ¥141.0 billion. In the future, the Company will continue to make capital expenditures, in a systematic manner, forthe purposes of supply stability and demand development.
Total Equity and Equity Ratio(¥ billion)
1,000

(%)
50

800

40

600

30

400

20

200

10

0
Years ended
March 3105

06■■ Total equity (left)

07

08

09

Interest-Bearing Debt and D/E Ratio(Times)
1.2

600

0.9

400

0.6

200

0.3

0
Years ended
March 31

05

06■■ Interest-bearing debt (left)

07

08

D/E ratio (right)

09

Cash Flows from Operating Activities
Cash flows from operating activities decreased by ¥22.6 billion
from the previous year, to ¥159.5 billion. In addition to income
before income taxes of ¥68.0 billion, decrease (increase) in
prepaid pension costs amounted to ¥9.0 billion, an increase of¥18.0 billion from the previous fiscal year. However, increase(decrease) in notes and accounts payable–trade was ¥6.0 billion, a decline of ¥29.8 billion from the previous fiscal year, anddecrease (increase) in inventories was –¥21.1 billion, a declineof ¥18.5 billion from the previous fiscal year. These were themajor factors contributing to the decline in cash flows.
Cash Flows from Investment Activities
Cash flows from investment activities in the fiscal year underreview were –¥163.5 billion, compared with –¥155.3 billion in
the previous year. Proceeds from sales and redemption of
securities were down by ¥8.2 billion, to ¥1.3 billion. The totalof purchase of property, plant and equipment and purchase ofintangible assets was up by ¥4.9 billion from the previous year,to ¥140.7 billion. Major outflows in the fiscal year under review
were related to gas pipeline construction. Purchase of investment securities was down by ¥4.0 billion from the previous
year, to ¥15.0 billion.
Cash Flows from Financing Activities
Cash flows from financing activities in the fiscal year underreview were ¥30.9 billion, compared with –¥25.1 billion in theprevious year. Purchase of treasury stock declined ¥29.1 billion
from the previous year, to ¥10.4 billion. In addition, proceedsfrom long-term loans payable were ¥81.1 billion, comparedwith ¥59.5 billion in the previous year.
As a result, the balance of cash and cash equivalents at theend of the fiscal year was up ¥20.3 billion from the end of theprevious year, to ¥64.0 billion.
Operating Cash Flow
In both the previous and current medium-term management
plans, Tokyo Gas, aiming to aggressively invest in the gas business, made operating cash flow a key management indicator.
Operating cash flow is calculated by adding depreciation to
net income.
Operating cash flow for the fiscal year ended March 31,
2009 amounted to ¥182.7 billion, a year-on-year decrease of¥2.1 billion. The lower figure reflects a decrease of ¥0.7 billion
in net income, and a decrease of ¥1.3 billion in depreciation.

0

Equity ratio (right)(¥ billion)
800

Cash Flows0

Total Payout Ratio to be 63%
In both previous and current medium-term management plans,Tokyo Gas has included the concept of a “60% total payout
ratio” as an indicator of its commitment to shareholder returns.
We define this new indicator as the ratio of the sum of theincome distributed as dividends funded by net income in FY n
and share repurchasing in FY n+1 to the net income in FY n.
We aim to maintain a total payout ratio of 60% while preserving a balance between dividends and stock repurchases.
In accordance with this “total payout ratio” concept, theCompany plans dividends of ¥8.0 per share for the fiscal year
ended March 31, 2009 and share repurchases of ¥5.0 billion(15 million shares) in the fiscal year ending March 31, 2010. As
a result, the total payout ratio for the fiscal year ended March
31, 2009 is expected to be 63%.

47

In regard to dividends, our priority is to maintain stable dividends, as well as gradual increases over the long term, without
reducing dividends based on income level.
In regard to share repurchases, our basic principle is to cancel
the shares. In July 2008, we cancelled 24 million shares, morethan the number of shares repurchased during the fiscal year
ended March 31, 2009. Consequently, the number of sharesissued declined by the same number, to 2,717,571,295 shares.
Millions of yen
Years ended March 31

2009

2008

2007

Net cash provided byoperating activities

159,561

182,204

190,597

Net cash used in investing
activities(163,575)(155,365)(130,922)

Net cash provided by(used in) financing activities

30,932(25,189)(65,843)

Key Management Indicators

ROE
Average shareholders’ equity declined, but net income decreased
1.8%, to ¥41.7 billion, and as a result, ROE was 5.4%, or thesame as that of the previous fiscal year.
TEP
Our goal is to generate profit in excess of capital costs. This isreflected in our adoption of Tokyo Gas Economic Profit (TEP: Net
ordinary income after tax prior to interest payments minus thecost of capital) as our main management indicator. TEP is also
being used as a management indicator for group companies
and as a benchmark for business restructuring and integration.
In the fiscal year ended March 2009, Net Ordinary Profit
After Tax Prior to Interest Payments (NOPAT) declined ¥8.6 billion year-on-year, to ¥41.2 billion, due in part to an increase inamortization of the actuarial differential on retirement benefits
and higher overhead expenses. On the other hand, theWeighted Average Cost of Capital (WACC) fell from 3.6% to
3.4%, with the result that the cost of capital declined by ¥2.1
billion, to ¥46.0 billion. As a result, TEP declined by ¥6.5 billion,
to –¥4.8 billion.

ROA and ROE about the same as those of the previous
fiscal year
ROA
Net income decreased ¥0.7 billion, to ¥41.7 billion, and average total assets increased. As a result, ROA fell to 2.4% from
2.5% in the previous fiscal year.

ROA and ROE

TEP(¥ billion)
60

(%)
15

50
12
40
9

30
20

6

10
3

0
Years ended
March 31

0

05

06

07

08

09

ROA
ROE
ROE = Net income/Equity (average of positions at start and end of fiscal year)–10
Years ended
March 31

06

07

08

09

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

Analysis of Ordinary Income in the Fiscal Year Ending March 31, 2010 (vs. the Fiscal Year Ended March 31, 2009)
Gas gross margin: +¥38.4 billion

Year ended March 31, 2009
results: ¥58.3 billion

Year ending March 31, 2010
projection: ¥64.0 billion

Operating expenses increase: –¥28.8 billion

Tokyo Gas non-consolidated:+¥10.2 billion

Strategic investment
Acceleration of safety measures: –¥3.2 billion
Enhanced residential sales: (LIFEVAL: –¥1.5 billion;“ENE-FARM”: –¥1.9 billion; all-electric-housecountermeasures: –¥2.1 billion
Personnel expense (amortization of the actuarial
differential on retirement benefits): –¥9.4 billion
Depreciation increase accompanying
new infrastructure: –¥2.3 billion

Other: +¥0.7 billion
Change: +¥5.7 billion

Consolidated subsidiaries:–¥0.5 billion
Internal offset:–¥4.0 billion

48

Increased depreciation accompanying large-scale
capital investment: (LNG vessel, onsite energy plants, etc.)
Decreased profit, due to lower oil price,at equity-method affiliate (upstream business)

Forecast (as of April 28, 2009)
Forecasting higher sales and profits in the year ending
March 2010
In the fiscal year ending March 31, 2010, we expect consolidated sales to decline ¥279.1 billion, or 16.8%, to ¥1,381.0
billion; operating income to increase ¥7.8 billion, or 12.0%, to¥73.0 billion; and net income to increase ¥0.3 billion, or 0.7%,
to ¥42.0 billion.
In the fiscal year ended March 31, 2009, ordinary income
amounted to ¥58.3 billion, but in the fiscal year ending March
31, 2010, we are forecasting a year-on-year increase of ¥5.7
billion, or 9.7%, to ¥64.0 billion. Principal factors include thenon-consolidated ordinary income of Tokyo Gas (+¥10.2 billion), the ordinary income of consolidated subsidiaries (–¥0.5
billion), and internal offset (–¥4.0 billion).
On a non-consolidated basis, Tokyo Gas is expected to record
an increase of ¥10.2 billion in ordinary income in comparison
with the fiscal year ended March 31, 2009. Gas sales volume
and sales revenues are both projected to decrease, but we
expect the gross profits on gas to improve by ¥38.4 billion
because declines in gas resource costs are expected to exceed
declines in sales revenues. Among the principal factors, we project that the drop in gas sales volume will reduce profits by ¥12.4
billion, while improvement in under-recovery of gas resource
costs due to the time lag under the gas rate adjustment systemshould increase profits by ¥37.0 billion. Due to investment tosteadily implement the key policies under the new medium-term
management plan and to increases in retirement benefits
accounting actuarial differences and other salary expenses, fixed
expenses are projected to increase ¥28.8 billion.
The ordinary income for consolidated subsidiaries is projected to basically remain at the previous year’s level, with aslight decline of ¥0.5 billion due to increased depreciation
stemming from large-scale capital investment.
For further information, please refer to the previous page.

External Risks Affecting Business Activities
Gas Resource Purchase Price Fluctuation Risk
City gas supplied by Tokyo Gas is produced mainly from imported
LNG. Since contracts are denominated in U.S. dollars, earnings
are at risk from fluctuations in the yen–dollar exchange rate.
Also, the dollar-denominated LNG prices are linked to crude oil
prices on a sliding scale, which exposes the Company to risk
from changes in the international market price for crude oil.
The provisional calculation of the extent to which thesefluctuations will affect gas resource costs in the year ending
March 31, 2010 is as follows.
Approximately ¥3.7 billion with an exchange rate fluctuation of ¥1/dollar
Approximately ¥4.4 billion with a fluctuation in crude oil
price of $1/barrel
Fluctuations in the cost of gas resources are passed on togas rates after at most five months under the “gas rate adjustment” system. Accordingly, in a single fiscal year, there can beunder-recovery or over-recovery. Under this system, althoughearnings may be subject to temporary increases and decreases
in a given fiscal year, the effect on operating income in theyear ending March 2010, after consideration of the time lag in
the gas rate adjustment system, will be as follows.

Approximately ¥0.8 billion with an exchange rate fluctuation of ¥1/dollar
Approximately ¥1.1 billion with a fluctuation in crude oil
price of $1/barrel
In fiscal year ended March 2009, the crude oil price averaged$90.51 per barrel, and the average exchange rate was ¥100.71
to one dollar. Forecasts for fiscal year ending March 2010 are
based on an average crude oil price of $50 per barrel and an
exchange rate of ¥100 to one dollar.
Temperature Fluctuation Risk
Temperatures affect the volume of city gas sales, which
account for around 70% of consolidated sales. In the residential sector, gas is used mainly for water heating and spaceheating. Mild winter weather can erode revenues and income
by reducing the volume of gas sold. On the other hand, in thecommercial sector gas is mainly used for air conditioning systems, so if temperatures are high in the summer or low in thewinter the gas sales volume increases.
The average temperatures in fiscal year ended March 2009were 22.1ºC in the first half of the year, 11.1ºC in the second
half, and 16.6ºC over the whole year. Forecasts for fiscal year
ending March 2010 are based on an average of 16.9ºC over
the whole year.
Impact of 1ºC Temperature Rise on Overall Gas Sales
VolumeRate of change

Summer (June–September)–0.6%

Winter (December–March)–2.5%

Intervening months (April, May, October, November)–2.2%

Annual–1.9%Interest Rate Fluctuation Risk
Tokyo Gas mostly procures both short-term and long-term
interest-bearing debt at fixed interest rates so there is only avery small interest rate fluctuation risk during the term of an
obligation. However, there may be fluctuation risk when loans
are refinanced.
Stock Price Fluctuation Risk
The equities held by Tokyo Gas are primarily those of its goodbusiness partners, which are held with the objective of fostering
mutual growth. Equities of publicly listed companies are subject
to market risk. Tokyo Gas has established management policies
and rules and regularly reviews the necessity of equity holdings
and their asset valuations for handling of such equities.
Monthly Gas Sales Volumes
for the Fiscal Year Ended March 31, 2009 (Non-Consolidated)(Million m3, 45MJ/m3)
1,600

1,200

800

400

0

08/4 5■■ Residential■■ Industrial

6

7

8

9

10 11 12 09/1 2

3■■ Commercial and others■■ Wholesale49

BUSINESS RISKS

Described below are items in the annual Yuho securities report concerning the Company‘s business andfinancial situation that could have a significant influence on investor decisions. Forward-looking statements are based on the judgments of the Group as of the end of the fiscal year (March 31, 2009).

1. Accidents and Disasters

3. Risks Accompanying Business Execution(1) Resource procurement supply interruption risk
Because Tokyo Gas relies on imports for the majority of its natural gas and other city gas resources, supplier country risk,
accidents at gas fields or LNG liquefaction plants, accidents to
LNG vessels in transit, or other situations preventing the procurement of gas resources may disrupt the supply of natural gas.

(1) Risks faced by existing business
A. Changes to the gas resource procurement environment
If demand increases more than the amount procured through
LNG projects based on long-term contracts, or trouble occurs
at a shipping terminal or during transportation, or there aredelays of LNG supply by new projects, etc., revenues may beaffected by increases in gas resource costs due to our procurement of spot LNG.

(2) Natural disaster risk
Tokyo Gas engages in facility-dependent businesses because
city gas production and supply facilities are the foundation ofits business. Accordingly, earthquakes, typhoons, or othermajor natural disasters may cause damage to LNG terminals
and other production facilities or pipelines and other supply
facilities and disrupt the supply of city gas. Costs accompanying recovery efforts could affect revenues.
(3) Gas production / supply accidents or supply disruption
The business operations of Tokyo Gas are based on the production and supply of city gas. A major gas leak or explosion relating
to the production or supply of gas, or a disruption of supply,
could result not only in direct damages but also in tangible andintangible losses, including social liability.
(4) Ensuring the safety of gas and quality problems
affecting gas equipment
Tokyo Gas has a responsibility to ensure the safe supply of gas.
Tokyo Gas sells gas appliances and other equipment under the
Tokyo Gas brand through consolidated subsidiaries and relatedcompanies, etc. Costs accompanying responses to accidents
caused by supply, gas appliances, and other equipment could
affect future earnings, and there could also be other direct andindirect losses.
(5) Damage to reputation resulting from gas accidents
caused by other gas companies
Accidents involving gas supply by other gas companies could
have a serious effect on the reputation of the city gas industry
as a whole. This could result in tangible and intangible losses.

2. Market Fluctuation Risks
Tokyo Gas might incur losses in the event of changes in themarket price of Company-owned real estate, stocks, pension
assets, or other assets and fluctuation of interest rates.

50

B. Under-recovery or over-recovery of gas resource costs
Under the gas rate adjustment system, changes in the gas
resource costs are in principle reflected in gas rates, but thefluctuation is reflected in the rates as much as five months
later. If this occurs over the accounting year, revenues for asingle fiscal year may be affected due to under-recovery orover-recovery of gas resource costs. In particular, if crude oil
prices or the exchange rate fluctuate suddenly or to an
extreme degree, the effect on revenues for a single fiscal year
may be large.
C. Decline in gas sales volume due to weather fluctuations
Abnormal weather conditions, particularly summer heat waves
and warm winters, reduce gas sales volume in the residential
sector, where gas is mainly used to supply hot water and heating, thereby affecting revenues.
D. Demand risk
Decreased facility utilization due to economic recession,
advancement of energy conservation activities, changes inindustry structure, or other factors may result in a partial
decrease in existing gas demand in the industrial and commercial sectors. Also, changes in lifestyles, the penetration ofenergy-saving appliances, or other factors may result in a partial decrease in existing demand in the residential sector.
E. Decline in demand due to intensified competition
Increasing competition with electric utilities and companies
entering into the gas business, as well as possible loss of LNG
competitiveness against other energy sources due to crude oil
price fluctuation, may result in lower demand and may affectrevenues.

F. Delay in the establishment and commencement ofoperations of the new regional energy company
For April 2008 to October 2009, the Tokyo Gas Group will
gradually restructure and integrate its residential sector service
operations to establish a new regional energy company, Tokyo
Gas LIFEVAL, which will execute all these operations in an integrated manner. The new company will develop regional
demand for gas, primarily among residential customers. We
have made careful preparations to ensure that the Company
has a smooth launch and does not have operational errors.
However, this initiative constitutes a fundamental revision of
our regional marketing structure, and if unforeseen changes tothe situation were to occur, they could affect the smooth commencement of the business.

the expected results due to changes in the economic situation,
which could affect revenues.

G. Technology development failure
If we are unable to develop or commercialize in a timely manner the new products and new technologies necessary for the
performance of our business, we may lose competitivenesswith other forms of energy and this may affect businessperformance.

(2) Risk of failure or malfunctioning of IT backbone
systems
The failure or malfunctioning of IT backbone systems related
to the manufacture and supply of gas, to customer contact
operations, or to the calculation of gas rates may result not
only in a disruption in gas supply and delays in customer service, but also in tangible and intangible loss, including damage
to the Tokyo Gas Group’s brand image.

H. Changes in laws, regulatory systems, or energy policiesof the national governments or local governments
Tokyo Gas manages its operations in compliance with the Gas
Utility Industry Law, the Japanese Corporate Law, the Financial
Instruments and Exchange Act, and other laws, regulations
and institutions, as well as the energy policies of the national
government and local governments. Any revisions to theselaws, regulations, institutions, or policies that prove detrimental to the Tokyo Gas Group may affect business performance.

4. Risks Related to Information Management
and System Operation(1) Personal information leaks
Improper disclosure of customers’ personal information gathered and managed in the conduct of business as a public utility
may result not only in direct costs required to remedy the situation, but also in tangible and intangible loss, including
damage to the trust of customers and others, with more serious consequences than for other companies.

(3) Interruption of communication with call centers
Most communication with customers takes place via call centers. Interruptions to telephone service to call centers would
not only disrupt service to customers over wide areas, but may
also incur serious tangible and intangible loss, including damage to the Tokyo Gas Group’s brand image.

(2) Delays in opening up new markets
As stated in the medium-term management plan, the Company
is working to develop new markets by promoting the adoptionof the “ENE-FARM” residential-use fuel cell and new energy
systems incorporating solar light and heat. Subsequent changes
in the Group’s internal or external environment could lead todelays in the development of new markets, changes in business strategies, and failure to recover investment.

5. Risks Related to Corporate Social
Responsibility(3) ROITokyo Gas continues to make large investments in keepingwith the goal of “advancing and developing the total energy
business strategy” as expressed in the medium-term management plan. Doing so involves investments in strengthening thefoundation for stable supply, including the expansion of widearea infrastructure, such as pipeline construction over a widearea, and LNG tank construction. It also involves investments
channeled into the electric power business, energy service
business, gas field and other development projects, the LNG
transportation business, and investments in enhancing thefoundation in existing businesses such as IT, as well as the utilization of Company-owned real estate. Such investments run
the risk of not bringing in appropriate returns or not producing(2) Compliance violations
Any violations of laws, rules, and regulations or inappropriate
responses to information disclosure that contravene corporate
ethics may result not only in direct costs required to remedy
the situation, but also in tangible and intangible loss, including
receiving social sanctions.

(1) Response to new environmental regulations, etc.
The need to comply with new environmental laws or additional
obligations to improve the environment might have an effecton the business operation of the Tokyo Gas Group, and it could
affect revenues.

(3) Inadequate customer satisfaction or responses tocustomer needs
Inadequate customer satisfaction or inappropriate customer
service may result in declining corporate competitiveness andin tangible and intangible loss, including damage to the Tokyo
Gas Group’s brand image.

51

CONSOLIDATED BALANCE SHEETSMarch 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

ASSETS

2009

2008

2009

¥ 193,613¥ 200,585$ 1,975,642

490,809486,845

5,008,255

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

60,51060,765

617,448

Other facilities (Note 3 and 12)

297,643

303,189

3,037,173

316

316

3,224

Inactive facilities

67,95772,419693,438

1,110,852

1,124,122

11,335,224

Goodwill

1,233

1,833

12,581Other (Note 12)

24,816

21,385

253,224

26,04923,219265,806

Investment securities (Note 3 and 4)

109,173

131,443

1,114,010

Long-term loans receivable (Note 3)

24,83918,485

253,459

Construction in progress
Total property, plant and equipment

Intangible assets

Total intangible assets

Investments and other assets

Deferred tax assets (Note 8)

46,212

31,635471,551

Other

35,84748,072

365,785

(906)

(614)

(9,244)215,166

229,022

2,195,571

1,352,068

1,376,365

13,796,612

Cash and deposits (Note 3)

66,90546,092682,704

Notes and accounts receivable – trade

166,542

172,889

1,699,408

Lease receivables and lease investment assets

25,594—

261,163

Merchandise and finished goods

3,807

3,742

38,846

Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets

Current assets

43

64

438

Raw materials and supplies

56,90534,718580,663

Deferred tax assets (Note 8)

13,461

13,704

137,357

Other (Note 3)

79,431

56,590810,520Work in process

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

52

(574)

(516)

(5,857)412,117327,286

4,205,275¥1,764,185¥1,703,651$18,001,887

Thousands of
U.S. dollars(Note 1)Millions of yen

LIABILITIES AND NET ASSETS

2009

2008

2009

¥ 291,490¥ 331,489$ 2,974,387

207,741

155,648

2,119,806

3,654

3,066

37,285

Noncurrent liabilities
Bonds payable (Note 5)Long-term loans payable (Note 3 and 5)
Deferred tax liabilities (Note 8)

100,734

93,557

1,027,897

Provision for gas holder repairs

3,555

3,558

36,275

Provision for safety measures

1,450

2,957

14,795

Provision for retirement benefits (Note 7)

24,597

26,346250,989

633,223

616,624

6,461,459

Current portion of noncurrent liabilities (Note 3 and 5)

88,16963,359899,683

Notes and accounts payable – trade103,319

99,352

1,054,275

Other
Total noncurrent liabilities

Current liabilities

Short-term loans payable (Note 5)

5,910

8,378

60,306

Income taxes payable

34,89425,150356,0612

1

20

114,048

110,327

1,163,755

Total current liabilities

346,345306,570

3,534,132

Total liabilities

979,568

923,195

9,995,591

Deferred tax liabilities (Note 8)
Other (Note 3)

Net assets (Note 9)
Shareholders’ equity
Capital stock*141,844

141,8441,447,387

Legal capital surplus

2,065

2,065

21,071Retained earnings

631,045

634,116

6,439,234

Treasury stock**(2,361)(42,774)(24,091)

772,594735,251

7,883,612

11,466

31,917

117,000

920

424

9,387

(12,615)

1,479(128,724)(228)

33,820(2,326)

Minority interests

12,25011,382125,000

Total net assets

784,616

780,455

8,006,285¥1,764,185¥1,703,651$18,001,887

Total shareholders’ equity

Valuation and translation adjustments
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Total valuation and translation adjustments

Total liabilities and net assets* Capital stock
Common stock
Authorized: 6,500,000,000 shares
Issued: 2,717,571,295 shares as of March 31, 2009 / 2,741,571,295 shares as of March 31, 2008** Treasury stock: 4,884,659 shares as of March 31, 2009 / 84,937,500 shares as of March 31, 2008

53

CONSOLIDATED STATEMENTS OF INCOME
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

2009

2008

2009

Net sales (Note 11)¥1,660,162¥1,487,496$16,940,428

Cost of sales

1,139,791

974,110

11,630,520

Gross profit

520,371

513,386

5,309,908

381,177

370,795

3,889,561

Selling, general and administrative expenses
Supply and sales expenses

73,98972,541

754,989

455,166

443,337

4,644,551

65,20470,048665,346

Interest income

1,089

446

11,112

Dividends income

1,675

1,513

17,091Equity in earnings of affiliates

5,529

3,775

56,418

Miscellaneous income

7,381

13,16275,316

15,67518,898

159,948

Interest expenses

10,86910,460110,908

Adjustments of charges for construction of distribution facilities

3,257

3,723

33,234

Miscellaneous expenses

8,415

7,930

85,86722,542

22,114230,020

58,337

66,832595,275

Gain on sales of noncurrent assets

—

1,849

—

Gain on sales of investment securities

—

3,355

—

Gain on adjustment for changes of “Accounting Standard
for Lease Transactions”

7,846

—

80,061Gain on transfer of benefit obligation relating to employees’
pension fund

1,570

—

16,020Gain on transfer of business

1,359

—

13,867

Total extraordinary income

10,775

5,205

109,948—

567—

General and administrative expenses
Total selling, general and administrative expenses
Operating income
Non-operating income

Total non-operating income
Non-operating expenses

Total non-operating expenses
Ordinary income
Extraordinary income

Extraordinary losses
Impairment loss

—

710

—

1,076

1,078

10,979Loss on reduction of noncurrent assets
Loss on valuation of investment securities

1,076

2,356

10,979

Income before income taxes

68,037

69,681

694,255

Income taxes – current

27,63022,748281,938

Total extraordinary losses

Income taxes – deferred(2,366)

3,238(24,142)

Total income taxes

25,26425,986

257,795

1,064

Minority interests in income
Net income

¥

1,207

41,708¥42,487

Yen

10,857$425,591

U.S. dollars

2009

2008

2009

Amounts per share of common stock
Net income¥15.63¥15.94$0.15

Diluted net income

15.37

15.50

0.15

Cash dividends applicable to the year

8.00

8.00

0.08

Accompanying notes are an integral part of these financial statements.

54

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

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

2009

2008

2009

¥141,844¥141,844$1,447,387—
141,844—
141,844—1,447,387

2,065

2,065

21,071

—
2,065

—
2,065

—
21,071

634,11694

644,652—

6,470,571
959(21,200)
41,708(11,710)(11,622)(340)—(3,165)631,045(22,831)
42,487(2,098)(34,539)
113
6,332(10,536)
634,116(216,326)
425,591(119,489)(118,591)(3,469)—(32,295)
6,439,234(42,774)(44,564)(436,469)(10,462)
39,252
11,62240,413(2,361)(39,572)
6,823
34,5391,790(42,774)(106,755)
400,530
118,591
412,377(24,091)735,25194

743,997—

7,502,561
959(21,200)
41,708(10,462)
27,542—(340)—
37,247
772,594(22,831)
42,487(39,572)
4,725
—
113
6,332
(8,745)735,251(216,326)
425,591(106,755)
281,040—(3,469)—380,071
7,883,612

31,91749,706

325,683(20,451)(20,451)
11,466(17,789)(17,789)
31,917(208,683)(208,683)
117,000

424

1,095

4,326

496
496
920

(671)
(671)
424

5,061
5,061
9,387

1,479

302

15,091(14,094)(14,094)(12,615)

1,177
1,177
1,479

(143,816)(143,816)(128,724)

33,82051,103345,102(34,048)(34,048)(228)(17,283)(17,283)
33,820(347,428)(347,428)(2,326)

11,382

10,944

116,142867
867
12,250438
438
11,3828,846
8,846
125,000

780,45594

806,045—

7,963,826
959(21,200)
41,708(10,462)
27,542(340)—(33,180)
4,066¥784,616(22,831)
42,487(39,572)
4,725
113
6,332
(16,845)(25,590)¥780,455(216,326)
425,591(106,755)
281,040(3,469)—(338,571)
41,489$8,006,285

Accompanying notes are an integral part of these financial statements.

55

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2009 and 2008

Thousands of
U.S. dollars(Note 1)Millions of yen

2009

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

56

¥

¥

2008

68,037
136,899
—
610
4,184
3,561
—
1,076
7,177
9,027
(1,507)(2,764)
10,869(5,529)2,585(21,111)
6,005(12,186)(4,042)(1,359)¥2009

69,681138,132
567
684
4,288
1,568
710
1,078
621
(9,015)(2,469)(1,959)10,460(3,775)(3,004)(2,542)35,883
(560)
—
—

$

694,255
1,396,928—
6,224
42,69336,336—
10,97973,234
92,112(15,377)(28,204)
110,908(56,418)
26,377(215,418)
61,275(124,346)(41,244)(13,867)(7,846)—(80,061)(7,623)
186,0633,421(10,850)(19,073)
159,561(8,237)232,112
2,784(10,196)(42,496)
182,204(77,785)
1,898,602
34,908(110,714)(194,622)
1,628,173(6,085)
5,575(15,091)
1,388(133,629)(7,120)(1,479)828(8,996)
1,505(1,031)
558(163,575)(5,467)
5,466(19,111)
9,630(128,972)(6,786)(3,023)
1,496(9,834)
1,184—
51(155,365)(62,091)
56,887(153,989)
14,163(1,363,561)(72,653)(15,091)
8,448(91,795)
15,357(10,520)
5,693(1,669,132)(2,468)—(5)
81,185(31,249)
20,000(4,888)235(10,462)(21,208)(205)
30,932(6,570)20,34743,706
1(3,235)(6,000)—59,590(43,162)
29,989—302(39,572)(22,823)(278)(25,189)524
2,173
40,231
1,301(25,183)—(51)
828,418(318,867)
204,081(49,877)
2,397(106,755)(216,408)(2,091)
315,632(67,040)
207,622445,979
10

(45)

—

(459)

64,009¥43,706$653,153

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2009 and 2008

1. Basis of Presenting Consolidated Financial
Statements
Tokyo Gas Co., Ltd. (the “Company”) and its consolidated subsidiaries maintain their accounts and records in accordance withthe provisions set forth in the Japanese Financial Instruments
and Exchange Law (formerly Securities and Exchange Law) and
its related accounting regulations, and in conformity withaccounting principles generally accepted in Japan (“Japanese
GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial
Reporting Standards. The Company, as a regulated company,
also follows the Gas Business Law related accounting regulations for preparing such financial statements.
Previously, the accompanying consolidated financial statements were produced by restructuring (reorganizing, changing
notes) and translating into English the consolidated financial
statements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance
Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Act. From the fiscal year ended
March 31, 2009, however, the financial statements, including
the financial statements for previous years but excluding notes
to consolidated financial statements, are not being restructured.
In addition, the accompanying consolidated financial statements do not necessarily include all of the information includedin the Japanese version of the consolidated financial statements
filed as per the Financial Instruments and Exchange Act.
Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of¥98 per U.S. dollar, the prevailing exchange rate on March 31,
2009. These conversions should not be construed as representations that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars at
this or any other rate of exchange.

2. Significant Accounting Policies(1) Consolidation — The consolidated financial statements
include the accounts of the Company and all of its significant
subsidiaries. For the years ended March 31, 2009 and 2008, 57
and 55 subsidiaries, respectively, were consolidated. All significant inter-company transactions and account balances are
eliminated in consolidation.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority shareholders, are recorded based on their fair value at thetime the Company acquired control of the respective subsidiary.
The following two companies were newly established andadded to the scope of consolidation from the current fiscal year:
Tokyo Gas Lifeval Kazusa Co., Ltd.
TGI Financial Solutions Co., Ltd.
The following company was added to the scope of consolidation from the current fiscal year to reflect the increased
significance of the subsidiary:
Nijio Co.,Ltd.

In addition, TK Customer Service Co., Ltd. was liquidated
and removed from the scope of consolidation from the current
fiscal year.
The Company’s major unconsolidated subsidiaries include
Ohgishima Power Co., Ltd.
Unconsolidated subsidiaries were not included in the scopeof the consolidation because total assets, net sales and theamount of net income/loss equivalent to the portion of theCompany’s interests, or the amount of retained earnings, etc.,
equivalent to the portion of the Company’s interests was small
and lacking in qualitative significance, and therefore they do
not have a significant impact on the consolidated financial
statements.
(2) Equity method — Significant investments in unconsolidated subsidiaries and affiliates over which the Company has
the ability to exercise significant influence with regard tooperating and financial policies of the investees are accounted
for by the equity method. Four affiliated companies were accounted for using the equity method for the two years ended
March 31, 2009 and 2008.
The unconsolidated subsidiaries and affiliates not accounted
for by the equity method were excluded from the scope of
application of equity methods, due to the immaterial effect of
the Company’s total interest on their net income/loss andretained earnings to the consolidated financial statements andtotally insignificance.
(3) Accounting period of consolidated subsidiaries —Although the Company’s fiscal year ends on March 31, thefollowing companies end their year on December 31:
TOKYO GAS AUSTRALIA PTY LTD
Tokyo Gas International Holdings B.V.
Tokyo Gas Bajio B.V.
Tokyo Gas Darwin LNG Pty Ltd
TOKYO GAS–MITSUI & CO. HOLDINGS SDN. BHD.
Tokyo Gas Pluto Pty Ltd
All significant adjustments considered necessary during theperiod from December 31 to the consolidated fiscal year-end
have been made with consolidation.
(4) Property, plant and equipment — For property, plantand equipment, the acquisition cost is shown. However, in thecase of acquisition expenses of the Company and its consolidated subsidiaries that have been subsidized by the national
government, etc., the amount of such subsidiaries are offset
against the acquisition cost of the corresponding asset (reduction entry).
Primarily, the declining-balance method of depreciation isapplied, based on the estimated useful life of the asset.
However, the straight-line method is applied for certain buildings (excluding ancillary equipment). Accumulated depreciation
on property, plant and equipment is deducted directly fromthe balances of the corresponding assets.
In the accompanying consolidated financial statements, accumulated depreciation on property, plant and equipment
amounted to ¥2,915,715 million (US$29,752,193 thousand) and57

¥2,825,986 million for the years ended March 31, 2009 and2008, respectively.
As a result of the revision of the Corporation Tax Law, as of
the year ended March 31, 2008, the Company and its domestic
consolidated subsidiaries have changed the depreciation
method for property, plant and equipment acquired on orafter April 1, 2007, to the depreciation method prescribed by
the revised Corporation Tax Law.
In addition, as of the fiscal year ended March 31, 2008, as toproperty, plant and equipment acquired on or before March 31,
2007, as of the fiscal year following that in which assets reach
5% of their acquisition cost pursuant to the depreciation
method prescribed by the Corporation Tax Law prior to its revision, the difference between an amount equal to 5% of theacquisition cost and the memorandum value is depreciated uniformly over five years and included in depreciation expenses.
The effect of these accounting changes on segment information is shown in Note 11. Segment Information.
The total amount of impairment loss is directly deductedfrom the amount shown for the respective asset.
(5) Intangible fixed assets — the straight-line method isapplied. For software used by the Company, the straight-line
method is applied based on the period of useful life within the
Company.
(6) Accounting for certain lease transactions — Financeleases that do not involve transfer of ownership were previously
accounted for based on standards for ordinary rental transactions. From the current fiscal year, however, the AccountingStandard for Lease Transactions is applied, and the accounting
method is as per ordinary sale and purchase transactions.
When the Company is the lessee, those finance lease transactions that do not transfer ownership and commenced on or
before March 31, 2008, are accounted for based on standards
for ordinary rental transactions.
The effects from the change on profit and loss when the
Company is the lessee are negligible. When the Company is
the lessor, the effects of the change on operating income andrecurring income are negligible, but income before income
taxes is increased by ¥7,715 million (US$78,724 thousand).
(7) Goodwill — Goodwill and negative goodwill are amortized on a straight-line basis within 20 years (mainly 10 years).
(8) Cash and cash equivalents — Cash and cash equivalents
include cash on hand, readily-available deposits and short-term
highly-liquid investments with maturities not exceeding threemonths at the time of purchase, which are readily convertible
to known amounts of cash such that they present insignificant
risk of change.
(9) Securities — The Company and its consolidated subsidiaries classify their securities under the following three categories,
in accordance with the Japanese Accounting Standard for
Financial Instruments.

58(a) Debt securities intended to be held to maturity (hereafter,“held-to-maturity debt securities”) are stated at amortized cost.
(b) Equity securities issued by unconsolidated subsidiaries
and affiliated companies that are not accounted for using
the equity method are stated at moving-average cost.
(c) Other securities with fair value, which are defined as
securities other than held-to-maturity debt securities,
equity securities issued by unconsolidated subsidiaries
and affiliated companies, and securities held for trading
purposes, are stated at fair value at the year-end, if theirfair values are readily available. The difference between
acquisition costs and book values of these securities arereported, net of applicable taxes, as a separate component of net assets. Other securities with no fair values arestated at moving-average cost.
If the fair value of held-to-maturity debt securities, equity
securities issued by unconsolidated subsidiaries and affiliatedcompanies, and other securities, declines significantly, and thedecline is not considered recoverable, such securities are stated
at fair value and the difference between fair value and the carrying amount is recognized as loss in the period of the decline.
(10) Derivative financial instruments — The Company andits consolidated subsidiaries use currency swap contracts,
interest rate swap contracts, foreign exchange forward contracts, commodity swap contracts, and weather derivatives
only for the purpose of mitigating the risk of fluctuations inforeign exchange rates, interest rates, market prices of raw
materials and finished products, and affects of changes intemperature.
The Company and its consolidated subsidiaries do not use
derivative financial instruments for speculative trading purposes. The derivative financial instruments are executed withcreditworthy financial institutions, and the Company’s and its
consolidated subsidiaries’ management believes there is little
risk of default by counterparties. The derivative financial instruments are used based on internal policies and procedures forrisk control.
Derivatives are stated at fair market value at the year-end.
The Company and its consolidated subsidiaries use hedging
accounting, provided that the conditions of the accounting
were applicable to the rules. Regarding forward exchange
contracts and foreign currency swap contracts that fulfilledcertain conditions, the hedged foreign currencies receivableand payable are recorded using the Japanese yen amount of
the contracted forward rate or swap rate. Regarding interest
rate swap contracts that fulfilled certain conditions, the net
amount to be paid or received under the interest rate swap
contract is added to or deducted from the interest on the liabilities for which the swap contract was executed.
(11) Inventories — Inventory values are based on the movingaverage cost method. Balance sheet values are calculated using thebook value reduction method based on declining profitability.

(12) Allowance for doubtful accounts — For normal receivables, an allowance for doubtful accounts is provided using thehistorical experienced default ratio. For specific receivables suchas bankruptcy/rehabilitation claims, an allowance for doubtful
accounts is provided for the estimated amounts considered to
be uncollectible after reviewing individual collectability.
(13) Provision for retirement benefits — The Company andits consolidated subsidiaries provide an unfunded lump-sum
payment plan and a funded pension plan as retirement benefit
schemes. The Company and certain consolidated subsidiaries
provide defined benefit plans and defined contribution plans.
Retirement benefits under these plans are determined basedon the level of wages and salaries, length of service, and certain other factors.
The Company and its consolidated subsidiaries determine
benefit obligations and expenses for reserve for retirement
benefits based on the amounts actuarially calculated using
certain assumptions.
Provision for retirement benefits is provided based on theestimated amounts of projected benefit obligations and thefair value of the plan assets.
The estimated amount of all retirement benefits to be paid
at the future retirement date is assumed as generating equally
to each service year using the estimated number of total service
years. Past service costs are mainly charged to income whenincurred, and actuarial gains and losses are charged to income
mainly in the fiscal year following the year in which they arise.
(14) Provision for gas holder repairs — The Company andcertain consolidated subsidiaries provide for periodic repairs ofgas holders by estimating future expenditures and charging
them to income in equal annual amounts. The difference
between the actual expenditure and the amount provided ischarged to income in the year repairs are completed.
(15) Provision for safety measures — The Company provides
for expenses necessary to secure safety for gas consumers by
estimating the total amount of such expenses that are expected
to be incurred after the year-end date.
(16) Translation of financial statements denominated inforeign currency — Receivables and payables denominatedin foreign currencies are translated into Japanese yen at the
year-end rates, and foreign exchange gains or losses arecharged to current income/expense. Assets and liabilities ofthe foreign subsidiaries are translated into Japanese yen at theexchange rates prevailing at the consolidated year-end date.
Profit and loss accounts for the year are translated into Japanese
yen at the exchange rates prevailing at the consolidated yearend date as well. Differences in yen amounts arising from theuse of different rates are presented as “Foreign currency translation adjustment” and “Minority interests” in net assets.

(17) Income taxes — Income taxes comprise corporation tax,
inhabitants’ taxes and enterprise tax (excluding enterprisetaxes based on “amount of added value” and “amount of capital”). The Company and its consolidated subsidiaries recognize
tax effects of temporary differences between the financial
statement basis and the tax basis of assets and liabilities. The
Company and its consolidated subsidiaries do not recognize
deferred tax assets that are not expected to reduce future
income taxes.
(18) Enterprise tax — In the case of companies engaged ingas businesses, enterprise tax that is levied, not on taxable
income but on net sales, is accounted for in “Selling, generaland administrative expenses.” Enterprise taxes based on“amount of added value” and “amount of capital” are also
included in “Selling, general and administrative expenses.”In the accompanying consolidated statements of income,enterprise tax included in “Selling, general and administrative
expenses” amounted to ¥17,447 million (US$178,030 thousand) and ¥15,226 million for the years ended March 31, 2009
and 2008, respectively.
(19) Research and development expenses — Research anddevelopment expenses are charged to income as incurred. In
the accompanying consolidated statements of income, researchand development expenses included in “Selling, general andadministrative expenses” and “Cost of sales” amounted to¥9,164 million (US$93,510 thousand) and ¥9,950 million forthe years ended March 31, 2009 and 2008, respectively.
(20) Amounts per share of common stock — Basic net
income per share is computed based on the net income available for distribution to common shareholders and theweighted-average number of common shares outstanding forthe period. Diluted net income per share reflects the potential
dilution that could occur if convertible bonds were converted
into common stocks.
Convertible bonds had reached redemption by March 31,
2009, and there are no convertible bonds outstanding.
Cash dividends per share have been presented on an accrualbasis and include dividends approved or to be approved after
the balance sheet dates, but they are applicable to the year
then ended.
(21) Reclassifications — Certain prior year amounts havebeen reclassified to conform to the fiscal year ended March 31,
2009 presentation. These changes had no impact on previously reported results of operations.

59

3. Pledged Assets

4. Securities

Pledged assets at March 31, 2009 and 2008 were as follows:

Acquisition costs, book values and fair values of securities withavailable fair values at March 31, 2009 and 2008 were as follows:

Thousands of
U.S. dollars

Millions of yen

Distribution facilities
Service andmaintenance facilities
Other facilities
Investment securities
Long-term loans
receivable
Cash and deposits
Other current assets

2009

2008

2009

¥ 6,494¥ 6,779$ 66,265

13

93

132

11,794355

13,791
30

120,346
3,622

36

37

367

Book value

¥34

¥44

$346

19,459—$210,234

Fair value

35

45

357

¥ 0

¥ 1

$

1,907
—
¥20,603

1,736
4¥22,474

Liabilities secured by the above assets at March 31, 2009
and 2008 were as follows:
Millions of yen(a) Held-to-maturity debt securities
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Securities with fair value exceeding book value:

Difference

Thousands of
U.S. dollars

Millions of yen

2009

0

2008

2009

Securities with fair value not exceeding book value:

Thousands of
U.S. dollars

Book value

¥10

¥199

$102

Fair value

9

199

91

2009

2008

2009

Long-term loans
payable (including
current portion of
noncurrent liabilities)¥9,584¥11,325$97,795

Other current liabilities

¥

¥

$

Difference

¥ 0

¥

0

$

0

(b) Other securities with fair value
56

59

571
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Securities with fair values exceeding acquisition cost:
Equity securities
Acquisition cost

¥ 9,148¥22,142$ 93,346

Fair value

31,38673,250320,265¥22,237¥51,108$226,908

Difference

Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Securities with fair values not exceeding acquisition cost:
Equity securities
Acquisition cost
Fair value
Difference¥16,581¥3,473$169,193

12,6602,959

129,183¥ (3,921)¥ (513) $ (40,010)

Other securities sold amounted to ¥40 million (US$408
thousand) and ¥3,714 million for the years ended March 31,
2009 and 2008, respectively. Gain on sales of other securities
amounted to ¥33 million (US$336 thousand) and ¥3,355
million for the years ended March 31, 2009 and 2008,
respectively.
Other securities with no available fair value, which werestated at moving-average cost, amounted to ¥24,742 million(US$252,469 thousand) and ¥20,964 million at March 31,
2009 and 2008, respectively. Investments in unconsolidated
subsidiaries and affiliated companies amounted to ¥40,324
million (US$411,469 thousand) and ¥33,959 million for theyears ended March 31, 2009 and 2008, respectively.

60

5. Short-Term Loans Payable, Bonds Payable and Long-Term Loans Payable
The average annual interest rates for short-term loans payable at March 31, 2009 and 2008 were 0.7% and 0.9%,
respectively.
Bonds payable and long-term loans payable at March 31, 2009 and 2008 were as follows:
Millions of yen

Thousands of U.S. dollars

2009

2008

2009

Due in 2016 at a rate of 4.0%

¥ 27,700¥ 27,700$ 282,653

Due in 2018 at a rate of 2.625%

40,00040,000408,163Due in 2009 at a rate of 1.68%

30,00030,000306,122

Due in 2009 at a rate of 1.73%

30,00030,000306,122

Due in 2010 at a rate of 2.01%

20,00020,000204,081Due in 2011 at a rate of 1.39%

30,00030,000306,122

Due in 2012 at a rate of 1.35%

20,00020,000204,081

Domestic unsecured bonds

Due in 2023 at a rate of 1.01%

20,00020,000204,081Due in 2013 at a rate of 1.41%

30,00030,000306,122

Due in 2014 at a rate of 1.59%

20,00020,000204,081Due in 2024 at a rate of 2.29%

10,00010,000102,040

Due in 2025 at a rate of 2.14%

10,00010,000102,040

Due in 2015 at a rate of 4.1%

13,80013,800140,816

Due in 2009 at a rate of 1.18%

—

4,000

—

Due in 2027 at a rate of 2.29%

19,99619,996

204,040

Due in 2015 at a rate of 1.4%

9,994

9,993

101,979

Due in 2015 at a rate of 1.658%

20,000—204,081—

28,195—

Secured

9,584

11,325

97,795

Unsecured

226,244

175,328

2,308,612

587,320550,338

5,993,061

88,087

63,200898,846¥499,232¥487,138$5,094,204

Domestic unsecured convertible bonds
5th issue due in 2009 at a rate of 1.2%
Loans from banks, insurance companies and government agencies
due through 2020 at rates of 0.53% to 5.35%:

Less: amounts due within one year

The annual maturities of bonds payable and long-termloans payable at March 31, 2009 were as follows:

Millions of yen

Thousands of
U.S. dollars

2010¥ 88,087$ 898,846

2011

53,767548,6422012

48,353493,3972013

43,569444,5812014

36,681

374,2952015 and thereafter

316,860

3,233,265¥587,320$5,993,061

Note: The Company has a specific commitment line contract with the maincorrespondent financial institution of ¥30,000 million ($306,122 thousand)in total.

61

6. Derivative Transactions
Contract amounts, fair values and recognized gains on thecommodity derivatives except those accounted for using hedge
accounting and weather derivatives at March 31, 2009 and2008 were as follows:

Thousands of U.S. dollars
At March 31, 2009
Contract amounts
Beyondone year

Total

Fair value

Recognized
gains (losses)

Commodity derivatives $90,571 $90,571 $(13,051) $(13,051)
Millions of yen

Weather derivatives

At March 31, 2009

6,122

—

—

—

—

— $(13,051)

Contract amounts
Total

Beyondone yearCommodity derivatives¥8,876¥8,876

Weather derivatives

600

—

—

—

—

—

—

¥(1,279)

Recognized
gains (losses)

Fair value¥(1,279) ¥(1,279)

Millions of yen
At March 31, 2008
Contract amounts
Total

—

Beyondone year

Fair value

Recognized
gains (losses)

Commodity derivatives

¥ 764

¥—

¥815

¥815

Weather derivatives

1,100

—

—

—

—

—

—

¥815

Fair value of commodity derivatives contracts was calculated
based on the information presented by financial institutions.
Contract amounts of commodity derivatives are solely nominal
values, and not indicative of the magnitude of market risk or
credit risk concerning derivatives transactions. Contract amounts
of weather derivatives were stated at the maximum receivableor payable amounts under the contracts. Fair values of weather
derivatives were not stated because the calculation of the fairvalues was impossible.

7. Provision for Retirement Benefits
Provision for retirement benefits included in the liabilities section of the consolidated balance sheets as of March 31, 2009 and2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation

2008

2009

¥ 363,728$3,598,877

Unrecognized prior service costs

1,915

2,220

19,540

Unrecognized actuarial differences(35,211)(25,243)(359,295)

Less: Fair value of pension assets(218,660)(256,174)(2,231,224)

—

9,027

—

¥100,734¥ 93,557$1,027,897

Prepaid pension costs
Provision for retirement benefits

62

2009

¥352,690

Net periodic retirement benefit expenses for the years ended March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Service costs – benefits earned during the year

¥ 9,402¥ 9,847$95,938

Interest cost on projected benefit obligation

6,359

6,500

64,887

Expected return on plan assets(5,028)(5,168)(51,306)

Amortization of actuarial differences

20,735

13,393

211,581

Amortization of prior service costs

(192)

(165)

(1,959)

Other

4,608

4,828

47,020Net periodic retirement benefit expenses

35,88529,235366,173

Gain on transfer of benefit obligation relating toemployees’ pension fund

(1,570)—(16,020)¥34,315¥29,235$350,153

Net

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

8. Income Taxes
The Company is subject to multiple taxes based on taxable
income, which, in the aggregate, indicate a statutory rate in
the Company of approximately 36.2% for the years ended
March 31, 2009 and 2008.
Reconciliation of the difference between the statutory tax

rate and the effective tax rate for financial statement purposes
for the years ended March 31, 2009 and 2008 are not presented as they are negligible.
Significant components of deferred tax assets and liabilities
as of March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Provision for retirement benefits¥36,847¥34,277$375,989

Other

44,724

42,581

456,367

Deferred tax assets:

Less: Valuation allowance(8,471)(7,094)(86,438)

73,101

69,764745,928

Valuation difference on available-for-sale securities

6,793

18,641

69,316

Other

10,2898,851

104,989

17,08327,492

174,316¥56,017¥42,272$571,602

Subtotal
Deferred tax liabilities:

Subtotal
Deferred tax assets – net

639. Net Assets(a) Distribution to the shareholders
Under the Japanese Corporate Law (“the Law”), dividends canbe paid at any time during the fiscal year in addition to theyear-end dividend upon resolution at a shareholders’ meeting.
Interim dividends may also be paid upon a resolution of the
Directors’ meeting provided that the articles of incorporationof the company so stipulate, and that the company meets certain criteria.
The Law provides certain limitations on the amounts available for dividends and/or the purchase of treasury stock. The
limitation is defined as the amount available for distribution to
the shareholders, and it is calculated mainly based on othercapital surplus, other retained earnings and treasury stock, but
the amount of net assets after dividends must be maintained
at no less than ¥3 million.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial
statements of the Company in accordance with Japanese laws
and regulations.
At the general meeting of shareholders held on June 26,
2009, the Company’s shareholders approved payment of yearend cash dividends of ¥4.0 (US$0.04) per share aggregating¥10,850 million (US$110,714 thousand) to the shareholders ofrecord as of March 31, 2009.
Such appropriations have not been accrued in the consolidated financial statements for the year ended March 31, 2009.
Such appropriations are recognized in the period in which they
are approved by the shareholders.

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

10. Additional Information for Cash Flows
Reconciliation of cash and deposits shown in the consolidated balance sheets and cash and cash equivalents shown in the consolidated statements of cash flows as of March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and deposits
Less: Time deposits with maturities over three months, etc.
Cash and cash equivalents

2009

2008

2009

¥66,905¥46,092$682,704(2,896)(2,385)(29,551)¥64,009¥43,706$653,153

Significant non-cash transactions for the years ended March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

Millions of yen

64

2009

2008

Decrease in treasury stock due to the conversion of convertible bonds¥ 38,978¥ 6,542$ 397,734

2009

Losses on disposal of treasury stock due to the conversionof convertible bonds(11,671)(2,119)(119,091)

Decrease in convertible bonds¥ 27,306¥ 4,422$ 278,632

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

A summary of net sales, operating expenses, operating
income, assets, depreciation, impairment losses, and capital
expenditures by business segments for the years ended March
31, 2009 and 2008 is as follows:
Millions of yen

For 2009

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate

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

37,551

5,106

3,259

22,50599,867(168,290)—

1,257,574

122,363

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

1,660,162

Net sales:
Outside customers
Intra group
Total
Operating expenses

1,146,717

Operating income (loss)¥ 110,857¥

AssetsDepreciation

120,276

50,1942,086¥ (1,099)¥¥1,037,149¥ 40,097

109,247733—
110,653

Impairment losses
Capital expenditures—

28,194350,301(100,726)

7,442¥ 13,482¥ (67,563)¥

1,594,957¥17,548¥175,539¥267,562¥ 226,286¥1,764,185

101

9,637

19,347(2,168)136,899

—

—

—

—

—

—

917

54

5,769

29,562(2,507)

144,450

65,204

Millions of yen

For 2008

Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther businessElimination or
corporate

Consolidated¥1,056,100¥129,201¥ 53,569¥ 12,360¥236,263¥—¥1,487,496

30,943

3,125

3,755

22,80884,097(144,731)—

1,087,044

132,326

57,32535,169320,361(144,731)

1,487,496

975,381

129,41756,497

27,206

307,592(78,646)

7,963¥ 12,768¥ (66,084)¥

Net sales:
Outside customers
Intra group
Total
Operating expenses¥ 111,663¥

Assets¥ 993,802¥ 43,551¥ 18,891¥179,857¥256,631¥210,917¥1,703,651

107,312

605

122

9,907

22,244(2,060)138,132

—

—

—

—

567

—

567

94,404

648

35

4,300

37,701(2,108)

134,983

Depreciation
Impairment losses
Capital expenditures

2,909

¥

828

¥

1,417,448

Operating income (loss)

70,048

Thousands of U.S. dollars
Gas sales

Gas appliancesales

Installation
work

Real estate
rentalOther business$12,449,214$1,196,489$467,693$ 134,000$2,693,010

383,173

52,10233,255

229,642

1,019,051(1,717,244)

—

Total

12,832,387

1,248,602

500,959

363,6423,712,071(1,717,244)

16,940,428

Operating expenses

16,275,071

For 2009

Elimination or
corporate

Consolidated

Net sales:
Outside customers
Intra group

11,701,193

1,277,306

512,183

Operating income (loss) $ 1,131,193$21,285$ (11,214)$

Assets$10,583,153$409,153

1,114,765

7,479—
1,129,112

Depreciation
Impairment losses
Capital expenditures$—$16,940,428

287,693

3,574,500(1,027,816)

75,938$ 137,571$ (689,418) $$179,061$1,791,214$2,730,224$ 2,309,040$18,001,887

1,030

98,336

197,418(22,122)

1,396,928

—

—

—

—

—

—

9,357

551

58,867

301,653(25,581)

1,473,979

Operating expenses under Elimination or Corporate that cannot be allocated to business segments are related mainly togeneral administrative expenses of the Company, amounting to¥68,664 million (US$700,653 thousand) and ¥67,096 million forthe years ended March 31, 2009 and 2008, respectively.

665,346

Assets under Elimination or Corporate mainly comprise cash
and deposits, investment securities, and deferred tax assets of theCompany and its consolidated subsidiaries, and they amounted to¥259,494 million (US$2,647,897 thousand) and ¥243,678 million
at March 31, 2009 and 2008, respectively.

65

As described in Note 2. Significant accounting policies (4)Property, plant and equipment, as a result of the revision of the
Corporation Tax Law, from the year ended March 31, 2008,
the Company and its domestic consolidated subsidiaries havechanged the depreciation method for property, plant andequipment acquired on or after April 1, 2007, to the depreciation method prescribed by the revised Corporation Tax Law.
In addition, from the year ended March 31, 2008, as to property, plant and equipment acquired on or before March 31,
2007, as of the fiscal year following that in which assets reach
5% of their acquisition cost pursuant to the depreciation
method prescribed by the Corporate Tax Law prior to its revision, the difference between an amount equal to 5% of theacquisition cost and the memorandum value is depreciated uniformly over five years and included in depreciation expenses.
Geographic segment information is not shown since morethan 90% of both consolidated net sales and total assets are
generated in Japan. Information on overseas sales is not disclosed due to overseas sales being immaterial compared toconsolidated net sales.

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

Millions of yen

Lease payments
Depreciation expenses

2009

2008

2009

¥ 550

¥ 547

$ 5,612

550

547

5,612

Future lease payments inclusive of interest:
Current
Noncurrent

472

555

4,816

2,670

3,146

27,244¥3,142¥3,702$32,061

Acquisition cost, accumulated depreciation and net bookvalue for property held under finance leases that do not transfer
ownership of the leased property to the lessee on an “as if capitalized“ basis as of March 31, 2009 and 2008 were as follows:
Millions of yen

For 2009

Other facilities
Other intangible assets

Acquisition cost

Accumulated
depreciation

Net book value¥4,415¥1,341¥3,074

178

110

68

¥4,593¥1,451¥3,142¥5,311¥1,715¥3,596

For 2008

Other facilities
Other intangible assets

200

94

105

¥5,512¥1,810¥3,702Thousands of U.S. dollars

For 2009

Other facilities
Other intangible assets

66

Acquisition cost

Accumulated
depreciation

Net book value$45,051$13,683$31,367

1,816

1,122

693

$46,867$14,806$32,061

Information as lessor
In the fiscal year ended March 31, 2008, finance lease transactions that do not transfer ownership were accounted for basedon standards for ordinary rental transactions. Lease income,depreciation expenses and the amount corresponding to interest
income in the year ended March 31, 2008, and the future lease
payments to be received at March 31, 2008, were as follows.

Operating leases
Information as lessee
Future lease payments at March 31, 2009 and 2008 were as
follows:
Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Future lease payments:
For 2008

Millions of yen

Lease income¥ 4,719

Depreciation expenses

1,636Interest income

1,407

Current

¥110

¥ 32

$1,122

Non-current

331

125

3,377

¥441

¥158

$4,500Future lease payments to be received:
Current¥ 5,517

Noncurrent

19,880Information as lessor
Future lease payments to be received at March 31, 2009 and2008 were as follows:¥25,397
Acquisition cost, accumulated depreciation and net bookvalue for property held under finance leases which do nottransfer ownership of the leased property to the lessee for theyear ended March 31, 2008 were as follows:

For 2008

Acquisition cost

Accumulated
depreciation

Net book value¥26,241¥14,375$11,866

1,090

754

335

¥27,332¥15,130$12,202

Other facilities
Other intangible assets

The breakdown of lease investment assets as of March 31,
2009, is as follows:
Millions of yen

Thousands of
U.S. dollars¥22,198$226,510

64

653

For 2009

Claims for lease fees
Estimated residual value
Equivalent interest received
Lease investment assets

2009(3,724)(38,000)¥18,539$189,173

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

For 2009

Millions of yen
Lease
Lease
investment
obligations
assetsThousands of U.S. dollars
Lease
Lease
investment
receivables
assetsWithin 1 year

¥1,050¥4,954$10,714 $50,551

More than 1 year
but within 2 years

1,044

4,305

10,65343,928More than 2 years
but within 3 years

1,038

3,605

10,59136,785More than 3 years
but within 4 years

1,000

2,922

10,20429,816More than 4 years
but within 5 years

883

2,242

9,010

22,877More than 5 years¥2,988¥4,167$30,489 $42,520

2008

2009

Future lease payments:
Current
Non-current

Millions of yen

Thousands of
U.S. dollars

Millions of yen¥ 1,952¥326$ 19,918

11,087457

113,132¥13,040¥783$133,061

13. Commitment and Contingent Liabilities
At March 31, 2009, the Company and its consolidated
subsidiaries were contingently liable for (1) debt guarantees in
the amount of ¥6,050 million (US$61,734 thousand) for
financial institution loans to companies other than consolidated
subsidiaries and (2) ¥38,700 million (US$394,897 thousand) as
guarantors for domestic unsecured bonds issued by theCompany, and assigned to certain banks under debt assumption
agreements made in the years ended March 31, 2002, 2003,
and 2004.
At March 31, 2009, the Company held several long-term
purchase contracts for the supply of LNG. The purchase pricedeterminable under such contracts is contingent upon
fluctuations in the market price of crude oil.
Adjustment of the cost for raw materials is subject tomovements on trading contract renewals or price negotiations
thereof with gas resource suppliers.

14. Subsequent Events
Resolution on acquisition of treasury stock
The Directors’ meeting held on April 28, 2009 resolved toacquire treasury stock.
Number of shares: Limited to 15,000 thousand shares
Cost of shares acquisitions: Limited to ¥5,000 million(US$51,020 thousand)
Period of acquisitions: From April 30, 2009 to
October 30, 200967

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of Tokyo Gas Co., Ltd.:We have audited the accompanying consolidated balance sheets of Tokyo Gas Co., Ltd. (the “Company”) and consolidated subsidiaries as of March 31, 2009 and 2008, and the related consolidated statements of income, changes in net assets and cash flows
for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to independently express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tokyo Gas Co., Ltd. and subsidiaries as of March 31, 2009 and 2008, and the results of their operations and their cash
flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:(1) As discussed in Note 2(4) to the consolidated financial statements, as a result of the revision of the Corporation Tax Law,effective April 1, 2007, Tokyo Gas Co., Ltd. has changed the depreciation method for property, plant and equipment
acquired on or after April 1, 2007, to the depreciation method prescribed by the revised Corporation Tax Law.
(2) As discussed in Note 2(4) to the consolidated financial statements, as a result of the revision of the Corporation Tax Law,effective April 1, 2007, as to assets acquired on or before March 31, 2007, as of the fiscal year following that in which assets
reach 5% of their acquisition cost pursuant to the depreciation method prescribed by the Corporation Tax Law prior to its
revision, Tokyo Gas Co., Ltd. writes off the difference between an amount equal to 5% of the acquisition cost and the memorandum value uniformly over five years and records as depreciation expenses.
(3) As discussed in Note 2(6) to the Consolidated Financial Statements, effective April 1, 2008, Tokyo Gas Co., Ltd. has been
applying the “Accounting Standard for Lease Transactions”.
(4) As described in Note 14 to the consolidated financial statements, Tokyo Gas Co., Ltd. decided to acquire the treasury stock
on April 28, 2009.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2009are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 26, 2009

68

CONSOLIDATED SUBSIDIARIES AND EQUITY-METHOD AFFILIATES
As of March 31, 2009

Main Consolidated Subsidiaries
Equity owned
Capital by Tokyo Gas(¥ million)(%)

FY2008 Net sales(¥ million)[% of outside sales]

Operatingincome(¥ million)

Tokyo Gas Urban Development Co., Ltd. non-life insurance agent, etc.

11,530100.033,539[35.4]

6,655

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

5,000

100.0

641 [100.0]

153

Nagano Toshi Gas Co., Ltd.

City gas business in Nagano Prefecture

3,800

89.2

11,624 [100.0]

727

ENERGY ADVANCE Co., Ltd.

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

3,000

100.0

68,437[94.6]

1,189

Gastar Co., Ltd.

Production, sales and maintenance ofgas appliances

2,450

66.7

28,568[41.9]

791

Tokyo LNG Tanker Co., Ltd.

LNG and LPG transportation andchartering of carriers

1,200

100.0

15,822[24.6]

2,896

Tokyo Gas Energy Co., Ltd.

Sales of liquefied petroleum gas (LPG)

1,000

100.0

36,939[79.4]

124

Capty Co., Ltd.

Installation of gas supply lines, water supply
and drainage lines, air conditioning systems,
new construction, and construction of gas
mains and branch lines

1,000

100.0

55,849[35.0]

1,245

Tokyo Gas Chemicals Co., Ltd.

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

1,000

100.0

20,671[72.6]

750

Park Tower Hotel Co., Ltd.

Management of “Park Hyatt Tokyo” hotel
and restaurants

1,000

100.0

8,299

[96.2](944)

Tokyo Gas Yokosuka Power Co., Ltd.

Independent Power Producer for TEPCO

980

75.0

11,424[96.6]

540

Chiba Gas Co., Ltd.

Supply of gas to Yachiyo City, Narita Cityand surrounding cities

480

100.0

18,254[97.0]

1,186

TG Credit Service Co., Ltd.

Leasing of information equipment, gasappliances and office equipment, and credit
administration connected with installations

450

100.0

8,682

[66.6]

428

TG Information Network Co., Ltd.

Information processing services, softwaredevelopment and sales of computerequipment, etc.

400

100.0

18,210[5.2]

510

Tsukuba Gakuen Gas Co., Ltd.

Supply of gas in Tsukuba City and
Tsukuba Mirai City

280

100.0

8,999

[98.9]

477

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services witha particular focus on energy-related work

100

100.0

33,363[70.4]

1,425

Tokyo Gas Customer Service Co., Ltd.

Periodic safety checks, meterand billing services

50

100.0

5,259

[2.0]

199

Capty-Livelic Co., Ltd.

Gas facility construction, gas appliance sales,and maintenance

50

100.0

7,747

[67.5]

116

Nijio Co., Ltd.

Procurement and sales of natural gas
and electricity

47

100.0

14,071[73.6](2,989)Company

Business

Real estate leasing, management andNote: Consolidated subsidiaries comprised 57 companies as of the end of March 2009.

Other Subsidiaries
TOKYO GAS AUSTRALIA PTY LTD,Tokyo Gas International Holdings B. V.,
Tokyo Gas Bajio B.V., Tokyo Gas Darwin LNG Pty Ltd,
Tachikawa Urban Center Co., Ltd.,
Living Design Center Co., Ltd., Tokyo Gas Baypower Co., Ltd.,TOKYO GAS–MITSUI & CO. HOLDINGS SDN. BHD.,
Tokyo Oxygen and Nitrogen Co., Ltd., TG Showa Co., Ltd.,Tokyo Carbonic Co., Ltd., Tokyo Gas Pluto Pty Ltd,TG Enterprise Co., Ltd., Japan Super Freeze Co., Ltd.,
Miho Gas Co., Ltd., Shoei Gas Co., Ltd.,Tokyo Gas Auto Service Co., Ltd., TG Telemarketing Co., Ltd.,Tokyo Gas LPG Terminal Co., Ltd., Kawasaki Gas Pipeline Co., Ltd.,Tokyo Gas Remodeling Co., Ltd., Washimiya Gas Co., Ltd.,Urban Communications, Inc., Tochigi Gas Co., Ltd.,Tokyo Gas Techno-Service Co., Ltd.,Tokyo Gas Building Service Co., Ltd.,TGI Financial Solutions Co., Ltd.,Showa Bussan Co., Ltd., Tosetz Co., Ltd., Tokyo Kiko Co., Ltd.,
Capty Customer Service Co., Ltd.,
Enelife Carrier Co., Ltd., Showa Unyu Co., Ltd.,Tokyo Gas Plant Tech Co., Ltd., Tokyo Rare Gases Co., Ltd.,Tokyo Auto Gas Co., Ltd., Tokyo Gas Lifeval Kazusa Co., Ltd.,
Capty Tech Co., Ltd.

Equity-Method Affiliates
TOKYO TIMOR SEA RESOURCES INC.
GAS MALAYSIA SDN. BHD.

East Japan Housing Evaluation Center Co., Ltd.
Bajio Generating VOF

69

INVESTOR INFORMATIONAs of March 31, 2009TOKYO GAS CO., LTD.
Head Office

Number of Shareholders 160,644

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

Stock Listings Tokyo Stock Exchange,
Osaka Securities Exchange andNagoya Stock Exchange (Trade code: 9531)

Overseas Offices
New York Representative Office
The Chrysler Building, 405 Lexington Avenue, 33rd Floor
New York, NY 10174, U.S.A.
Tel: +1-646-865-0577 Fax: +1-646-865-0592
Paris Representative Office
102, Avenue des Champs-Elysées, 75008 Paris, France
Tel: +33-1-45-62-00-59 Fax: +33-1-42-25-96-85
Asia Pacific Regional Office
Level 30, Menara Standard Chartered,No. 30 Jalan Sultan lsmail, 50250 Kuala Lumpur, Malaysia
Tel: +60-3-2144-2928 Fax: +60-3-2144-2930

Date of Establishment October 1, 1885
Paid-in Capital ¥141,844,398,888
Aggregate Number of Shares Issuable 6,500,000,000 shares
Issued Number of Shares 2,717,571,295 shares

Independent Auditors KPMG AZSA & Co.
Agent to Manage Shareholders Registry
The Chuo Mitsui Trust & Banking Co., Ltd., 3-33-1 Shiba,
Minato-ku, Tokyo 105-8574, Japan

Number of Employees 15,510(Consolidated basis, excluding workers on loan
and part-time workers)

Principal Shareholders

Number ofshares held(Thousands)

Percentage ofshareownership (%)

Nippon Life Insurance Company
163,000
Japan Trustee Services Bank, Ltd.
(Trust Account 4G)
158,412
Japan Trustee Services Bank, Ltd.
(Trust Account)
154,891
The Dai-ichi Mutual Life Insurance Company
120,472
The Master Trust Bank of Japan, Ltd.
(Trust Account)
117,071
The Chase Manhattan Bank N.A. London
SL Omnibus Account
77,384
Fukoku Mutual Life Insurance Company
68,504
Tokyo Gas Employees Shareholding Association 38,838
Mizuho Trust & Banking Co., Ltd. Employee
Pension Trust Dai-ichi Mutual Life Insurance
Company Account Standby Trustee
Trust & Custody Services Bank, Ltd.
35,490State Street Bank and Trust Company 505225
32,668

6.01

Name

5.84
5.71
4.44
4.32
2.85
2.53
1.43

1.31
1.20

Note: Percentage of share ownership is calculated by the number of shares
excluding treasury stock (4,884 thousand shares).

Monthly Stock Price Range (Tokyo Stock Exchange)
（¥）
800
700
600
500
400

（Thousandsof shares ）300

300,000

200

200,000

100

100,000

0

0

00/
01/
02/
03/
04/
05/
06/
07/
08/
09/
1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3■ Stock price (left)■ Monthly trading volume (right)

Further Information
Please direct comments regarding the content of this reportor requests for other publications to:Tokyo Gas Co., Ltd., Investor Relations Section,
Investor Relations Dept.
Tel: +81-3-5400-3888
Fax: +81-3-3437-2668
E-mail: tgir@tokyo-gas.co.jp

70

Forward-Looking Statements
Statements made in this annual report with respect to Tokyo Gas plans, strategies andbeliefs, and other statements that are not expressions of fact are forward-looking
statements about the future performance of the Company. As such, they are based on
management’s assumptions and opinions stemming from currently available
information, and therefore involve risks and uncertainties. These risks and uncertainties
include, without limitation, general economic conditions in Japan, the exchange rate
between the yen and the U.S. dollar, and the ability of Tokyo Gas to continue to adapt
to rapid technological developments and deregulation.
Financial Data and Graphs
For purposes of presentation, from this annual report, all amounts less than one
billion yen or one million yen have been rounded down, and hundredths of apercentage point have been rounded to the nearest whole number. Therefore, thefigures presented in this report may differ from those presented in the annual reports
in past years. In addition, all graphs and tables represent fiscal years ended March 31of the respective years.

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 are
independently 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 costUpper
limit 160%
6,318

B (Jul.)A (Jan.–Mar.)A (Jun.)53,810

5,398

1

2

3

4

5

6

7

8

9

month

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.

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 of

STABILITY ANDGROWTHINTEGRATION AND
EXPANSION ALONG
THE LNG VALUE CHAIN

Contents
01

Printed in Japan

Special Feature 1
Four Keys to the
Future 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

30
36
38
41
69
70

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