Tokyo Gas Co., Ltd.

Annual Report 2011
Tokyo Gas Co., Ltd.

Annual Report 2011

Increasing Shared Value

Profile
Tokyo Gas Co., Ltd. is Japan’s largest provider of city gas, serving more than 10 million customers, primarily in the Tokyo
metropolitan area and surrounding Kanto region, an economic zone that accounts for around 40% of the nation’s GDP.
Since energy resources are scarce in the Japanese archipelago, Tokyo Gas converts LNG to city gas at its LNG terminals, and supplies the city gas through a pipeline network. We also sell gas appliances and conduct repairs andinspections. In addition to sales and services at customer sites, we participate in resource development projects andare advancing our LNG transport business using our own shipping fleet.
A key strength is our “LNG value chain,” which extends from upstream through to end-users. Deploying this strength,
we not only supply natural gas in a safe and reliable manner, but also operate an “integrated energy business, with natural gas at its core,” which delivers solutions for diverse energy needs on a one-stop basis, including electric power,
heating, and renewable energy.

Natural gas resource development— Participation in upstream projects (Darwin, Pluto, Gorgon, etc.)

Procurement, transportation— Long-term LNG procurement contracts with 10 projects
in six countries— LNG transportation via own shipping fleet

Production, power generation
Tokyo Gas’s LNG Value Chain— City gas production— LNG-fired thermal power generation
business

Supply— City gas supply via pipelines— LNG supply via LNG lorries— Wholesale supply to other gas suppliers

Sales, services— City gas supply for residential, commercial and others, and industrial uses
— Energy services

Features of Gas Business in Japan
Unlike in Europe and the U.S., where gas production and gas con-

Breakdown of Primary Energy Consumption(Japan, the U.S., Europe)%

sumption locations are connected via pipelines, in Japan, liquefied
natural gas (LNG) is brought in by ship, converted to city gas, anddelivered to end-users mostly via pipelines. Because this entails

100

significant costs, the share of total primary energy supply by natural gas is relatively low in Japan compared with Europe and the U.S.
However, natural gas is winning growing acclaim for its environmental benefits, as it gives off lower CO2 and NOx emissions thanother fossil fuels. In addition, demand for natural gas in Japan is
growing year by year as pipelines are extended.

60

1.0
3.9
13.2

80
24.7

1.7
2.6
8.4

2.3
6.6
9.2

22.9

16.4
Renewable energy

37.2

40

31.1

40.2

Hydro power
Nuclear power
Coal

20
17.0

27.2

34.4

Oil
Natural gas

0

Japan

the U.S.

EuropeSource: BP Statistical Review of World Energy, June 2011

Tokyo Gas’s Two Growth Drivers

1

Environmental Benefits of Natural Gas

Environmental advantage: Natural gas is the cleanest of all fossil fuelsCompared with other fossil fuels, natural gas emits lower volumes of carbon dioxide (CO2) and nitrogen oxides (NOx) whenburned and emits no sulfur oxides (SOx). Accordingly, it has an extremely low environmental impact. Moreover, the International
Energy Agency (IEA) estimates that natural gas usage will increase in its “BLUE scenarios” for reducing CO2 emissions by 50%(from 2008 levels) by 2050.
In addition, city gas can be used for power generation in necessary places, and heat thus emitted can be used to heat waterand power air-conditioning systems. Thanks to the technological progress of such “gas cogeneration” and other dispersed
power sources, the role of natural gas continues to grow.
Comparison of Emissions (Coal = 100)

CO2

NOX

100
80

60

SOX

100
70

Coal

Oil

70

Oil

40

Natural gas

100

Coal

Coal

Oil

0

Natural gas

Natural gas

Forecast for Global Energy Supply under Various IEA Scenarios
Primary Energy Supply (million tons crude oil equivalent)2005 Actual

9,000

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

6,000

Baseline scenario: Current conditions continue
ACT Map 2050 scenario: Atmospheric concentrationof CO2 in 2050 is reduced to 550 ppm or lower
Blue Map 2050 scenario: Atmospheric concentrationof CO2 in 2050 is reduced to 450 ppm or lower

+34%
–27%

3,000

–18%

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).

0

Natural gas

Oil

Coal

Nuclear power

Biomass Other renewableenergyStable supply: Development of unconventional gases greatly
extends reserves-to-production ratio
Compared with “conventional gases” extracted from oil and gas fields,“unconventional gases” can be extracted from solid rock. In the past, technological limitations have prevented development of such gases at the extraction
and production stages. Thanks to recent technological innovations, however,unconventional natural gases, such as coal-bed methane (CBM), shale gas, andtight sand gas, have started to enter full-scale use. In addition to CBM, Tokyo
Gas also participates in a shale gas development project.
Unconventional gases can be found all around the world and clearly exceed conventional gases in terms of resource volume. Accordingly, the reserves-to-production
ratio for natural gas will greatly surpass the current ratio of around 63 years.

Reserves of Conventional andUnconventional Gases
Unit: Trillion cubic feet (TCF)

CBM
10,16921%
Tight sand gas
7,406

15%

Conventional
gases
15,40131%
Shale gas
16,10333%
Source: Tri-zen, USGS, SPE2

Advantageous Service Area

One of the world’s largest economic zones

Breakdown of GDP of Japanby Major Area

While the population of Japan is declining, there is a net inflow trend in theTokyo metropolitan area, one of the world’s largest economic zones. The Kanto
region, which extends for a 200-kilometer radius around Tokyo, accounts for(Year ended March 31, 2009)

Tokyo area

39.4%

around 40% of Japan’s GDP. Thanks to an abundance of flat terrain and extension of pipelines, the Kanto region is expected to see an increased demand forfuel conversion in main areas of industrial concentration. This highlights a major
strength for Tokyo Gas, whose business base is the Kanto region, Japan’slargest source of energy demand.

Total ¥505 trillion
39.4% Tokyo area: Tokyo, Kanagawa, Saitama, Chiba, Ibaraki,
Tochigi, Gunma, Yamanashi, and Nagano prefectures
15.8% Osaka area: Osaka, Hyogo, Kyoto, Shiga, Nara,and Wakayama prefectures
9.6% Nagoya area: Aichi, Gifu, and Mie prefectures
Source: Cabinet Office, Government of Japan, National Accounts of Japan

Share of Tokyo Gas of
Total City Gas Sales Nationwide(Year ended March 31, 2011)

Tokyo Gas total

44.9%

44.9% Tokyo Gas total 14,745 million m3
10.7% Residential
9.3% Commercial and others
19.0% Industrial
5.9% WholesaleTokyo area

Japan total 32,805 million m3
Source: The Japan Gas Association web site,(Gas Sales Volume JGA Newsletter)
The figures are calculated on the basis of 45 MJ/m3.
Note:

The above figures do not include the sales volume ofeight city gas companies in the Tohoku Region affectedby the Great East Japan Earthquake.

Sales of industrial-use gas as a growth driver

Industrial-use Gas Sales Volume

Japan’s three major city gas providers —Tokyo Gas, OsakaGas, and Toho Gas — together account for 80% of the nation’s
gas supply. Of this total, the sales volume of Tokyo Gas has(Years ended March 31)

reached 45% of the nationwide total. Amid growing environmental awareness among corporations, industrial-use gas
sales volumes have exceeded residential-use volumes since
fiscal 2000, providing a driving force for overall sales growth.

Million m3

10,0006%/year

8,000
6,000

9%/year

4,000
2,000
0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Estimates

Increasing Shared Value
As a public utility, Tokyo Gas delivers “social value” as demanded by the community. In ourrole as a private-sector company, meanwhile, we also provide increasing “economic value”
via the capital and competitive markets. Bringing these values together, we seek to share ourvalues with all stakeholders and achieve sustained growth.
CONTENTS

Growth through the Creation of Shared Value

7

Special Feature 1:
Interview with the President

17

Special Feature 2:
Three Initiatives for Security, Safety, and Reliability

The Great East Japan Earthquake and tsunami caused damage to a number of nuclear power plants on the Pacific Coast.
This has created concerns that the supply-demand balance for power generation may tighten, highlighting the nation’senergy security problem.
In the Special Feature 1 section of this report, the President of Tokyo Gas discusses future growth strategies, investment plans,
and the profit appropriation policy. Here, he adopts the standpoint of maximizing value for both society and shareholders, inother words, “shared value,” through the stable supply of energy amid changing business conditions sparked by the disaster.
In Special Feature 2, we discuss natural disaster preparedness, a major element of our social value and a matter of
immediate and growing concern for everyone. Specifically, we describe the three pillars of natural disaster preparedness: prevention, emergency, and restoration.

2 Financial Highlights
4 To Our Shareholders

24 Review of Operations
28 Technology Development

Special Feature
7 Special Feature 1: Interview with the President
17 Special Feature 2: Three Initiatives for Security, Safety,
and Reliability

30 Corporate Governance
34 Board of Directors and Corporate Auditors
36 Corporate Social Responsibility
40 On-site IR Report
43 Financial Section

22 Tokyo Gas at a Glance

73 Consolidated Subsidiaries and Equity-method Affiliates
74 Investor Information

Other Tools
Tokyo Gas Group CSR Report
The CSR Report introduces the corporate social responsibilities (CSR) that theGroup is fulfilling through its businessactivities as well as specific initiatives.

Tokyo Gas Environmental Activities
This report introduces the Company’s activities in
the area of the environment, which is an important element in all of the Group’s business activities, and introduces the superior characteristics
of natural gas and the Company’s initiatives.

TOKYO GAS ANNUAL REPORT 2011

About This Annual Report
This annual report was prepared as a communications tool that helps to foster a better understanding of the Company and to build good
relationships with shareholders, investors, and a wide range of other people. In addition to the Company’s operating results and businessstrategies, it also provides information about matters that are not as readily visible from outside the Company, such as the Company’s
philosophy, its approach to the environment and safety, and the features of its operations and markets.

http://www.tokyo-gas.co.jp/csr/index_e.html

1FINANCIAL HIGHLIGHTSTokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31

Thousands of
U.S. dollars*1

Millions of yen(except otherwise stated)

For the years(except otherwise stated)

2007

2008

2009

2010

2011

2011

¥1,376,958¥1,487,496¥1,660,162¥1,415,718¥1,535,242$ 18,496,892

Operating income

162,31570,04865,20485,229122,451

1,475,313

Net income

100,699

42,48741,70853,781

95,4671,150,205

Depreciation

133,142

142,421141,083

146,117

149,336

1,799,229

Capital expenditures

124,556

138,006

145,929

148,186

150,2021,809,663

Net income

37.50

15.94

15.63

19.86

35.63

0.43

Diluted net income*2

35.69

15.50

15.37

—

—

—

Net assets

293.11

289.49284.72301.58320.703.86

Net sales

Amounts per share ofcommon stock (¥/$)

Cash dividends applicableto the year

8.00

8.00

8.00

9.00

9.00

0.11

Total payout ratio*3 (%)

60.14

73.56

63.35

60.11

60.86

—

Payout ratio (%)

21.33

50.19

51.18

45.32

25.26

—

At year-end
Total assets¥1,692,635¥1,703,651¥1,764,185¥1,840,972¥1,829,661$ 22,044,108

Interest-bearing debt

525,467

558,716

593,230

555,919584,169

7,038,181

Total net assets

806,045

780,455784,616

826,291874,094

10,531,253¥ 233,841¥ 184,908¥ 182,791¥ 199,898¥ 244,802$ 2,949,422

Operating income to net sales (%)

11.8

4.7

3.9

6.0

8.0

—

Net income to net sales (%)

7.3

2.9

2.5

3.8

6.2

—

538

17

–48

186

640

771

13.2

5.4

5.4

6.8

11.4

—

RatiosOperating cash flow*4

TEP* (Billions of yen/
5

Millions of U.S. dollars)
ROE*6 (%)
ROA*7 (%)

5.9

2.5

2.4

3.0

5.2

—

Equity ratio (%)

47.0

45.1

43.8

44.2

46.9

—

D/E ratio* (times)

0.66

0.73

0.77

0.68

0.68

—

Gas sales volume (million m3)

13,315

14,215

13,942

13,666

14,745—

Number of customers (thousands)

10,207

10,38010,513

10,637

10,739—10,191

10,874

11,162

10,052

10,692—8

Operational data

LNG imports (thousand tons)

TOKYO GAS ANNUAL REPORT 2011(non-consolidated)

2

*1
*2
*3
*4
*5

U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥83 = US$1, the prevailing exchange rate on March 31, 2011.
From the fiscal year ended March 31, 2010, diluted net income per share is not presented in the above table because there are no residual securities from the beginning of the fiscal year.
Total payout ratio for fiscal year n = ((income distributed as dividends funded by net income in FY n) + (share repurchasing in FY n+1)) / (net income in FY n).
Operating cash flow = net income + depreciation (including amortization of long-term prepayments)
TEP (Tokyo Gas Economic Profit) = net operating profit after tax prior to interest payments - cost of capital (invested capital x WACC)
WACC: Fiscal 2009 results: 3.2% / Fiscal 2010 results: 3.2% / Fiscal 2013 outlook: 3.8%
The fiscal 2010 figure includes the gain on sales of noncurrent assets through the sale of land in Toyosu.
*6 ROE = net income / total equity (average of positions at start and end of fiscal year)*7 ROA = net income / total assets (average of positions at start and end of fiscal year)*8 D/E ratio = interest-bearing debt (year-end) / total shareholders’ equity (year-end)

FINANCIAL HIGHLIGHTS

Operating Income /Operating Income to Net Sales

Net Sales

2,000¥ billion200¥ billion

%

150

1,500

Net Income /Net Income to Net Sales

40

120

30

90

ROE / ROA

¥ billion

%

40

15

%

30
10

1,000

100

20

60

20

500

50

10

30

10

0

0

5

0

0

07

08

09

10

11

07

¥ billion

09

10

%

750

80

250

0

11

Operating Cash Flow

Total Equity / Equity Ratio

1,000

08

07

08

09

10

07

9

¥

08

09

10

11

10

11

Total Payout Ratio

Cash Dividends Per Share /Payout Ratio¥ billion

0

11

%

90

90

6

60

60

3

30

30

0

0

%

200

60

150
500

40
100

250

20

0

50
0

0

07

08

09

10

0

07

11

08

09

10

As of March 31, 2011

180
160

07

08

09

10

11

07

08

09

Raw Material Price Calculation Period; Gas Price Reflection Period

Average Gas Rates (Approximation)
¥/m3

11

The average raw material price of the past three months is calculated
every month, then reflected in the gas price three months later.
Raw material
price calculation
periodResidential

140

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct.

Nov. Dec.

Averageraw material
price

120
100

Averageraw material
price

Commercial and Others

80
Industrial

60

Power
Generation

Averageraw material
price

40

100

m3/year

1,000

10,000Regulated area

100,000

1,000,000

10,000,000

Liberalized area
(100,000 m3 or more)

Reflection ingas price

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct.

Nov. Dec.

TOKYO GAS ANNUAL REPORT 201120

3

TO OUR SHAREHOLDERS

President and Representative Director

Tsuyoshi Okamoto

With our nation engaged in a process of restoration in theaftermath of the Great East Japan Earthquake, the Tokyo
Gas Group’s social mission — the supply of energy to theTokyo metropolitan area — has assumed extreme importance. The need for natural gas, which is in stable supply
and environmentally friendly, is now greater than ever. In
this context, we will place heightened emphasis on our “integrated energy business, with natural gas at its core,” which
we have been promoting for some time. By so doing, we
will meet the expectations of society, our customers, shareholders, and all other stakeholders to the maximum extent.

TOKYO GAS ANNUAL REPORT 2011

Fiscal 2010 in Review

4

Increased gas sales

The Great East Japan Earthquake, which struck on March 11, 2011, caused no major

volume boosts

damage to the Group’s equipment and facilities. Although supply was temporarily

revenue; earnings

suspended to around 30,000 customers in part of our city gas supply area (aroundsignificantly higher,

Hitachi City, Ibaraki Prefecture), for the most part, the situation was restored to nor-buoyed by lower

mal within a week.

depreciation of

In fiscal 2010, consolidated net sales amounted to ¥1,535.2 billion, up 8.4% frompension actuarial

the previous fiscal year, and the gas sales volume rose 7.9%, to 14,745 million m3.

differences

The main factors contributing to these increases were growth in demand for hot
water and heating due to a cool springtime, higher demand for air conditioning during
an extremely hot summer, and additional demand for power generation at our newly
operational Ohgishima Power Station. Also contributing to revenue growth was an

TO OUR SHAREHOLDERS

increase in gas unit prices under the gas rate adjustment system triggered by rising
raw materials prices.
Operating income increased 43.7%, to ¥122.4 billion. A key factor boosting earnings
was a ¥51.9 billion year-on-year improvement in depreciation of pension actuarial differences. By contrast, there was a ¥34.9 billion decline in net inflows by the parent company, stemming from the slide time lag, the time taken to translate increased raw
materials costs into gas unit prices.
Although incurring extraordinary losses of ¥3.2 billion due to the Great East Japan
Earthquake, the Group benefited from a ¥39.7 billion gain on the sale of land in Toyosu.
Consequently, after deducting income taxes, net income surged 77.5%, to ¥95.4 billion.
Our shareholder return policy is to maintain a total payout ratio of 60%, meaning thatthe sum of dividends paid and share buybacks should equal at least 60% of net income.
Under this policy and in light of our performance, we declared annual cash dividends of¥9.00 per share, unchanged from the previous fiscal year. During the period underreview, we decided to make share repurchases totaling ¥34.0 billion.
Outlook for Fiscal 2011
Income forecast to

In the year ahead, we do not expect seasonal temperature-related factors to boost rev-

decline due toenue, as happened in the year under review. On a consolidated basis, therefore, therising raw

Group forecasts a 0.8% year-on-year dip in gas sales volume, to 14,626 million m3.

materials costs

Nevertheless, we forecast a 11.1% increase in net sales, to ¥1,705.0 billion, owing toincreases in gas unit prices stemming from an expected year-on-year jump in crude oil
prices, which determine LNG prices, of around US$30 per barrel.
We forecast a 49.5% fall in operating income, to ¥61.0 billion. There are two main factors behind this estimate: a projected ¥18.1 billion decline due to a worsening slide timelag by the parent company accompanying rising raw materials costs; and a ¥7.5 billion
decrease in net inflows from incidental income, such as sales of LNG and electric
power. These factors are based on a projected average crude oil price of US$111.2 perbarrel and an average exchange rate for the year of ¥80.4 per U.S. dollar. Our forecast
also assumes a ¥22.6 billion increase in personnel expenses on higher costs from pension actuarial differences. Due also to the absence of income generated in the previous
fiscal year—the gain on the sale of land in Toyosu—we forecast a 61.2% decline in net
income, to ¥37.0 billion.

FY2011 Forecast(Years ended March 31)
Gas sales volume (million m , 45MJ)
Net sales
Operating expenses
Operating income
Ordinary income
Net income
Slide time lag effect (non-consolidated basis)
Amortization of actuarial differences (non-consolidated basis)
JCC ($/bbl)
Exchange rate (¥/$)
3

The forecast figures for fiscal 2011 are as of June 30, 2011.

FY2010FY2011

14,745
1,535.2
1,412.7
122.4
121.5
95.4
–29.2
+19.9
84.14
85.74

14,626
1,705.0
1,644.0
61.0
58.0
37.0
–47.3
–2.7
111.24
80.43

TOKYO GAS ANNUAL REPORT 2011

Billions of yen (except otherwise stated)5

TO OUR SHAREHOLDERS

With respect to our outlook for fiscal 2011, we remain uncertain about the full impactof the earthquake. On one hand, for example, demand for city gas will decline due tolower utilization of capacity at factories and offices forced to reduce electricity use as aresult of tightening power supply-demand pressures. On the other hand, demand fornatural gas should rise on the back of increased use of natural gas for power generationand greater deployment of cogeneration systems. Accordingly, we will revise our forecasts in a flexible manner as soon as we are able to make quantitative evaluations.
* The forecast figures for fiscal 2011 are as of June 30, 2011.

Progress Report on Medium-Term Management Plan
Steady progress in

The Tokyo Gas Group is making good progress with several strategies outlined in its

establishing a multi-

Medium-Term Management Plan FY2009–2013. In power generation, the Group’s cen-energy supply

tral strategic business, we commenced operations at the Ohgishima Power Station insystem andJuly 2010 and increased our total power generation capacity to 1,300 MW. We also

upgrading coremade steady progress with the Chiba-Kashima Line, the gas pipeline we are building

infrastructurewith the aim of tapping new demand in the Kanto region, which covers a 200-kilometerradius around Tokyo. Our plan to supply gas through the pipeline is on track to start inMarch 2012. Turning to our “ENE-FARM” residential-use cogeneration systems, which
are now in their third year of sales, we planned further cost reductions and space savings in introducing a new model in April 2011. We are working to expand sales via Tokyo
Gas LIFEVAL, a community-based marketing system introduced in September 2009.
In the aftermath of the Great East Japan Earthquake, two Tokyo Gas commitments—
the stable and safe supply of energy, and our rigorous, customer-driven approach tohighlighting the benefits of natural gas — are gaining in importance. Emphasizing thesecore themes, we will strengthen our LNG procurement capability, upgrade our infrastructural foundations, address the energy-saving needs of customers, promote theintroduction of dispersed energy systems, and build smart energy networks.
“Shared Value” and “Shareholder Value”

Raising shareholder

Revised in June 2010, the Japanese government’s Basic Energy Plan will need to bevalue by maximizing

reviewed once again due to the Great East Japan Earthquake. Given that a reassess-

the Group’s value

ment of nuclear power generation is inevitable, the need for natural gas — which excels

to society

in terms of environmental friendliness, economy, stability of supply, and convenience—
will certainly rise. For some time, the Tokyo Gas Group has been promoting itself as anintegrated energy business with natural gas at its core. Continuing along this path willtake on increasing relevance.
The stable supply of energy forms the basis for customer living standards and social
progress. As a supplier of energy to the Tokyo metropolitan area, our vital mission
remains that of supplying energy in a safe and stable manner and thereby contributing
to society’s advancement. In this regard, progress made in regional communities andTOKYO GAS ANNUAL REPORT 2011society is inextricably linked with that made by the Group; they are one and the same.

6

Accordingly, I am convinced that sharing and maximizing the Group’s value to society
will ultimately lead to increased shareholder value.
July 2011
President and Representative Director Tsuyoshi Okamoto

GROWTH THROUGH THE CREATION OF SHARED VALUE

SPECIAL FEATURE 1:
INTERVIEW WITH THE PRESIDENT
As a provider of energy in the Tokyo metropolitan area, today more than ever Tokyo Gas isrequired to do all it possibly can to ensure thestable supply of energy. The Tokyo Gas Group
strives to increase shareholder value by fulfilling its social mandate, which is to spread andexpand the use of natural gas.

:1

The Great East Japan Earthquake has turned the spotlight on Japan’s energy security. Do you think Tokyo
Gas needs to be better prepared for earthquakes?

Existing Infrastructure Displayed Excellent

Tsunami and Power Outage Planning

Earthquake ResistanceIn response to the recent tsunami that devastatedTokyo Gas has measures in place that cover the threeareas in the Tohoku region, we have specified astages of “prevention,” “emergency,” and “recov-

height for coastal revetments at LNG terminals.

ery” in the event of a major earthquake. The three

This height is based on the assumed height of a

LNG terminals and the trunk pipelines around Tokyotsunami that would result when a record magni-

Bay were designed to withstand earthquakes of thetude epicentral earthquake occurs, or when linked

size of the Great Hanshin-Awaji Earthquake (M7.3) inearthquakes occur in the Tokai, East Nankai, and1995 and the Great Kanto Earthquake (M7.9) in 1923.

Nankai regions. In addition to re-examining existing

They stood up well in the March 2011 earthquake, asassumptions, we will keep a close watch on theevidenced by the minimal amount of damage sus-

Central Disaster Management Council and academ-

tained by our production and supply facilities. In the

ic conferences where discussions on earthquake-

Tohoku region too, which is near the epicenter of theresistant design standards and tsunami theories

M9.0 earthquake—the largest ever recorded intake place, and will determine the need for addi-

Japan—our LNG tanks and high-pressure pipelines

tional measures accordingly.

survived virtually intact, even though the tsunami
damaged electrical equipment at an LNG terminal.

As for power outage planning, our systems allow
for back-up production and supply using the two

In addition, we have an earthquake damage pre-remaining terminals, enabling us to meet virtually all

vention system called “SUPREME” (Super-dense

demand when electricity supply to one terminal isReal-time Monitoring of Earthquakes), which auto-

stopped. In the unlikely event of a simultaneousmatically shuts off the gas supply when it detects a

power outage at all three terminals, we can continue

quake with a magnitude over a certain level. On

supplying a certain quantity of gas using emergency

March 11, the system worked properly, which meant

power generators. Going forward, we will evaluatethat we were able to prevent secondary damage

the risk of a total power outage while taking into

caused by fire.

account demand estimates for such an event.

TOKYO GAS ANNUAL REPORT 2011

Q

7

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:2

Given changing business conditions following the greatearthquake, has Tokyo Gas altered its sales strategy, which
focuses on combating the push to all-electric houses?

No Change in Basic Strategy

of achieving the best mix of energy sources will

The operating environment has seen various changes

become increasingly important. This entails meet-since the earthquake, including a sharp rise in demanding the demand for energy through the proliferation

for gas for thermal power plants, a shift from large-of dispersed energy systems that use a variety of

scale system-based power systems to dispersed

energy sources, including natural gas and renew-

energy systems, and review and reassessment ofable energy. Tokyo Gas will also play its part by pro-the shift to all-electric houses. Nonetheless, it is pre-moting energy diversification centering on natural

cisely at a time like this that we need to “develop

gas, which combines renewable energy and cogen-the integrated energy business,” with natural gas at

eration with a shift to natural gas and the advanced

its core, which is being promoted by the Group.

use of natural gas.

Therefore, we will continue efforts to spread andexpand the use of natural gas by highlighting theadvantages of natural gas over other energy forms
such as environmental friendliness, stable supply,and convenience.

Gas Sales Volume and Number of Customers(Years ended March 31)
20.0

Billion m 3

Millions

12.00

16.4

Centering on Natural Gas

11.20

TOKYO GAS ANNUAL REPORT 2011

10.74

10.0

11.00

10.51

In June 2010, the Japanese Cabinet approved the

8

14.7

13.9

Greater Focus on Energy Diversification,

government’s Basic Energy Plan, which is based on
the spread and expansion of nuclear power. We at
Tokyo Gas recognize that a review of this Plan is

0.0

10.00

09

10

11

Amid this environment, and from the perspectives of security and stable supply as well, the goal

13

14

Estimates

inevitable and that there will be discussions on a newenergy strategy in the near future.

12

Gas sales volume (left)
Residential
Commercial and others
Industrial
Wholesale

Number of customers (right)

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Emphasizing the High Added Value of Natural Gas

April 2011, we released a new model of the “ENE-

In order to increase the adoption of dispersed energy

FARM” system, which is about half the size of its

systems by households, Tokyo Gas is working topredecessor, is easier to install, and costs consider-spread and expand the use of its “ENE-FARM” resi-

ably less. By making further cost reductions, we plan

dential-use cogeneration system. In Japan, theto generate momentum for increased use of “ENE-

number of members per household is expected to

FARM.” Going forward, we will also promote the use

decrease, and the diffusion of energy-efficient appli-of renewable energy, including double power gener-

ances is expected to increase. “ENE-FARM,” whichation, which combines “ENE-FARM” fuel cell andsupplies electricity as well as hot water, not only

solar power generation, and “SOLAMO,” a gas hotenhances the added value of natural gas, but also

water system that also uses solar heat. By enhancing

contributes to a low-carbon society through its ener-

the added value of natural gas in these ways, we willgy efficiency and low carbon dioxide emissions. In

work to increase demand for residential systems.

“ENE-FARM” Sales (Annual Basis) (units)(Non-consolidated)(Years ended March 31)

Number of Installed “ENE-FARM” (units)(Non-consolidated)(Years ended March 31)
50,00042,00040,000

Newly built houses
Existing houses

30,000

Total

Estimate

2010

2011

2012

700

1,200

2,500

800

1,200

2,500

1,500

2,400

5,000

20,00010,000

4,000

0

11

12

13

14

New “ENE-FARM” product launch(left: Fumio Ohtsubo, President of Panasonic Corporation;right: Tsuyoshi Okamoto, President of Tokyo Gas Co., Ltd.)“SOLAMO” gas hot water system that also uses solar heat

TOKYO GAS ANNUAL REPORT 2011

Estimates

9

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Sakhalin

Tokyo

Qatar

Malaysia
Indonesia

Brunei

Pluto
GorgonDarwinNWS

Existing LNG project

Tokyo Gas Long-Term LNG Contracts

Queensland Curtis

New LNG project
New LNG project (participation decided)

TOKYO GAS ANNUAL REPORT 2011

Q

10

:3

The Great East Japan Earthquake has led to a sharp
increase in domestic LNG demand. How do you viewthe demand-supply situation for LNG, and what measures are you taking to ensure stable LNG procurement?

LNG Demand-Supply Balance Anticipated

we are focusing on how to diversify LNG procure-in the Long Term

ment. We are targeting stable, competitive LNG

The damage incurred to Tokyo Electric Powerprocurement by diversifying the methods of pro-Company’s Fukushima Daiichi Nuclear Power Plant

curement while basically adopting a strategy ofhas led to delays in restarting other nuclear reactors

long-term agreements with politically stable regions.

throughout the country that were undergoing regular

At present, Tokyo Gas procures LNG through long-inspections. In this context, we expect to see con-term agreements with 10 projects in six countries.

struction of new gas thermal power generation facil-

Recently, we have been diversifying our resource

ities that are alternative power sources, as well as

procurement portfolio by actively pursuing procure-the expansion and increased capacity utilization ofment of unconventional forms of natural gas. In

existing facilities, which will lead to an increase inaddition to the new Pluto and Gorgon Projects for

LNG imports. Nevertheless, we can look forward toconventional forms of natural gas, in March 2011 wea number of new LNG projects and an increase insigned an agreement to purchase LNG from thethe supply of shale gas and other unconventional

Queensland Curtis LNG Project, the world’s first coal-forms of natural gas. We expect this will permit suf-

bed methane (CBM) LNG project. By obtaining someficient LNG supply capacity and a better demand-

upstream interests through projects such as these,

supply balance in the long term.

we are assuring the stable procurement of resources.
In May 2011, we decided to participate in a shale gas

Stable Procurement that Meets Requirements

development project in Canada. Our ultimate aim is to

Amid concerns about tight gas supply in the shortensure competitive LNG procurement by converting

term and our dependence on imports for nearly 100%

shale gas produced in North America to LNG andof LNG, the raw material used to produce natural gas,then importing it into Japan.

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Cordova Embayment

Bayu-Undan Gas Field in the Timor Sea
Gas produced at this gas field is transported to the Darwin LNG Plant,liquefied, and sold. This is the Company’s first upstream project.

Q:4

What criteria do you apply for acquiring upstream
interests? Also, please outline the Company’s policy
going forward.

Stable Procurement of Gas Resources is

ering a certain internal rate of return (IRR). I should

the Primary Objective

also mention that we are already receiving dividends

When acquiring upstream interests, we look for LNG

from the Darwin Project, our first upstream project. In

procurement candidates that enable us to (1) strength-

the overseas independent power producer (IPP)en our relationship with the vendor and thus achieve

wholesale electricity business, meanwhile, instable, long-term LNG procurement; (2) obtain the lat-

December 2009, we acquired a thermal power gen-est important data, including data about short- anderation operation in Mexico together with Mitsui &long-term LNG supply capacities; and (3) reduce toCo., Ltd. through our holding company. Although thisa certain extent the risks associated with fluctua-

is not an upstream interest, it has enabled us totions in crude oil prices and exchange rates. We

strengthen our global LNG value chain.

also seek projects from which we can expect toreceive solid returns.

Today, there are few projects that can fulfill suchstringent investment criteria. If a promising project

At present, Tokyo Gas has a 3.07% interest in thecomes along, however, we will not hesitate to invest

Darwin Project, a 5.0% interest in the Pluto Project, ain it while maintaining a sound financial position that

1.0% interest in the Gorgon Project, and a 1.25%

gives us financial leverage whenever needed.

which are in Australia.
As for the risks associated with acquiring upstream
interests, when looking at the estimated profitabilityof a project, we set fairly conservative standards for
crude oil prices and other criteria. A project must also
be able to meet the investment benchmark of deliv-

TOKYO GAS ANNUAL REPORT 2011

interest in the Queensland Curtis LNG Project, all of

11

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:5

Please tell us about the Company’s infrastructure plans
for the future. Also, hasn’t the recent earthquake beena major impediment to infrastructure development?
In May 2010, we completed construction of a central

Chiba-Kashima Line Progressing Steadily
We estimate that within the Tokyo Gas supply area,line that runs north to south through the trunk line thatwhich covers a 200-kilometer radius around Tokyo,

loops the Tokyo area. In addition to strengthening thethere is latent demand for around 9.0 billion m3 ofsupply stability of the loop trunk line, the line’s com-gas, especially in the industrial sector. This includes

pletion also raises supply capacity to the northern Kanto

demand for conversion from other fuels and cogen-region, where demand is projected to increase.

eration. In order to meet this growing demand forConstruction of a high-pressure pipeline connecting

natural gas, we are endeavoring to expand our man-

Chiba and Kashima, which is scheduled to begin serv-

ufacturing and supply infrastructures.

ice in March 2012, is also proceeding smoothly. This
too will enable Tokyo Gas to meet expansion indemand for fuel conversion and power generation.

Potential Demand of the Kanto Market(200-km area around Tokyo)

No Change in Completion Date of
the Hitachi Project

Cogeneration system/Power

100–200-km area:
2.0 billion m3

0.3 billion m3

We estimate that between 2016 and 2020, theCompany’s gas sales volume will reach the upper limit

Fuel conversion

1.7 billion m3
Cogeneration system/
Power

Fuel conversion

5.1 billion m

Total

3

of its current supply capacity of 18.0 billion m3 peryear. Consequently, we are implementing the Hitachi
Project, which will see the construction of a fourth3

9.0 billion m

1.9 billion m3

LNG terminal, “the Hitachi LNG Terminal,” in the
100-km area:
7.0 billion m3

Ibaraki Port Hitachi District in Ibaraki Prefecture, as
well as a high-pressure pipeline from the terminal to
Moka City, Tochigi Prefecture. We brought forward
the original scheduled completion date by two years,

Facility Investment Plans (Non-consolidated)(Years ended March 31)
2011(Forecast)

LNG facilities
Other
Production facilities
Trunk line investment
OtherTOKYO GAS ANNUAL REPORT 2011

Supply facilities

12

Business facilities

Billions of yen

2016

2012–2016(Total)

7.6
2.5
10.1

¥ 103.2
22.3
125.5

11.9
55.1
67.0
34.3

7.7
54.5
62.1
29.2

64.0
283.5
347.5
132.7

126.3
0.5

118.8
0.5

101.5
0.5

605.7
2.9

¥ 126.8¥ 119.3¥ 102.0¥ 608.5

2012

2013

2014

2015

4.4
5.7
10.2

¥ 20.5
4.6
25.1¥ 35.4
10.2
45.6¥ 23.8
3.2
27.1¥ 15.9
1.7
17.5

12.8
62.2
75.0
19.6

9.6
60.4
69.9
25.0

18.8
56.5
75.3
18.1

16.0
57.0
73.1
26.2

104.9
0.9

120.0
0.8

139.1
0.6

¥ 105.7¥ 120.9¥ 139.7¥¥

Subtotal gas business facilities(Reduction entry of land
contribution for construction)
Incidental facilities
Total(Reduction entry of land
contribution for construction)

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Major Plans for Infrastructure Development

Gunma
Tochigi

Ibaraki-Tochigi Line

Hitachi LNG Terminal (Plan)

Gunma Line

IbarakiNaganoSaito Line

Kashima-nada Sea

SaitamaKashima Waterfront Line

Chiba-Kashima Line

Yamanashi

Tokyo
Tokyo Bay

Yokohama Line II

Kanagawa
Chiba

New Negishi Line
Minami Fuji Line

Sodegaura LNG Terminal
Sagami Bay

Shizuoka

Ohgishima LNG Terminal

Tokyo Gas-invested high-pressuretransmission pipelines
Tokyo Gas LNG terminals

High-pressure transmission
pipelines of other companies

Negishi LNG Terminal

Suruga Bay

Tokyo Gas Group service area
Service areas of wholesale customers
Tokyo Gas high-pressure transmission
pipelines
Tokyo Gas high-pressure transmission
pipelines under construction

and plan to start operations in fiscal 2015. The new

It is possible that the recent earthquake will neces-terminal will add another Pacific Coast location to thesitate a review of some of the design specifications,Company’s existing LNG terminals, which are con-including aspects that address liquefaction and tsuna-centrated around Tokyo Bay. The extension of themi planning. Nevertheless, with the need for the

pipeline from northern Kanto will dramatically improvestable supply of energy greater than ever, we havethe stability of our supply network.

not changed the scheduled completion date.

Demand Outlook and Facility Formation Plans (Non-consolidated)(Years ending March 31)
Billion m3

Saito Line
Ibaraki-Tochigi Line

16.0

15.0

14.0

Chiba-Kashima Line
Kashima area high-pressure
distribution pipeline

14.3 billion m

14.8 billion m 3
15.2 billion m 3

3

LNG vaporizer and LNG tank
(Hitachi LNG Terminal)

13.8 billion m 3
13.4 billion m

3

LNG tank(Ohgishima LNG Terminal)
LNG vaporizer(Sodegaura LNG Terminal)

13.0
LNG vaporizer(Negishi LNG Terminal andOhgishima LNG Terminal)

12.0

2012

2013

2014

2015

2016

TOKYO GAS ANNUAL REPORT 2011

New Negishi Trunk Line
Yokohama Trunk Line
(2nd phase)

13

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

No.1 and No.2 units at the Ohgishima Power Station (Each has an output capacity of 407.1 MW)Q:6

At a time when there are concerns of insufficient electricity supply in the Tokyo metropolitan area, what sortof measures is Tokyo Gas taking?

Full Cooperation to Ensure Stable

time, we will step up the promotion of onsite power

Electricity Supply

generation and gas air conditioning.

This summer and next summer, the Japanese gov-

At present, the Tokyo Gas Group has four power

ernment, society, and companies face the same

stations, which has increased our total power genera-

problem of adjusting electricity usage to meet sup-tion capacity to 1,300 MW. In 2010, we commissioned

ply capacity, especially in the Tokyo metropolitan area.

the No.1 and No.2 units at the Ohgishima PowerAs one of the energy providers serving that area, theStation in March and July, respectively. This station,

Tokyo Gas Group will do whatever it can to help alle-

which contributes 610 MW to our power generationviate this problem.

capacity, uses cutting-edge combined cycle gas tur-

In addition to the stable supply of gas for powerbines that boast a 58% power generation efficiency.

generation, we will offer our cooperation by raising

Immediately after the earthquake when electricity sup-output of our own power stations based on requests

ply was tight, we helped stabilize electricity supply by

from the Tokyo Electric Power Company. At the same

putting these Group power stations into full operation.

TOKYO GAS ANNUAL REPORT 2011

Tokyo Gas Group’s Large-scale Power Stations

14

Tokyo Gas Our ownershipinterest
share

Company

Capacity

Operating status

Tokyo Gas Baypower

100 MW

100%

100 MW

Startup in October 2003

Tokyo Gas Yokosuka Power 240 MW

75%

180 MW

Startup in June 2006

Kawasaki Natural Gas
Power Generation

840 MW

49%

410 MW

Ohgishima Power

Startup in April 2008
Startup in March andNo.1 and No.2 units at the810 MW75%

610 MW

July 2010** The timing for the construction of No. 3 unit (output capacity of around 400 MW) has not yet been determined.

⇒

Our ownership shareto 1,300 MW

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:7

Since the earthquake, there has been more demandfor in-house power generation systems. Have you had
many inquiries for cogeneration systems? Also, please
update us on the use of renewable energy sources.

Higher Demand from Factories andand “ENE-FARM” fuel cells, and “SOLAMO,” a gas

Hospitals for Cogeneration Systems

hot water system using solar heat. We are also

Due to concerns of tight electricity supply during thisbranching out into the wind power generation busi-

summer, we have received more and more inquiries

ness, as reflected by our investment in Shonai

about dispersed energy systems, such as cogenera-

Wind-Power Generation Co., Ltd. in April 2011.

tion systems, as a means of securing an emergency

We also offer cutting-edge “smart energy net-

power source. These include a large number ofworks.” They are similar to the “smart grid” concept,

inquiries from factories and hospitals. Depending on

which supplies electricity through efficient supply-

the size of the system and how it operates, someside and demand-side control. A smart grid uses a

systems can be installed relatively quickly, while oth-“smart meter,” which is a networked electricity

ers require more time. We would like customers tometer, to measure the amount of power consumed

make use of schemes such as the subsidies offered

and the amount of power generated by solar, wind,by the Japanese government so that we can meetbiomass, and other renewable energy sources. A

their needs for stable electricity as soon as possible.

“smart energy network” takes this concept one step

Looking further ahead than this summer, we arefurther because it combines electricity and heat gen-focusing on promoting increased adoption of cogen-erated by gas cogeneration systems to provide aneration systems. Our solutions are not confined to

optimal mixture of different energy forms at a local

emergency power supplies, but extend to systems

community level. A smart energy network, inde-that use waste heat, as well as highly energy-efficientpendent of a large-scale system-based electricity

systems that have minimal transmission loss because

network, acts as a dispersed power source that can

the power is generated where it is used.

supply emergency power when a disaster occurs.
Currently in the demonstration stage, we are trialing

Proposals for Smart Energy Networks

smart energy networks in Yokohama and other loca-

Tokyo Gas offers a variety of options for using renew-

tions. Going forward, we would like to present

able energy sources. They include double power

proposals for smart energy networks at the town

generation, which combines solar power generation

planning stage of regional redevelopment projects.

Smart Energy Network

Solar heatcollection facilities

GE

Photovoltaic power
generation facilities

Controlmanagement
system

GE
GE
GE
GE

Heat conduit
Heat use

Photovoltaic power
generation facilities

Information and telecommunications network<Specified area>
Heat interchange, etc.

Smart energy network control
management system

Factory

Commercial
building

Heat use
Electric power network

GE
Solar heat
Cogeneration systemcollection facilities

GE

GE

Heat use

Heat use

TOKYO GAS ANNUAL REPORT 2011

<Wide area>
District heating andElectric power interchange,
cooling facilities, etc.
etc.
Large-scale
Solar heatcogenerationcollection facilities

Photovoltaic power
generation facilities

Large-scale redevelopment area

15

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:8

Has the change in earnings affected the Company’s
basic policy on shareholder returns? Please tell us
about your investment policies and plans.

Stable Dividends a Top Priority

Pursue Aggressive Investment while

Our basic policy under the medium-term manage-

Maintaining Financial Soundness

ment plan, which ends in fiscal 2013, is to maintain a

In fiscal 2011, we forecast a decline in income due to

60% total payout ratio, including dividends and sharehigher raw material costs and the absence of one-buybacks. While remaining committed to paying sta-time gains recorded in fiscal 2010. We also expect

ble dividends, we also plan to steadily increase

the D/E ratio for fiscal 2011 to increase from 0.68 to

dividend payments.

0.73. One main factor behind this increase will be

In the year under review, we declared an annual

the start of full-scale capital investment in the Hitachi

dividend of ¥9.00 per share for the second consecu-

Project of more than ¥100 billion due to the need totive year after raising the annual dividend by ¥1.00

expand our manufacturing and supply infrastructuresin fiscal 2009. In addition to total dividend payments ofto keep up with the rising demand for natural gas.

¥24.1 billion, we will allocate ¥34.0 billion to repur-

However, we expect to continue generating stablechasing Company shares, which will be retired swiftly

operating cash flows and plan to make steady invest-

thereafter during fiscal 2011. These actions will bringments while maintaining a sound financial position.

the total payout ratio to 60.9%.
For fiscal 2011, we forecast a net income of ¥37.0
billion. This forecast is based on losses caused by aslide time lag effect coupled with expected increases
in crude oil prices. Even so, we intend to maintain

Change in Total Payout Ratio(Years ended March 31)
80

annual dividends at ¥9.00 per share.

%

73.5
63.3

60.1

60

50.1

51.1

60.1

60.9

45.3

Share
repurchases

40
21.3

25.3

20

Dividends

0

07

08

Total payout ratio

09

10

11

Dividend payout ratio

Use of FY2011 Cash Flow
Capital expenditure

Major projects

Tokyo Gas Co., Ltd.: ¥122.3 billion

Production facilities: ¥25.1 billion (+¥16.0 billion)
Construction of Hitachi LNG terminal, Ohgishima LNG tank, etc.

(+¥20.0 billion, +19.6%)

Distribution facilities: ¥70.2 billion (–¥4.0 billion)

TOKYO GAS ANNUAL REPORT 2011

New trunk & service line, maintenance (existing lines, etc.)16Service and¥26.9 billion (+¥7.9 billion)

maintenance facilities: System-related cost, renovation of aging facilities, etc.
Consolidated¥47.4 billion

Overseas business (Total ¥21.3 billion for Australian subsidiary)

subsidiaries total:(–¥2.5 billion, –5.1%)

Renovation of district heating and cooling system, etc. ¥8.7 billion

Total¥167.0 billion (+¥16.8 billion, +11.2% after eliminations)(ENERGY ADVANCE Co., Ltd.)* Figures in parentheses refer to comparisons with FY2010.

GROWTH THROUGH THE CREATION OF SHARED VALUE

SPECIAL FEATURE 2:
THREE INITIATIVESFOR SECURITY, SAFETY,
AND RELIABILITY

Prevention

Emergency

Restoration

Supply Control Center

Sitting on top of four colliding tectonic plates, Japan is known as anearthquake-prone nation. As a provider of public services to thenation’s economic center, it is our duty to enhance our social value bycontinuing to ensure a stable supply of energy, while making safety
the foremost priority.
Natural disasters pose a serious threat to Tokyo Gas. Constantly awaresystem is based on the three pillars of “prevention,” “emergency,” and“restoration.” Preventive measures help minimize damage when a major
earthquake occurs; emergency measures prevent secondary damage,such as fires and explosions; and restoration measures target the resumption of gas supplies as soon as possible. Ensuring that these three disaster preparedness pillars are firmly in place is intricately linked to raising oursocial value and enhancing the Tokyo Gas brand, which centers on “secu-

TOKYO GAS ANNUAL REPORT 2011that a disaster could occur tomorrow, the Company’s crisis managementrity, safety, and reliability.”

17

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 2:
THREE INITIATIVES FOR SECURITY, SAFETY, AND RELIABILITY

1

PREVENTIVEMEASURES

We Have Built Production and Supply Facilities

City Gas Production Terminals

Using Advanced Seismic Design Standards and

LNG transported by LNG vessels is stored in underground

We Have Doubled and Tripled Safety Precautions.

tanks at three terminals on the shores of Tokyo Bay. There,

City gas produced at our three LNG terminals oncity gas.

the LNG is vaporized and odorized before being sent out as

the shores of Tokyo Bay is supplied to households,
office buildings, commercial facilities, and factories
via an extensive pipeline network. Gas is sent fromthe terminals through a high-pressure trunk pipelinethat loops the Tokyo area, then through a networkof medium-pressure pipelines, which branch into
many low-pressure pipelines.
These city gas production facilities have been
built so that they are capable of withstanding earthquakes on a scale similar to the Great HanshinAwaji Earthquake (M7-class earthquakes).
The surface level of the liquid stored in some of
the largest underground tanks in the world is

LNG Vaporizers
LNG is pumped into aluminum pipes, andthe liquid is warmed by the seawateraround the pipes, which transforms LNG
back into its gaseous form.

always below ground level. Consequently, even in
the unlikely event of a crack or break in a tank, theLNG could not seep outside.
Tokyo Gas is able to provide stable supplies ofcity gas using its safe production and supply system, which has been constructed to withstandmajor earthquakes and other natural disasters.
Nonetheless, we have had to face the reality thatthe recent Great East Japan Earthquake triggered
unexpected developments that caused serious accidents. Therefore, we are currently investigating
measures needed to ensure an even higher safety
threshold, which we will implement in due course.

Underground Tanks
LNG is stored in underground tanks thatTOKYO GAS ANNUAL REPORT 2011

are made to withstand M7-class earth-Tokyo Gas Uses Strong Pipelines Capable ofquakes. Even in the unlikely event ofWithstanding Movements in the Earth’s Crust.

damage to a tank, the LNG cannot leak

Because almost all of our pipelines are underground,always below ground level.

ground movement during an earthquake can have a
direct impact on them. This is why Tokyo Gas uses
high-pressure and medium-pressure pipelines madefrom welded steel pipes that provide exceptional

High-Pressure Pipelines
The high-pressure pipelines that connect one terminal withstrength and flexibility. In both the Great Hanshin-

another and terminals with governor stations are made of strong

Awaji Earthquake and the recent Great East Japan

steel pipes that are welded together. Tokyo Gas patrols the

Earthquake, the pipes exhibited excellent earthquake resistance.

18

because the surface level of the liquid isground above the pipelines on a routine basis. Our high-pressure
pipelines withstand the force similar to the Great Hanshin-Awaji
Earthquake, with no interruption to gas supplies.

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 2:
THREE INITIATIVES FOR SECURITY, SAFETY, AND RELIABILITY

Tokyo Gas Supply Control Center
The Supply Control Center monitors and controls gas supply
around the clock, 365 days a year. Our own wireless communication network links the Supply Control Center with the LNG
terminals and governor stations. In case of emergency, theCenter can quickly gather information and control gas supply.

Gas Meters (Microcomputer-Controlled)
Gas meters are installed in the homes of all of Tokyo
Gas’s 10 million customers to measure the amount ofgas used. When an earthquake measuring five on theJapanese seismic intensity scale of seven is detected,
the task of ensuring safety by shutting off the gas is

Vent Tower
Vent towers are used to safely release pipeline gas
into the atmosphere depending on the severity ofentrusted to each microcomputer-controlled meter,
which stops the flow of gas.

damage caused by an earthquake. Vent towers arelocated at LNG terminals and governor stations.

Low-Pressure Pipelines
After gas pressure has been reduced at district governors, our network of more than 45,000-km lowpressure pipelines delivers the gas to homes,
offices, stores, and other facilities. Tokyo Gas is
steadily switching to the use of polyethylene
pipelines, which offer superior durability, to increase
the earthquake resistance of low-pressure pipelines.

Disaster Prevention Blocks
Low-pressure pipelines are divided into approximately
140 large district blocks. If a block sustains serious damage, gas supply to pipes in that particular block can be

Gas Holder

District Governors (Pressure Regulators)

A gas holder is a spherical container made from high-strength

District governors reduce the pressure of gas transferred throughsteel plates. It stores gas during the day to meet the demand

medium-pressure pipelines, then sends it on through low-pres-fluctuation between day and night. A gas holder can withstandsure pipelines. All district governors are equipped witha strong earthquake such as the Great Hanshin-Awaji

earthquake sensors. When a sensor detects an earthquake

Earthquake. An ignition source will not ignite or explode whenmeasuring lower six on the Japanese seismic intensity scale ofplaced in a gas holder that contains no air.

seven, the district governor automatically shuts off gas supply.

Earthquake Sensors (Seismometers)
Governor Stations

A seismometer detects the seismic intensity felt by a building during

Governor stations are facilities that adjust gas pressure. The

an earthquake. Seismometers are linked to the automatic shut-off sys-pressure of gas sent from a terminal is reduced at a governor

tem at the nearest district governor so that supply can be immediately

station before it is delivered to a medium-pressure pipeline.

shut off when seismic intensity reaches a predetermined level.

Medium-Pressure Pipelines
After gas pressure has been reduced at governor stations, it is sent to district governors located in each area via medium-pressure pipelines. As is the case withhigh-pressure pipelines, most of these pipelines are buried below ground. TheyTOKYO GAS ANNUAL REPORT 2011

shut off without affecting supply to other blocks.

are made by welding strong steel pipes together and are designed to withstandearthquakes on a scale similar to the Great Hanshin-Awaji Earthquake.

19

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 2:
THREE INITIATIVES FOR SECURITY, SAFETY, AND RELIABILITY

2

EMERGENCY
MEASURES

All Major Facilities Have Emergency Shutoff Systems.
The delivery of gas must be stopped immediately inthe unlikely event of a break in a gas pipeline.
Therefore, all supply facilities, such as terminals and

The medium-pressure pipeline
network is divided into 15
medium-pressure blocks

gas holders, as well as large buildings and facilities,

The low-pressure pipeline
network is divided into around
140 low-pressure blocks

including underground malls and high-rise buildings,
are equipped with an emergency shutoff system.
There are two types of emergency shutoff systems.
There is the emergency shutoff valve, which can be
operated remotely, and the automatic shutoff system, which is connected to seismometers. These

Disaster Prevention Blocks

systems are used to ensure safety in a number ofother situations besides an earthquake. They also

it first ensures that it can do so safely. In such situa-safely release gas inside pipelines into the atmos-

tions, medium-pressure and low-pressure pipeline

phere via vent towers installed in major facilities if

networks are divided into a number of “blocks.” Supply

required due to the severity of damage.

is shut off to blocks that have sustained considerable
damage, while blocks with no damage or relatively

Our System Prevents Secondary Damage andminor damage continue to receive gas supplies.

Minimizes the Area in Which Supply Is Interrupted.

Because the system is configured so that gas is

In a major earthquake, in order to prevent secondary

not supplied from one block to another, gas supply

damage, it is necessary to stop the supply of gas tocan be stopped quickly without affecting otherareas where gas facilities and equipment have sus-

blocks by shutting down the supply sources, suchtained damage. However, even in the event of anas district governors and governor stations, within aemergency, Tokyo Gas considers it important to con-particular block. Even during the recent earthquake,tinue supplying gas wherever possible so as not toTokyo Gas’s earthquake damage prevention systemcause inconvenience to customers, although of course

functioned properly.

Our SUPREME* System Controls Low-pressure
Gas Supply
Under the SUPREME system, we have installed
earthquake sensors in all of our nearly 4,000 district
governors, which supply low-pressure gas. With
TOKYO GAS ANNUAL REPORT 2011

approximately one sensor per square kilometer, thislevel of installation density is unparalleled on a global scale. The system quickly and effectively helps
prevent secondary damage by estimating damage
from the distribution of the size of tremors. The system then collects fire warnings information andremotely shuts off supply to blocks assumed tohave sustained considerable damage.
* Super-dense Real-time Monitoring of Earthquakes

20

Earthquake Sensor(Seismometers)

Distribution of Earthquake Sensors(Red dots: Tokyo Gas seismometers
Blue frameworks: Disaster prevention blocks)

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 2:
THREE INITIATIVES FOR SECURITY, SAFETY, AND RELIABILITY

3

RESTORATIONMEASURES

Meticulous Preparedness Ensures Resumption

are resumed. Using this equipment, we can supply

of Supply as soon as Possible.

gas continuously to high-priority customers, such as

In areas where the supply of gas has been shut

hospitals, welfare facilities, and evacuation centers.

down, we must resume service as quickly as possible to minimize the inconvenience to our customers.

Gas Companies Nationwide Join Forces in

We have equipment, materials, and systems readyTimes of Disaster.

for deployment at a moment’s notice in the event of

There are as many as 200 companies supplying city

a disaster. This enables Tokyo Gas to draw on thegas throughout Japan. When an earthquake or othercombined strengths of the Group to begin repairs

kind of disaster causing serious damage occurs, theseand restoring services.

companies come together under the auspices of theJapan Gas Association to help efforts to resume gas

Mobile Gas Generation Equipment Temporarily

supply as soon as possible. In the recent disaster,

Enables Supply to Hospitals and Evacuation Centers.

teams from Tokyo Gas andTokyo Gas has portable

other companies swunggas generation equipment

into action to provide assis-that it uses to provide tem-tance primarily in theporary gas supplies until

Tohoku region.

normal supplies in the area

Inspecting a Customer’s Gas Meter

Repairing a Low-pressure Supply PipeTOKYO GAS ANNUAL REPORT 2011

On March 11, 2011, the Great East Japan Earthquake occurred. The earthquake’s
epicenter was located in the Pacific Ocean off the Sanriku area of northeastern
Honshu. Here, we explain this earthquake’s impact on our customers, and our
response and other initiatives.
Although the Great East Japan Earthquake was the greatest earthquake ever recorded in Japan, Tokyo Gas was fortunate in that none of its terminals, pipelines, or otherfacilities sustained major damage. However, we shut off gas supplies to 30,596 customers, including the entire area of Hitachi City, in order to ensure their safety.
Directly after the earthquake, the Company established an Emergency Response
Organization, with President Tsuyoshi Okamoto as its leader, and immediately
launched its response.
When restoring services to areas where gas supply has been stopped, it is important to prevent secondary damage from occurring once service is resumed.
Consequently, Tokyo Gas has to check pipes supplying each customer and gas
appliances one by one to ascertain whether or not there has been any damage.
Up to 711 employees, including those from Tokyo Gas, installation companies,
Tokyo Gas LIFEVAL, and other Group members, took part in the restoration ofservices in order to minimize the inconvenience to our customers as quickly as
possible and reduce their anxiety. On the first day, March 13, gas supply was
restored to hospitals, which had top priority. In the end, gas services had been
reinstated to all customers in about one week.
One reason we were able to restore services ahead of schedule was that we had
begun using methods for rapid restoration that had been provisionally implemented from October 2010. We developed these methods by applying pastexperiences in restoring gas supplies following earthquakes. We first devised anumber of restoration methods suitable for a variety of damage scenarios. We
then selected the most practical of these for implementation.
Going forward, even if a major earthquake should occur, we will work hard tosecure the safety of customers and minimize inconvenience. By adopting thisapproach, we will endeavor to establish and maintain trust in gas as a form of energy, as well as in Tokyo Gas itself.

21

TOKYO GAS AT A GLANCE
Years ended March 31

Sales Ratio / Operating Income Ratio
Year ended March 31, 2011

City Gas Sales

82.6%

65.6%

Gas Appliancesand Installation
Work

1.1%

10.3%

Other Energies

6.8%

12.8%

Real Estate

3.5%

1.9%

TOKYO GAS ANNUAL REPORT 2011

Other

22

6.0%

9.4%

TOKYO GAS AT A GLANCE

Sales (left) / Operating Income (right)¥ billion

1,500

300
1,137.0

1,046.1
1,000

200
136.1

115.5
500

100

0

0

10

11

¥ billion

300

15

200

10

177.4

169.7

100
1.8

0

0

10

11

¥ billion

300

30
221.2

200

20
157.2
11.1

100

We sell gas cooktops, water heaters, gas air conditioning systems that use
hot water, “ENE-FARM” residential fuel cells, gas heat pump air conditioning
systems, and other products. These sales are mainly handled by Tokyo Gas
LIFEVAL, Enesta, and Enefit, which represent the core of Tokyo Gas’s community-based marketing system. We also install gas pipes and valves inproperties owned by customers in our service area. (External sales ratio: 92.9%)• The year under review saw the addition of two newly consolidated Tokyo Gas
LIFEVAL companies, resulting in a 4.5% increase in sales, to ¥177.4 billion.
However, operating income declined 14.3%, to ¥1.8 billion, due to a fall in gas
appliance sales amid stagnation of new housing starts.

This segment includes energy services, LPG, electric power, and industrial
gas. (External sales ratio: 94.1%)• In addition to growth in our energy services business, we achieved an expansion of our electric power business thanks to the start up of operations at the
Ohgishima Power Station. Segment sales jumped 40.7%, to ¥221.2 billion, andoperating income surged 62.4%, to ¥11.1 billion.

10

6.8

0

0

10

11

¥ billion

60

15

40

10

32.7

32.7
6.7

5.7
20

This segment is mainly involved in leasing, management, and related activities for the Shinjuku Park Tower and other office buildings. The Group’s
real estate management activities are principally conducted by Tokyo Gas
Urban Development Co., Ltd., which accounts for over 90% of the segment’s sales. In addition, this subsidiary leases land in such areas as Ginza
and Gofukubashi. (External sales ratio: 35.7%)

5

0

0

• Owing to healthy steady trends in building leasing fees, sales remained mostly
unchanged, at ¥32.7 billion. However, operating income declined 15.1%, to¥5.7 billion, due to an increase in the loss on retirement of noncurrent assets.

30

This segment includes information processing, shipping, credit and leasing, and construction. (External sales ratio: 45.1%)

11¥ billion

300

161.6

20

162.3
9.9
6.4

0

10

0

10

11

• Segment sales remained mostly unchanged, edging up 0.4%, to ¥162.3 billion.
However, operating income jumped 52.5%, to ¥9.9 billion, due to a shift fromthe declining balance method to the straight-line method for the depreciationof tankers.

TOKYO GAS ANNUAL REPORT 2011

10

100

• The gas sales volume rose 7.9% year-on-year, to 14,745 million m3.
• Due to an increase in gas unit prices under the gas rate adjustment system anda rise in sales volume, sales climbed 8.7%, to ¥1,137.0 billion.
• Operating income grew 17.9%, to ¥136.1 billion, due to a reduction in costs
from actuarial differences in retirement benefit accounting, which more thanoffset rising raw materials prices.

5
2.1

200

Tokyo Gas uses its three LNG terminals along the shores of Tokyo Bay tovaporize LNG, its main gas resource. We sell city gas to more than 10 million customers, primarily in the Kanto region, through a pipeline network ofaround 57,000 kilometers. (External sales ratio: 94.7%)

23

REVIEW OF OPERATIONS
CORE BUSINESS: GAS SALESLNG Value Chain of Tokyo Gas
Tokyo Gas directly serves its 10.74 million customers through its integrated “LNG value chain,” which
covers everything from gas field development and raw materials procurement to transportation via
LNG tankers, city gas production, and gas delivery via pipelines. By pursuing new levels of value foreach link in the value chain, we strive to maximize both social value and economic value.

TOKYO GAS ANNUAL REPORT 2011

Segment and LNG Value Chain

24

City Gas Sales

LNG
Procurement

Gas Appliances andInstallation Work

UpstreamInterests

Other Energies

Transportation

Real Estate

Infrastructure
Development

Other

Gas Sales

REVIEW OF OPERATIONS

Position in the LNG value chain

LNG
Procurement

Tokyo Gas Long-Term LNG Contracts

Flexible, competitive resource
procurement in line withdemandSakhalinTokyo

Principal operating company

Tokyo Gas Co., Ltd.
Qatar

Segment

City Gas Sales
BruneiMalaysia
Indonesia

Targeting Diversified Procurement
Centered on supply sources located in regions that arepolitically stable, Tokyo Gas has concluded long-term
LNG contracts for 10 projects in six countries andimports more than 10.0 million tons of LNG a year.
Amid stiff worldwide competition for procurement,
LNG, the main resource for city gas, is subject to major
price fluctuations because it is linked to crude oil prices.
Following the Great East Japan Earthquake, moreover,
LNG-fired thermal power generation is receiving growing attention. Under these circumstances, we place top
priority on stable, long-term supply source procurement,
flexible responses to changing demand, and the ability
to procure resources at low prices.

Pluto
Gorgon
New LNG project

DarwinNWS

Queensland Curtis

Existing LNG project

Tokyo Gas LNG Imports by Country of Origin
Thousand tons

Country
Malaysia
Australia
BruneiIndonesia
RussiaQatar
AlaskaOthers
Total

Years ended March 31

2009
4,482
2,847
1,257
742
—
631
176
1,027
11,162

2010
4,274
2,416
1,166
730
505
297
141
523
10,052

2011
4,479
2,297
1,155
843
983
358
139
440
10,692(41.9%)(21.5%)(10.8%)(7.9%)(9.2%)(3.3%)(1.3%)(4.1%)(100.0%)In addition to geographic diversification of procurement sources, we are broadening the scope of procurement options by complementing conventional
natural gas with the procurement of unconventional
forms of natural gas. In these ways, we are targeting

signed an agreement covering coal-bed methane(CBM), an unconventional form of natural gas locatedin coal seams in the Surat Basin of Queensland,

reliable, flexible responses to demand, which is
expected to grow in the future. In March 2011, weAustralia. Under the agreement, CBM will be liquefied
on Curtis Island and purchased by Tokyo Gas as LNG.

Position in the LNG value chain

Principal operating companies

TOKYO GAS AUSTRALIAPTY LTD,Tokyo Gas Darwin LNG Pty Ltd

is a high potential for going forward, to the extent that it
can limit the candidate projects for the Company’s LNG
procurement operations and otherwise minimize risk.
We have also adopted internal rate of return (IRR) as aminimum investment benchmark, and we receive divi-

Segment

Other
Outline of Project Participation
Project

Annual contracted
quantity(Thousand tons)

Inception of Duration
contract

Darwin

1,000

2006

Pluto

2011

Gorgon1,500–
1,750
1,100(2014)

17 years FOB
3.07(–2022)15 years Ex-Ship, 5.0
FOB
25 years FOB
1.0

Queensland

1,200(2015)

20 years Ex-Ship

Curtis LNG

Acquiring Interests over Broad Geographic Areas
With respect to upstream interests, the Company participates in projects where exploration has ended and there

Contract type Project
participation
(%)

1.25
(Upstream)

2.5(Midstream)dends from the Darwin Project.
As of March 31, 2011, Tokyo Gas held interests of
1–5% in the Darwin Project, Pluto, and Gorgon in Australia,
and had concluded long-term LNG procurement contracts
with all of these projects. In unconventional LNG, in May
2011, we decided to participate in the Cordova
Embayment Project in Canada, thus complementing our
involvement in the Surat Basin project in Queensland,
Australia. In acquiring upstream interests, we emphasize
promising projects across broad geographic areas while
paying attention to transportation costs.

TOKYO GAS ANNUAL REPORT 2011

UpstreamInterests

Competitive resource procurement through the acquisitionof upstream interests

25

REVIEW OF OPERATIONS

Position in the LNG value chain

Decreasing costby increasing FOB
Principal operating company

Transportation

Tokyo LNG Tanker Co., Ltd.
Segment

Other

Expanding Our Business to Include Transport of
LNG to Other Companies
The Tokyo Gas Group operates one of the largest fleetsamong domestic electric power and gas companies. Our
own fleet now has eight LNG tankers, including one scheduled for commissioning in August 2011.

LNG Carrier with Onboard Regasification Equipment

Equity Stake in LNG Carrier with Onboard
Regasification Equipment
Consolidated subsidiary Tokyo LNG Tanker Co., Ltd. has

Tokyo Gas possesses the largest-class shipping fleet in
Japan. In addition to transporting LNG under long-term contracts, we will leverage this fleet to target procurement

acquired a 1.5% equity stake in a joint venture related toan LNG carrier owned by Mitsui O.S.K. Lines, Ltd. withonboard gasification equipment. Here, our aim is tobased on short- and medium-term agreements, as well as
achieve further reductions in LNG import costs and flexible resource procurement. Moreover, we will seek toexpand our business to include transport of LNG to thirdbuild a flexible LNG transportation system. LNG isvaporized on board, and the natural gas is then sent via
pipeline laid on the seabed. This represents a new LNG
procurement technology that does not require conven-parties and the leasing of vessels to other companies.

tional, land-based LNG terminals.

Position in the LNG value chain

Ensuring both stable supply
and safety

Infrastructure
Development

Principal operating company

Tokyo Gas Co., Ltd.
Segment

City Gas Sales

Chuo Trunk Line Completed
In May 2010, Tokyo Gas completed the Chuo TrunkLine, which runs north-south through the center of thecircular trunk line looping the Tokyo metropolitan area.
The new line, running 32.9 kilometers from Edogawa-ku

Hitachi Project Fast-Tracked due to Growing Demandin Tokyo to Kawaguchi City in Saitama Prefecture, links
the Company’s city gas production facilities in Tokyo
Bay with customers in the northern Kanto area. We now
have 818 kilometers of high-pressure gas pipelines, cen-

The Company’s LNG terminals are among the largest in
the world. We continue to invest in our facilities in orderto enhance our ability to address growth in demand fortering on the Tokyo metropolitan area. Seeking further
growth and proliferation of natural gas in the future, wewill actively expand, upgrade, and maintain our pipeline

natural gas and further stabilize supply. In fiscal 2011,
we plan to start supplying gas via a pipeline linking

network with top priority on safety.

TOKYO GAS ANNUAL REPORT 2011

Chiba and Kashima. In light of increasing demand forcity gas since 2010, meanwhile, we will fast-track theconstruction of our fourth LNG terminal, the Hitachi LNG

26Terminal, and a high-pressure gas pipeline, the IbarakiTochigi Line, linking the terminal and Moka City, Tochigi
Prefecture. Both are planned to start operation in fiscal
2015—two years ahead of schedule.

Angyo GS

Tokyo Line

Chuo Line II

Saitama Line

Soka GS

Chuo Line I

Tokyo
Kasai GS

Looped Line
No.1
NegishiLine
No.2
NegishiLine

Underwater Line

Keihin LineTokyo
Ohgishima Bay
LNG Terminal

No.2
Chiba Line
Sodegaura LNG Terminal

Negishi LNG Terminal

Kanagawa

Chiba Line

Kasai LineChiba

REVIEW OF OPERATIONS

Gas Sales Volume by Sector(Years ended March 31)

Residential
8,000
Wholesale

Residential

13.2%

23.9%

Million m3

8,000

Million m3

8,000

6,000

4,000

3,520

Commercial
and others

20.6%

8,000

Million m3

4,000

6,000

6,000

4,000

4,000

2,000

2,000

3,042

2,000

42.3%

Million m3

6,237

6,000

Gas Sales Volume

Industrial

WholesaleIndustrial

Commercial andothers

2,000

0

0

09

10

11

0

0

09

10

11

1,947

09

10

11

09

10

11

Residential Sector

Commercial and Others, Industrial, and Wholesale Sectors

Position in the LNG value chain

Position in the LNG value chain

Maintaining and expanding the number of customers
through community-based marketing

Proposing tailor-made solutions that match diversified
customer needs

Principal operating companies

Principal operating companies

LIFEVAL companies

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

Segments

Segments

City Gas Sales, Gas Appliances and Installation WorkCity Gas Sales, Other Energies

In the residential sector, the average sales volume per customer has shown a continuous decline. This is due tostructural factors, such as a decreasing population, an aging
population and the low number of childbirths, as well as the

In response to the increasingly diversified and sophisticated needs of clients in the commercial and others, andindustrial sectors, Tokyo Gas is focusing on establishingan integrated energy business. Here, we coordinate aproliferation of energy-saving appliances and increases in
multiple dwelling units with exceptional air-tightness.
Spearheaded by Tokyo Gas LIFEVAL community-based
marketing systems, we are strengthening relationships
with customers by proposing lifestyle values based on gas.

comprehensive range of services covering various energy
sources, including gas, electric power, and heat. We also
propose tailor-made, optimal combinations of products
and services on a one-stop basis.
Amid growing demand for reduced electricity consump-

At the same time, we will seek to generate new demand
related to both new houses and renovations while establishing a market for our “ENE-FARM” residential fuel cells.

tion, we are accelerating the introduction of natural gas
cogeneration, a dispersed energy system that uses waste
heat, as well as cooling systems. In addition, we will con-

New “ENE-FARM” Model Unveiled
In April 2011, we introduced a new model in the “ENEFARM” series of residential fuel cells. “ENE-FARM” is afuel cell cogeneration system that generates electricity

tinue encouraging clients to switch from other fuels to natural gas, which has lower environmental impact.
Furthermore, we are aggressively working to capture
demand, including through wholesale operations targeting
peripheral gas suppliers. Here, our focus is on the region

from a chemical reaction between hydrogen, which isseparated from city gas, and atmospheric oxygen. The
waste heat from this process is used for hot water andindoor heating. Since electricity is generated in thehome, there is no transmission loss, and heat thus gen-extending for a 200-kilometer radius around Tokyo, wherelatent demand is expanding.

erated can be used without being wasted. Accordingly,
it is a very environmentally friendly system.
In addition to improvements in electricity generation effi-

Cooling System, which uses heat from the sun. The system uses solar heat as the first priority, and also deploys
gas as a highly efficient backup during rainy days and otherciency, the new model features lower prices thanks to asimplified power generation system and a more compact
design of the core components. In fiscal 2011, we hope to sell

times when heat supply is inadequate. Therefore, it is environmentally friendly while offering comfort andconvenience. We will promote the system’s use in office5,000 “ENE-FARM” units (having sold 2,400 in fiscal 2010).

buildings, schools, hospitals, factories, and other facilities.

Solar Air Conditioning System Launched
The Tokyo Gas Group has commenced sales of its SolarTOKYO GAS ANNUAL REPORT 2011

Gas Sales

27

TECHNOLOGY DEVELOPMENTThe Tokyo Gas Group has always maintained a focus on technical development, and the Company
has developed its operations while repeatedly taking on the challenge of new technologies. As westrive to respond rapidly and accurately to changes in the operating environment, we are working
to develop technologies that will open up new energy frontiers.
Strategic Direction of Technology Development
In technology development, we focus on three areas: (1) the creation of heart-reverberating concepts and the development of products that give concrete form to the value created by those concepts, (2) the development of innovative environmental technologies that will contribute to the realization of a low-carbon society, and (3) technologies
that support the operational platforms for stable administration of gas operations and for realization of higher-level
usage and cost reductions. In the fiscal year ended March 31, 2011, the Company allocated about ¥9.9 billion to technology development.

The Technology Development Strategy of Tokyo Gas

Creation of Heart-Reverberating Concepts
and Development of Appealing Products

Development of Innovative
Environmental Technologies

Residential Sector

Innovative Energy-saving Technologies for Advanced Use of City Gas• Development oftechnologies related tounderstanding customers• Development of lifestylevalue-added products• Effectiveness andefficiency verification• Quality-oriented
commercialization• Development of “ENE-FARM”(polymer electrolyte fuel cell)• Development of SOFC (solid oxide fuel cell)+do GRILLER for enjoying cooking

Commercial and others, Industrial Sectors• Customer support technologies that contribute toretention of existing customers and development oftechnologies that increase
the safety of gas systems• Development of technologies that utilize solar heatand biomass.

Solar Heat Panels• Production
Long-term facility
maintenance,increased qualityof terminal operations, etc.

• Pipelines
Maintenance of
security levels
and optimizationof security investment

Renewable Energy Technologies, Low-Carbon Technologies• Technologies for systems
combining solar heat/solar
batteries with gas systems• Technologies to make fulluse of biomass• CO2 separation, collection,transport, and processing
technologies• Technologies for the highly efficient production anduse of hydrogen• Technologies related to“Smart Energy Network”
composed of distributed
power sources“SOLAMO” Gas hot
water system that alsouses solar heat. Installedon the railing of a multiple
dwelling unit.

Hydrogen Station• Meters
Development ofservices using
ultrasonic meters,
etc.

TOKYO GAS ANNUAL REPORT 2011

Technologies Supporting Our Operational Platforms

28

Major Outputs and Initiatives in Recent Years

Environmental
Technologies• Started general sales in May 2009 of residential polymer electrolyte fuel cell (PEFC) (sales name:“ENE-FARM”), and in April 2011, released a new model with improved generation efficiency.
Moving ahead with development to further improve the product, targeting its use in multiple dwelling units.
• Development and demonstration testing of solid oxide fuel cell (SOFC) technologies.
• Ongoing demonstration testing of CO 2 separation and collection during the production of hydrogen.
• Started sales in February 2010 of the “SOLAMO” gas hot water system that also uses solar heat and is installedon the railings of multiple dwelling units, and in July 2011, released a model for detached housing remodelling.

Platform
Technologies• Ongoing deepening, succession, and utilization of infrastructure construction technologies, maintenancemanagement technologies, combustion engineering-related technologies, and gas quality management
technologies, etc.

TECHNOLOGY DEVELOPMENT

In-depth ReportCreating Tomorrow’s Low-carbon Society
Tokyo Gas advocates the use of “smart energy networks” for achieving a next-generation lowcarbon society. A smart energy network combines large-scale electricity and gas networks withdispersed energy supply sources, such as gas cogeneration systems and renewable energy
sources. Optimal network control using information and communications technology realizes
stable energy supply while reducing energy consumption and CO2 emissions.

Gas Cogeneration Systems Support Future Urban Planning

Kazuhisa Okamoto, GroupManager of the Solution
Technology Department,
who is working to create asmart energy network

In a smart energy network, the installation of local gas cogeneration systems andother dispersed energy systems reduces energy consumption and CO2 emissions through optimized area-wide control of generated heat and electricity. In
addition, independently operated gas cogeneration systems, a dispersed powersource, continue to supply electricity to essential loads within the network in theevent of a power outage. This highly reliable electricity supply system promotes
safe urban planning, achieved by establishing disaster prevention bases at hospitals, schools, and other central locations. In the future, information andcommunications technology will be used to control the output of gas cogeneration systems and electricity demand within an energy network in coordination
with large-scale centralized power sources, such as thermal power plants. By
taking on part of the function of adjusting system-based power generation, thestabilization of this main power source will help facilitate the introduction of large
volumes of unstable renewable energy sources, such as solar and wind power.
Tokyo Gas began the demonstration of a gas cogeneration project at its Senju
site in fiscal 2010 and at a multiple dwelling unit in Yokohama in fiscal 2011.

In a smart energy network, the key to optimizing the efficient use of energy
lies in the precise measurement of the amount of energy created and consumed, and the supply of that information via a communications network.
Tokyo Gas is working jointly with two other gas companies, as well as otherpartner manufacturers, on the development of a next-generation smart metersystem. The proliferation of smart meter systems will reduce CO2 emissions
in the residential and commercial and others sectors. Furthermore, the digitization of energy-related data has the potential for creating new shared value
through the establishment of new businesses. Our efforts targeting future
utilization of such systems extend beyond the development of next-generation ultrasonic gas meters, and next-generation metering systems with highspeed communications and advanced functions. Tokyo Gas is collaboratingwith other subsidiaries and affiliates to promote the development andassessment of an optimal communications infrastructure. We are also working to establish common specifications and acquire an international standard
for a wireless system, which is the top candidate.

Hajime Furusawa, GroupManager of the ProductDevelopment Department,
who is currently developing anext-generation smart meterTOKYO GAS ANNUAL REPORT 2011

Smart Meter Systems Create New Shared Value

29

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 environmentally friendly 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 to achieve a continuous increase in our corporate value by maximizing thevalue 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 tomanagement legality, soundness, and transparency. Tokyo Gas continues to emphasize the importance of accurate and prompt decision making, efficient business operations, strengthening ofauditing and monitoring functions, and clarification of management and executive responsibilities.

Management StructureManagement Structure Designed for Objectivity

deliberates officer compensation in accordance with theCompany’s basic policy (described below).The five corpo-

and Swiftness
Tokyo Gas takes a proactive stance in employing outside
officers. The Company has created a system featuring multiple auditing and supervisory layers in its aim to achieverate auditors, three of whom are outside auditors, proactively
communicate with the Board of Directors and strictly audit
the legality of the performance of duties of the directors.
The Corporate Executive Committee meets once a week,highly objective and transparent governance. In 2002, wereduced the maximum number of directors to raise thespeed and effectiveness of management decision-making.
At the same time, we reinforced and clarified the functionin principle, to deliberate and make decisions on mattersof management importance, ensuring accurate and speedy
decision-making and the effective execution of operations.
The Company employs an executive officer system (withfor supervising business execution by employing independent outside directors (As of June 30, 2011, the Boardof Directors comprised three outside directors and eightinternal directors). The Advisory Committee, established in

24 executive officers as of June 30, 2011), to execute operations in accordance with Board of Directors’ resolutions.
The system is designed to devolve authority and responsibility and foster the rapid execution of operations.

2005, is made up of three internal directors and three representatives from outside directors and outside auditors.
This structure aims to ensure that the selection of director
candidates is fair and appropriate. The committee also

Executive officers report on the status of execution to directors and the Board of Directors, and these bodies supervise
executive officers’ activities on this basis. To clarify the job
responsibilities of directors and executive officers, their

Initiatives to Strengthen Corporate Governance

30

Ensuring sound, transparent management Continuous growth in corporate value

TOKYO GAS ANNUAL REPORT 2011

2000

Management
Strategy

2011

October 2002
Medium-term
management planfor 2003–2007:“Frontier 2007”

January 2006
January 2009
Medium-term management
Medium-term management
plan for 2006–2010: “Creation plan for 2009–2013:
and Cultivation of New“Evolution andNatural Gas Markets”
Advancement of Integrated
Energy Business”
April 2004–
Strategic business unit system(building of group management system,
and maximization of group corporate value)

Organizational
Structure

Management
Structure

Internal
Governance

Information
Disclosure

June 2002–
Management structure reform• Reduction of regular number of directors (from 30 to 15)• Appointment of outside directors• Introduction of executive officer system• One-year term of officeFebruary 2005–
Establishment ofAdvisory Committee(consideration of
director candidates
and officer remuneration)

June 2002–
Reinforcementof internal audit
structure

November 2002–
April 2003–
Reinforcement ofReinforcement of risk
compliance systemmanagement structure• Establishment of Management • Introduction of
Ethics Committee
Enterprise Risk
• Establishment of ComplianceManagement system
Department

June 2001–
Start of overseas
IR activities

April 2003–• Earlier publicationof business results• Introduction ofquarterly disclosure

April 2004–
Consolidated
accounting for
all companies

July 2005–
Publication of
CSR Report

June 2005–
Reform of officer remuneration system• Formulation and disclosure ofbasic policy• Abolition of retirement benefit
system, and other measures

April 2006–
Establishment ofInternal Control
Promotion
Committee

April 2008–• Establishment of Risk
Management Committee

April 2011–
Reassessment of IR organization• Integrate Investor Relations
Dept. into Finance & Managerial
Accounting Dept. (enforcementof our IR activities)

CORPORATE GOVERNANCE

terms of office have been fixed at one year.
To promote transparent management and a flexible andsystem, and compliance audits. In April 2009, an internal
control group was established to evaluate the effective-

open organization, in fiscal 2002, the Company establisheda Management Ethics Committee. We also formed in-housecommittees to address issues that are important from a management perspective, such as compliance, risk management,
customer satisfaction, and safety. This structure facilitates

ness of internal control regarding financial reporting.

the sharing of information within the Group, as well as deliberation of and adjustments to the Group’s overall direction.
Toward an Effective Internal Control Systemtem with the aim of further enhancing management
objectivity and transparency as well as clarifying themanagement responsibility for business performance.
1. Role of executive and remuneration

Under our internal control system, the Board of Directors,
which includes three independent outside directors, determines the basic policies for the development of theimportant business operations plans and the internal con-

The role demanded of executives is to seek to enhanceshort-, medium-, and long-term corporate value, andexecutive remuneration shall serve as an effective
incentive for them to perform that role.

trol systems and monitors the performance of the directors.
In accordance with resolutions by the Board of Directors,
the executive officers act to carry out business operations
as well as to develop and operate the internal control sys-

2. Level of remuneration
The level of executive compensation shall be suitable forthe role, responsibility, and performance of the executive.
3. Performance-linked remuneration schemetem. In addition, we have established the Corporate
Executive Committee as a deliberative body to assist theBoard of Directors. The committee deliberates provisions

The performance-linked remuneration scheme is meant
to firmly motivate the executives to execute management strategies, and is also meant to reflect their per-stemming from Board of Directors resolutions and important management-related issues.
With regard to auditing, in addition to corporate auditors,
the Company has established the Internal Audit Department

formance clearly on their remuneration.
4. Share-purchase guideline
The establishment of the share-purchase guideline ismeant to firmly motivate the executives to reflect theas an internal audit organization. The department monitors
the business activities in each segment of Tokyo Gas andits consolidated subsidiaries, as well as the state of thedevelopment and operation of internal control and risk man-perspective of a shareholder in management andimprove shareholder value over the long term.
5. Assurance of objectivity and transparency
The Company shall assure objectivity and transparency ofagement. To implement specialized audits efficiently, theInternal Audit Department has developed a structure of four

remuneration by establishing the “Advisory Committee” comprising outside directors, outside corporate auditors, and thegroups, specializing in financial, operational, information

Company’s directors to govern the system of remuneration.

Objective and Transparent Officer Remuneration
In fiscal 2005, Tokyo Gas restructured its officer remuneration system and published details of the new sys-

Corporate Governance Structure
Customers

Local Community

Shareholders / Investors

General Shareholders’ Meeting
Appointment
Appointment

AnswerAdvisory Committee*2

ReportBoard of Directors*1

Inquiry
MonitorReport submission

Management Ethics Committee

Collaboration

Collaboration

Internal Audit Dept.

Collaboration

Board of Corporate
Auditors*3

Audit

Independent Auditors

Report submission

ReportPresident(Corporate Executive Committee*4 )Approval

Deliberation
and report

Safety Committee
Customer Satisfaction Promotion Committee
Investment Evaluation Committee
Environmental Committee

Settlement and monitor

CSR Promotion Committee

Report submission

Risk Management Committee
Audit

Other In-House Committees
Audit

Strategic Business Units / Support Units(each unit, subsidiaries and affiliates)
General Shareholders’ Meeting*1 Board of Directors: 11 directors (3 outside directors and 8 internal directors)*2 Advisory Committee: 3 representatives from outside directors and outside auditors, Chairman, and President*3 Board of Corporate Auditors: 5 corporate auditors (3 outside auditors and 2 internal auditors)*4 Corporate Executive Committee: President, 3 Executive Vice Presidents, 9 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

Stakeholders

Tokyo Gas Co., Ltd.

Business Operations

TOKYO GAS ANNUAL REPORT 2011

Appointment

Report31

CORPORATE GOVERNANCE

Total Remuneration for Directors and Corporate Auditors (Fiscal 2010)

Millions of yen
Type of remuneration
Total
remuneration

Remuneration for nine directors (excluding outside directors)¥ 463
Remuneration for two corporate auditors (excluding outside auditors)
74
Remuneration for seven outside officers (outside directors and outside auditors)
64

Thousands of U.S. dollars
Type of remuneration

Base

BonusesTotal
remuneration

¥ 411
74
58

¥ 52
—
6

$ 5,578 $ 4,952
892
892
771
699

Base

Compensation for Independent Auditors (Fiscal 2010)
Remuneration for auditing services
Remuneration for non-auditing services
Total

Bonuses

$ 627
—
72

Millions of yen

Thousands of
U.S. dollars

¥ 273
41
¥ 314

$ 3,289494$ 3,783

Concentrating Group Effort to Survive in the Faceof Competition

fiscal 2008 with the aim of identifying and evaluating progress
regarding the establishment and the operational status of theWith the deregulation of the energy industry, Tokyo Gas now
faces escalating competition from both inside and outside theindustry. In April 2004, we introduced the “Strategic Business
Unit” (SBU) system, which is designed to focus all of the

ERM system, as well as improving the level of Group-wide
ERM. The committee periodically undertakes risk assessments and checks on progress regarding the establishment
and the operational status of the ERM system. It also reports

resources of the Tokyo Gas Group on the task of surviving andsucceeding in an increasingly competitive environment. Under
this structure, Tokyo Gas corporate divisions are linked withGroup companies to form business units in each business area.

to the Corporate Executive Committee and obtains the necessary approvals. Since the start of fiscal 2011, the risk
management function was transferred to the Corporate
Planning Dept., thus creating a framework for implementing

The divisions and companies work closely together on tasks
ranging from the formulation of business strategies to the allocation of management resources and the management ofoperations, all under the responsibility of unit managers. The

unified ERM together with operational management.
Under the new framework, around 120 Risk Management
Promotion Officers have been deployed in the businessdepartments of Tokyo Gas and its consolidated subsidiaries

aim of this cooperative approach is to maximize our Grouppotential and further strengthen our competitiveness.
Risk Management
Enterprise Risk Management System Responds toin order to promote Group-wide ERM. Each year, we assess
risks and the implementation and improvement status ofcountermeasures. This system facilitates the steady implementation of the ERM-PDCA (Plan-Do-Check-Act) cycle.
Building an ERM system enables us to identify and clarify theand Discloses Information on Growing Risks
In fiscal 2003, the Company established a Group-wide
Enterprise Risk Management (ERM) system, which includes

latest major risks arising from changes to the operating environment. It also facilitates appropriate information disclosure
to capital markets and other stakeholders. Regular monitoringrisk management regulations and documented rules concerning major risks that require management intervention.

by the Corporate Executive Committee and the Board of
Directors also allows the best responses to risks, which are

The Risk Management Committee was established in

becoming more diversified, complex, and sophisticated.

TOKYO GAS ANNUAL REPORT 2011

Major Risks Requiring Management Intervention

32

Accidents and disasters

Resource procurement supply interruption risk; Natural disaster risk; City gas and electricity production/supply disruption;
Unprecedented major power outages; Ensuring the safety of city gas and quality problems affecting gas equipment;
Damage due to reputation resulting from city gas accidents caused by other gas companies

Market risksMarket price and interest rate fluctuation risks

Risks accompanying
business execution

Risks faced by existing business (Change in procurement costs; Decline in gas sales volume due to weather fluctuations;
Decline in demand due to intensified competition; Demand risk; Interruption of communication with call centers;
Delay in the development of new technology; and Changes in laws, regulatory systems, or energy policiesof the national governments and local governments); Delayed cultivation of new markets; Inability to recover investments

Risks related
to information management
and system operation

Outflows of personal information; Failure or malfunction of IT backbone systems

Risks related
to corporate social
responsibility

Response to new environmental regulations; Compliance violations; Inadequate customer satisfaction or responses
to customer needs

CORPORATE GOVERNANCE

Crisis Management Responsibility as a Public Company
Because the Company provides public services that com-

ing awareness and educational campaigns about the code of
conduct, compliance risk reduction measures, maintenanceprise a lifeline, for many years, we have also had a crisis
management system that serves as a response system incase a risk-related event actually occurs. Specifically, we
have formulated Emergency Response Organization
Regulations. In case of any type of crisis, the Emergencyof advisory systems, and the broad-based distribution of information within and beyond the Tokyo Gas Group companies.
To cultivate an understanding of compliance, we promotea thorough awareness of ongoing activities related to ourcode of conduct that was revised in 2004. We are also mov-

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

ing forward with a compliance casebook designed for
applying the code of conduct to various problems in theworkplace, so as to achieve the permeation of compliance.
Compliance risk countermeasures include internal anddisruptions arising from major accidents at pipelines or terminals, as well as influenza, terrorism, failures in mission-critical
IT systems, and compliance problems. Periodic training is
conducted in relation to major risk response measures. The

external 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

Company has also formulated a Business Continuity Plan
(BCP), outlining its responses in the event of a major earthquake of the magnitude assumed by Japan’s Cabinet Office,as well as a major accident disrupting power supply and an

effectively. The Compliance Audit Group also works steadily to mitigate risks by implementing follow-up audits to verify
progress in tackling concerns identified at first auditing.
We monitor the effectiveness of Group compliance pro-outbreak of influenza. This plan is in place to reinforce theCompany’s risk management system.

motion activities by conducting regular complianceawareness surveys of all employees. The results of thesesurveys are reflected in initiatives for the following years.

Compliance
Promoting Compliance
Our stance is reflected in three basic policies calling for thefostering of compliance awareness, the cooperation of each

Disclosure
Enhancement of IR Activities
Top management takes an active role in Tokyo Gas IR activi-

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 theties, disclosing such broad-ranging information as management
strategies, progress, and performance and engaging in interactive communication with investors. We believe that
discussing management’s thoughts with investors in this way

management level basic compliance policies and all aspectsof compliance initiatives by the Group, monitors the imple-

can help close the gap between our real corporate value andthe market assessment of the Company. In particular, duringmentation of compliance-related measures, and confirms
activity programs from the following year and thereafter. We
have also established the Compliance Department to leadthe period following the announcement of our financial results,
we engage in IR activities, including visits by top management
to institutional investors in Japan and overseas. Briefings andcompliance-related activities for each unit. These include
development of compliance promotion systems, encourag-individual meetings are also used as opportunities for wideranging discussions.

Compliance Structure
Board of Directors

ReportPresident

Corporate Auditors

ReportReportInternal Audit Dept.

Compliance Dept.
Instruction / report

Each division / business unit

Support / reportCompliance Committee

Each department of Tokyo Gas

Subsidiaries and Affiliates

Compliance audit(risk understanding)

Report / consultation

Consultation / notification

TOKYO GAS ANNUAL REPORT 2011

Management Ethics Committee
Chairman: President
Members: Head of divisions / departments, Directors in charge

Report / consultation

Employee

33

BOARD OF DIRECTORS AND CORPORATE AUDITORSAs of June 29, 2011

Director, Chairman

Mitsunori Torihara

Representative Director Shigeru Muraki

Representative Director Toshiyuki Kanisawa

July 1972 Joined the Company
April 2007 Senior Executive Officer, Chief Executive of Energy Solutions Div.
and General Manager of Volume Sales Dept. of Energy Solutions Div.
June 2007 Director, Senior Executive Officer and Chief Executive of Energy
Solutions Div. and General Manager of Volume Sales Dept. of Energy
Solution Div.
April 2010 Representative Director, Executive Vice President, Chief Executive ofEnergy Solutions Div. and General Manager of Volume Sales Dept. ofEnergy Solution Div.

April 1972 Joined the Company
June 2007 Director, Senior Executive Officer, and Chief Executive of Residential
Sales Promotion Div.
April 2009 Director, Senior Executive Officer, and Chief Executive of Housing
Development Div.
April 2010 Representative Director, Executive Vice President, in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
and Compliance Dept.

Tsutomu Oya

Director

April 1975 Joined the Company
April 2006 Senior Executive Officer and Chief Executive of Energy Resources Div.
June 2009 Director, Senior Executive Officer and Chief Executive of Energy
Resources Div.
April 2010 Director and Chief Executive of Energy Production Div., and in chargeof Environmental Affairs Dept.

Director
TOKYO GAS ANNUAL REPORT 2011

Tsuyoshi Okamoto

April 1970 Joined the Company
April 2007 Representative Director, Executive Vice President, and in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
Compliance Dept., and Internal Audit Dept.
April 2009 Representative Director, Executive Vice President, and in charge of
Personnel Dept., Secretary Dept., General Administration Dept.,
and Compliance Dept.
April 2010 President, Representative Director, and Executive President

Director

34

Representative Director, President

April 1967 Joined the Company
April 2004 Representative Director, Executive Vice President,
Chief Executive of Corporate Communication Div.
and in charge of Compliance Dept.
April 2006 President, Representative Director, and Executive President
April 2010 Director and Chairman of the Board

Mikio Itazawa

Director

April 1974 Joined the Company
June 2003 General Manager of West Pipeline Business Dept. of Pipeline andMaintenance Div.
April 2004 Executive Officer and General Manager of Pipeline Dept. of Pipeline
Network Div.
April 2007 Senior Executive Officer and Division Manager of Pipeline Network Div.
June 2010 Director, Senior Executive Officer and Division Manager of Pipeline
Network Div.

Michiaki Hirose

April 1974 Joined the Company
April 2009 Senior Executive Officer and in charge of Corporate Planning Dept.
and Affiliated Companies Dept.
June 2009 Director, Senior Executive Officer and in charge of Corporate
Planning Dept., Corporate Communications Dept., and AffiliatedCompanies Dept.
April 2010 Director, in charge of Corporate Planning Dept., Project Management
Dept., Corporate Communication Dept., and Affiliated Companies Dept.

Kazuo Yoshino

April 1975 Joined the Company
April 2009 Executive Officer and General Manager of Investor Relations Dept.
April 2010 Senior Executive Officer and General Manager of Investor Relations
Dept., and in charge of Finance & Managerial Accounting Dept.,
and Accounting Dept.
April 2011 Senior Executive Officer and Division Manager of Information
Technology Div., and in charge of Finance & Managerial Accounting
Dept. and Accounting Dept.
June 2011 Director, Senior Executive Officer and Division Manager of Information
Technology Div., and in charge of Finance & Managerial Accounting
Dept. and Accounting Dept.

Auditors

Outside Auditors

Kunihiro Mori
Manabu Fukumoto

Shoji Mori
(Director Executive Advisor, Shinkin Central Bank)
Yukio Masuda(Standing Consultant, Mitsubishi Corporation)
Masayuki Osawa (Outside Auditor, PACIFIC CONVENTION PLAZA YOKOHAMA)

BOARD OF DIRECTORS AND CORPORATE AUDITORS

Message from Outside Directors

Outside Director

Katsuhiko Honda

Outside Director

Yukio Sato

Outside Director Ryuichi Tomizawa

Current position
Advisor, Japan Tobacco Inc.
June 2007 Director of the Company

Current position
Vice Chairman, The Japan Institute of International Affairs
June 2010 Director of the Company

Current position
Chairman of the Board, Mitsubishi Chemical Holdings
Corporation
June 2011 Director of the Company

After the earthquake and tsunami in March
2011, Tokyo Gas was able to resume gas
supply in its service area within a week.
Working with other gas companies fromthroughout Japan, we also assisted withthe restoration of gas services in Sendai
and other places outside our service area.
Once again, I realized that Tokyo Gas has
strong capabilities in the field and a highlevel of integrity. I believe that our prompt
action and decisions when confronted withsuch an unprecedented event are valuable
intangible assets.
Tokyo Gas will likely be called upon tobear an even greater responsibility withrespect to the nation’s energy policies. I
hope that our precious human resources
will become the driving force for spontaneous reform—reform that is not driven
by outside forces. I also hope that all
Group employees will stand united as they
strive to deliver more in-depth services,
thereby enhancing our corporate value.
As we work to overcome today’s harsh
operating environment while anticipating
future changes, I will do my best to help
Tokyo Gas achieve sustainable growth.

A public utility such as Tokyo Gas must
work hard to meet the expectations ofcustomers and all citizens by having an
accurate understanding of their needs. All
the members of Tokyo Gas are always
working with a sense of urgency, making
the stable delivery of safe gas to customers their top priority. I believe this contributed to the speedy restoration of gas
services after the Great East Japan
Earthquake. I think we should continueemphasizing this readiness to be closely
involved with the lives of ordinary people.
At the same time, I think it has become
increasingly important that we draw on
the know-how and experience amassed
so far to broaden our activities overseas
and thus ensure the stable supply of
resources. From this standpoint, it isessential for Tokyo Gas to build more overseas links and relationships.

I believe that I can make a useful contribution to the operations of Tokyo Gas bydrawing on my experience in the chemicalindustry, which is not dissimilar to theenergy sector. Today, the Japanese industry faces a period of dramatic restructuring.
From my perspective as a member of thechemical industry, I am able to advise theCompany not only on the future directionof production activities, but also on diverse
energy needs, including compatibility withthe environment and renewable energy.
In my opinion, Tokyo Gas was able torespond successfully, even in the face of theGreat East Japan Earthquake, because it
stood united, backed by a sound risk management strategy that was already preparedfor such an emergency. It is essential thatcompanies throughout Japan reflect on theirown recent experiences and review their crisis management strategies. Tokyo Gas
needs to reduce “unanticipated” events, andplan and prepare so that when an “unanticipated” event happens, it can respond calmly
and appropriately. In this sense, I recognizethat I have a major role to play in supplementing the Company’s internal wisdom with outside eyes, ears, and insights.

Senior Executive
Officers

Tsuyoshi Okamoto
Shigeru Muraki
Toshiyuki Kanisawa
Hirokazu Hayashi
Tsutomu Oya
Michiaki Hirose
Mikio Itazawa
Kazuo Yoshino
Norikazu Hoshino
Hisao Watanabe
Matsuhiko Hataba
Koichi Aonuma
Yutaka Kunigo
Masahiro Mikami

Executive Officers Hiroaki Kubota
Hidefumi Takahashi
Hideaki Obana
Hiroaki Kobayashi
Yoshihiro Tanabe
Fumio Murazeki
Takashi Uchida
Hideaki Arai
Satoru Yasuoka
Masaru Takamatsu

Division Manager of Energy Solution Div., and General Manager of Volume Sales Div.
In charge of Personnel Dept., Secretary Dept., Compliance Dept., and Internal Audit Dept.
Division Manager of Regional Development Marketing Div.
Division Manager of Energy Production Div., and in charge of Environment Dept.
In charge of Corporate Planning Dept., Project Management Dept., Corporate Communication
Dept., and Affiliated Companies Dept.
Division Manager of Pipeline Network Div.
Division Manager of Information Technology Div., and in charge of Finance & Managerial
Accounting Dept. and Accounting Dept.
Dispatched to the Japan Gas Association
Division Manager of Technology Development Div.
Division Manager of Residential Sales Promotion Div.
Division Manager of Housing Development Div.
Division Manager of Energy Resources Div.
In charge of Purchasing Dept., Real Estate Management Dept., Major Site Development Dept.,
and General Administration Dept.
General Manager of Information Technology Application Dept., Information Technology Div.
General Manager of Kanagawa service branch, Residential Sales Promotion Div.
General Manager of Corporate Communications Dept.
General Manager of Customer Safety Dept., Residential Sales Promotion Div.
Deputy Chief Executive of Energy Solution Div. and General Manager of Energy Sales &Service Planning Dept.
General Manager of Residential Sales Planning Dept., Residential Sales Promotion Div.
General Manager of Corporate Planning Dept.
General Manager of Pipeline Dept., Pipeline Network Div.
General Manager of Sales Marketing I Dept., Housing Development Div.
General Manager of LIFEVAL Project Management Dept., Residential Sales Promotion Div.

TOKYO GAS ANNUAL REPORT 2011

Executive Officers
President
Executive Vice
Presidents

35

CORPORATE SOCIAL RESPONSIBILITY

Promoting CSR Management through Our Core Business Activities
The Tokyo Gas Group promotes business activities that create “shared value” and has declaredits commitment to CSR management, which underpins its business activities. We will continue
to work earnestly in such areas as corporate governance, compliance, and risk management,
while focusing on the priorities of “safety and disaster prevention,” “environmental initiatives,”and “building partnerships.” As a public institution, we will strive to be a corporate group that iscontinually trusted and preferred by our stakeholders.

Responding to Expectations and Trust from Society andContributing to the Sustainable Growth of Society

Promotion of CSR Management in All Tokyo Gas Initiatives

Safety andDisaster Prevention

Environmental
Initiatives

Further increase safety
and reinforce disasterprevention measures

Diverse approaches tobecoming a top runner inenvironmental management

Partnerships

Building partnerships
with stakeholders

Corporate Governance, Compliance, Risk Management, etc.
Management Philosophy and Corporate Code of Conduct

Management Philosophy and Corporate Code of Conduct

TOKYO GAS ANNUAL REPORT 2011

Management Philosophy
As an integrated energy company, the Tokyo Gas Group shall make an active contribution to pleasant living andthe development of environmentally friendly society, and also pursue ongoing advancement together with therest of society, as a corporate group that earns and maintains the trust of its customers, shareholders andcommunities through its various activities.

36

Corporate Code of Conduct
1. We will continue to grow while maintaining awareness of our company’s public mission and social responsibilities.
2. We shall provide quality products and services, and endeavor always to improve customer satisfaction.
3. We will hold ourselves to high ethical standards, and fairly and transparently conduct corporate activities whileobserving both the letter and the spirit of related laws and ordinances.
4. We will contribute to alleviating global environmental problems as a top runner in environmental management.
5. We will remain keenly aware of our obligations to be a good corporate citizen and work towards the bettermentof society by contributing to community activities.
6. We will pursue continual innovation to promote a cost-effective business approach that is both flexible
and resilient.
7. We will aspire to build organizations that are based upon the full exercise of, and respect for the talents,
desires, and creativity of each and every employee.

CORPORATE SOCIAL RESPONSIBILITY

Safety and Disaster Prevention

and replacement support. As of the end of March 2010, we
had invested about ¥5.5 billion and replaced about 180,000

Our Responsibility
Our customers have provided valuable feedback with

devices out of a total of 300,000 that need replacement. In
particular, we have replaced about 74% of small water
heaters that lack incomplete combustion avoidance devices

regard to the use of gas, such as “I would like you to develop safe gas appliances,” “I want you to figure out a way
to prevent careless mistakes in using gas appliances,” and“After your work is done, I would like you to explain what
you did.” At the Tokyo Gas Group, we have three key

and about 62% of CF devices*. The campaign has ended,
but we continue to provide support for replacement.
Through such opportunities as “periodic gas facility safety
checks” and “gas valve opening,” we will continue working toward the reduction of these appliances. At the same

themes in promoting the safe use of gas. The first is promoting the utilization of facilities that decrease the likelihoodof accidents, gas leaks, or damage and of functions to control such incidents (tangible countermeasures). The second

time, we will endeavor to provide accurate information
about the safety, environmental friendliness, and convenience of gas, and to implement enhanced communications
so that we can best meet the needs of our customers.

is fostering knowledge of correct usage and implementing periodic inspections (intangible countermeasures). The
third is establishing an emergency response system for

In gas supply, in January 2007, there was an accident in
the city of Kitami in Hokkaido. We continue moving forward
aggressively with the necessary measures, aiming touse in the unlikely event of a gas leak (emergency response
countermeasures). To foster prompt gas supply in the eventof an earthquake or other natural disaster, we are implementing “prevention,” “emergency,” and “restoration”
initiatives. We continue working to minimize the influence

replace about 1,200 kilometers of gray cast-iron pipes andgalvanized gas pipes. In fiscal 2010, we invested ¥10.8 billion and replaced 155 kilometers of pipe. There are still about
667 kilometers of these gray cast-iron pipes and galvanizedgas pipes that need to be replaced, and we plan to com-of such an event on the lives of our customers.
Initiatives

plete the replacement work by fiscal 2015. Moreover, thereplacement of aged galvanized gas pipes in buildings thatis important in terms of public safety is a key safety initia-

To promote the early replacement of water heaters andbathtub water heaters that have not been equipped withincomplete combustion avoidance devices, since January
2007, we have instituted a “replacement promotion cam-tive. We are aiming to finish this task by fiscal 2015, andwith the understanding of customers, we are striving toadvance this deadline as much as possible. In fiscal 2010,
we spent about ¥1.4 billion on these measures.

paign,” which incorporates special visits, free inspections,* CF devices: Gas appliances that use indoor air for combustion and emit exhaust throughan exhaust duct with the aid of natural ventilation.

TOPICS

The role of Gaslight 24 is to ensure the safety of ourcustomers 24 hours a day, 365 days a year. In theunlikely event of a gas leak or other emergency situation, Gaslight 24 ensures an immediate response by dispatching emergency teams to the scene.

bases are mobilized immediately.
These teams use in-vehicle terminals to confirm the necessary information, including the details received by theCenter, site maps and other information, while rushing to
the reported scene. Once there, they make repairs and takeTokyo Gas has around 600 specialist staff stationed at
47 bases, along with emergency vehicles and general vehicles equipped with various machinery and equipment.

any other action required to prevent a city gas accident.
The Great East Japan Earthquake on March 11, 2011,
demonstrated the safety of gas. The rapid and accurate

When the Security Command Center receives notification of a gas leak, emergency personnel at Gaslight 24

response of our Gaslight 24 teams stopped gas leaks
from causing fires or more serious incidents.
The steadfast activities of Gaslight 24 protect the safety of
the Group’s customers
while supporting theTokyo Gas corporate
brand of security, safety, and reliability.

Emergency Repair Work on Gas Pipes

Gaslight 24 Emergency Vehicle

TOKYO GAS ANNUAL REPORT 2011

Gaslight 24

37

CORPORATE SOCIAL RESPONSIBILITY

Environmental Initiatives
Our Responsibility
Our environmental philosophy is as follows. The Tokyo Gas
Group will promote more positive ways of energy use tocontribute to the protection of regional and global environments as well as to the sustainable development ofsociety. Our environmental policies are to (1) reduce theenvironmental impact of customers’ energy use, (2) reduce
the total environmental impact of Tokyo Gas’ businessactivities, (3) strengthen environmental partnerships withlocal and international communities, and (4) promote environment-related technology R&D programs.
Initiatives
Targeting the realization of a low-carbon and resourcerecycling society and the conservation of biodiversity,
the Tokyo Gas Group has formulated environmental protection guidelines for six areas, such as global warming
prevention. On that basis, the Group is moving forwardwith the implementation of specific initiatives.

For example, we will continue working in an active
and sustained manner to prevent global warming by promoting the use of environmentally friendly natural gas
and by providing equipment and systems with high efficiency and low environmental impact. In comparison
with the 2005 levels, we will strive to reduce CO2 emissions at customer sites by 3 million tons by fiscal 2015
and by 4.5 million tons by fiscal 2020.
In the development of a recycling-oriented society, theTokyo Gas Group will take a comprehensive approach to
reducing environmental burden by implementing efficient, effective environmental management activities; byreducing, reusing, and recycling waste in our operational
activities; and by aggressively promoting green purchasing. In addition, targeting the establishment of a societythat coexists with nature, we recognize the importanceof the benefits of biodiversity, and we are working to
track and analyze the influence of our operating activities
on biodiversity. Moreover, from a CSR perspective, we
are also promoting activities that contribute to the conservation of biodiversity in ways that are unrelated to ourbusiness activities.

TOPICS

Sustainable Energy Initiatives
Tokyo Gas is stepping up its contribution to global warming
abatement by promoting the use of renewable energy. To thisend, we are conducting R&D on methane fermentation technologies and developing technologies to allow biogas emitted
from foodstuff factories and other facilities to be used for cogeneration. In April 2008, we announced our “Biogas Purchasing
Key Points,” and we have since been preparing to purchasebiogas with a view to including it in the city gas delivery network. In January 2011, we were the first in Japan to start
accepting food-waste-derived biogas for delivery as city gas
under the Super Eco Town Project of the Tokyo Metropolitan
Government. Under this project, we will procure biogas in aquantity equivalent to the amount of city gas used by aroundrenewable energy. Specifically, we have an equity stake inAgatsuma Bio Power Co., Ltd. and are participating in its business, which centers on wood chip biomass power generation.
This method of power generation offers exceptional economic
benefits and permits stable output without being affected byweather conditions. For fuel, this method uses 100% woodchips, created by crushing tree clippings and wood scraps andturning them into chip form. Accordingly, it produces clean,carbon neutral electric power. By the end of 2011, Agatsuma
Bio Power is scheduled to commence operations, with a plan
to produce 85 GWh of electricity—equivalent to the amountWe are also active in the area of power generation using

we will target proactive use of renewable energy in the future.

TOKYO GAS ANNUAL REPORT 2011

2,000 general households each year. Moreover, this translates
to about 800,000 m3N of gas annually and will reduce carbon
dioxide emissions by approximately 1,360 tons per year.

used by around 23,000 households per year.
In April 2011, Tokyo Gas invested in Shonai Wind-Power
Generation Co., Ltd., which operates wind-power plants,
including the Yuza Wind-Power Plant, in Yamagata Prefecture.
By also participating in the wind power generation business,

38

Yuza Wind-Power Plant

Agatsuma Bio Power (conceptual drawing)

CORPORATE SOCIAL RESPONSIBILITY

Building Partnerships“what we provide to the customer.” In accordance withthis approach, we have identified the customer satisfac-

Our Responsibility
Tokyo Gas conducts business operations that have a strong

tion (CS) mindset as the fundamental stance of All Tokyo
Gas and have documented it in our code of conduct. Moving
forward, we will continue working to be a customer-focused

public welfare element, and the Group has a social mission. Tokyo Gas endeavors to move forward in tandemwith its stakeholders, including not only shareholders but
also customers, employees, suppliers and partners, andlocal communities. Contributing to the development ofGroup by thoroughly communicating this fundamental
stance to everyone involved with All Tokyo Gas.
For our employees, we are striving to enhance their motivation and to create “workplaces that are easy to work in” andin which employees can exercise their abilities to the fullest

society is one of our most important tasks. Accordingly,
we continue our sincere efforts to build, sustain, and develop relationships with all of our stakeholders.

extent. Accordingly, we have established a variety of systems
and are devoting resources to education so that the systems
are used effectively. Furthermore, we are moving ahead withinitiatives in the area of healthy, safe work environments.

Initiatives
By enhancing communications in capital markets throughour IR activities, we are working to secure management

In our relationships with suppliers and partners, we aretaking steps to fulfill our public welfare and social missions,such as formulating action guidelines for purchasing activ-

soundness and transparency, to reflect the expectationsof capital markets in our management, and to improve theunderstanding of and the trust in the Tokyo Gas Group.
In our relationships with customers, in order to ensurethat All Tokyo Gas continues to be the preferred choice, weities and working to build relationships of trust.
In addition, our relationships with local communities
involve working toward the realization of a society that is
pleasant and comfortable to live in and striving to resolve
issues related to our daily lives. In these ways, we are imple-emphasize “whether the customer is satisfied” rather thanmenting activities that make the most of our strengths.

TOPICS

Helping Restore Gas Supplies Suspended due to the Great East Japan Earthquake
The Great East Japan Earthquake, which struck on March
11, 2011, has left a deep mark across Northeastern Japan,

providing safety inspections services to customers, andperforming work on open-shut plugs, the initiative includ-especially the Tohoku District. In the city gas sector, 16 gas
providers serving more than 400,000 households wereforced to suspend supplies. For some time, a mutual support system has been in place among city gas providers to

ed provision of temporary supply through mobile gas
generation equipment and reopening of supplies using provisional equipment. By deploying personnel with the
combined know-how and intellectual assets of gas providers

address such natural disasters. Due to the magnitude of
the recent event, however, many providers suffered moredamage than ever in their history. To address this unprecedented disaster, the nation’s 59 city gas providers, including
Tokyo Gas, joined forces at the request of The Japan Gas

nationwide, we managed to restart gas supplies by midMay, around two months after the disaster. The role of gas
providers is to conduct business with close regional ties
even if there are major differences in supply areas. During
these two months we worked day and night reconfirming

Association, dispatching support teams to various disaster-stricken areas. At the peak of the effort, the support
teams together totaled around 4,000 people per day. In

our social mission as gas providers to deliver gas to our customers safely and restore supply as quickly as possible.

TOKYO GAS ANNUAL REPORT 2011

addition to repairing and restoring gas delivery infrastructure,

Restoration Work at a Customer’s Home

Pipeline Restoration Work39

ON-SITE IR REPORTThis section provides responses to questions from investors and explains policies that areimportant in the conduct of management.

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 and supply 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 for service providers in the largevolume 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 principle*1. A simplified version of this calculation is given below.
Operating cost, etc.
Cost of gas resources*2
Depreciation
Personnel expenses
Non-operating expenses
Overhead
Income taxes+

Fair return
Calculated using the
ratebase system, which
involves multiplying
fixed-asset investments,
etc., by the appropriate
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 underefficient management*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 on that basis (totalcost). 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 every month in accordance with the gas resource cost adjustment system. Consequently,
the impacts of such fluctuations on revenue and expenditure will be neutral in the medium to long term.

TOKYO GAS ANNUAL REPORT 2011

Q2

40

What is the GAS RATE ADJUSTMENT SYSTEM?

The price of LNG is significantly influenced by crude oil
prices and exchange rate fluctuations. Consequently, thegas resource costs borne by city gas suppliers aresubstantially influenced by changes in these areas. The
gas rate adjustment system was introduced to promptly
adjust gas rates*1 to reflect such exogenous factors (gasresource cost fluctuations). The system is intended toincrease rate transparency and to clarify the efforts ofsuppliers 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 term*2.

*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 in resource 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.

ON-SITE IR REPORT(¥/t)

C (Mar.–May)
Three-month moving average(¥/Month)Upperlimit 160%
86,100C (Aug.)B (Feb.–Apr.)
Standard
average gas
resource cost
53,8106,010

B (Jul.)A (Jun.)A (Jan.–Mar.)

5,144

month
1

2

3

4

5

6

7

8

9

Average gas resource cost (left)
Standard residential gas rates at monthly usage volume of 32 m 3 (45MJ/m 3) (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.

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), anddecisions on investments through Net Present Value (NPV)

Executive Committee or the Board of Directors. Derivativetransactions are subject to market risk management rules.
Corporate Executive Committee meetings are heldeach week and are attended by executives at the seniorand Internal Rate of Return (IRR). These three indicators areused as common standards throughout the Tokyo Gas
Group. TEP is an original evaluation method for ensuringthat the amount of profit exceeds the cost of capital.

executive officer level and above. Final decisions onimportant management issues are made after in-depth
discussion, including deliberations by the Investment
Evaluation Committee in the case of investment decisions.

The Investment Evaluation Committee assesses plansthat involve investment, equity participation, or debt
guarantees on the basis of risks and returns. The results ofthese deliberations are reflected in decisions at the Corporate

To follow the results and monitor projects in whichinvestments have been made, Tokyo Gas evaluates thesituation regularly in the Investment Evaluation Committee
and reports findings at the Corporate Executive Committee.

Q4

What is Tokyo Gas doing to
REDUCE ELECTRICITY CONSUMPTION?

As of July 1, 2011, in accordance with Japan’s Electricity
Business Act, electricity users who consume 500 kW or
more are obliged to reduce their usage by 15% from theprevious year. Members of the Tokyo Gas Group, including
factories, offices, and affiliated companies, are making

offering accessible power saving ideas and specific ways toconserve electricity as part of a Group-wide effort to raiseawareness regarding energy conservation.
For consumers, we have been promoting the “bestmix” concept of dividing energy usage according to theefforts to reach this target. Moreover, even small andmedium-sized offices that consume less than 500 kW andhave no obligation to reduce energy consumption are

attributes of the energy source. In this way, we will stepup efforts to highlight the advantages of gas. In addition to
the energy-saving measures that are made possible

formulating their own power conservation plans. In theseways, we are implementing electricity reduction measures
aimed at achieving the 15% target across the entire Tokyo
Gas Group. In order to lower electricity consumption at
the residential level, we created a website for an electricity

through the use of gas appliances, we are aiming topromote cogeneration systems that reduce the burden ofsystem-based energy sources. Over the medium andlong terms, moreover, Tokyo Gas plans to build a “smart
energy network,” which combines gas with solar power

reduction campaign available for a limited period (from July
1 to September 30, 2011). During this period, we are

and other renewable energy forms.
With the commissioning in 2010 of the Ohgishima

TOKYO GAS ANNUAL REPORT 2011

Q3

41

ON-SITE IR REPORTPower Station (total power generation capacity of 810
MW, which includes Tokyo Gas’ power generation capacity

rate of our own power generation equipment to enable acomprehensive response that includes system-basedof 610 MW), our total electricity capacity has risen to
1,300 MW. As we strive to secure sufficient electric power
capacity to meet future needs, we will raise the utilizationenergy, IPPs, and the supply of natural gas for in-house
power generation. In these ways, we will do our utmost to
help ensure stable supplies of electric power.

Q5

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,
and provide one-stop energy services, such as electrici-

owned subsidiary, ENERGY ADVANCE Co., Ltd. The
company operates very efficiently by capitalizing on the
LNG procurement systems and advanced engineeringty 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

capabilities of the Tokyo Gas Group, making the most of
the high value added that can be achieved with cogeneration systems. It targets environmentally concerned

need for a large initial investment, a high level of environmental performance, and reduced energy costs.
Also, this is a field with growing appeal as a businessdue to improvements in system efficiency.

customers, especially in the Kanto region, where
demand is high. This company’s energy services, whichwere introduced in 2003, have achieved the leading
position in the industry, with 347 contracts at the end of

In 2002, Tokyo Gas moved to expand its involvementin the energy service business by establishing a wholly

March 2011.

Q6

What do you see as the ROLE OF THE POWER GENERATION
business within the integrated energy business?

Tokyo Gas has established its power generation businessas 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 ascogeneration systems.

planned (refer to the table below), with our share ofgenerating capacity being 1,300 MW.
Tokyo Gas is also active in renewable energy. By theend of 2011, for example, we plan to start operation of aCurrently, we have four power plants in operation, orFurthermore, we believe our power generation
business has a number of strengths.
1 It allows for competitive fuel procurement backed bywood chip biomass power plant with a capacity of 13,600
kW in Agatsuma-gun, Gunma Prefecture. In wind power
generation, meanwhile, we installed a wind farm with aour bargaining power.
2 Power plants are located close to demand areas

capacity of 1,990 kW inside our Sodegaura LNG Terminalin October 2005. And in April 2011, we took an equity

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

stake in Shonai Wind-Power Generation Co., Ltd., which
operates wind power plants in Yamagata Prefecture.

TOKYO GAS ANNUAL REPORT 2011services.

42

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 (420 MW x 2 units)

In operation since April 2008

Ohgishima Power Co., Ltd.

1,220 MW (407 MW x 3 units)

No.1 unit in operation since March 2010
No.2 unit in operation since July 2010
The timing for the commencement of No.3 unit commercial
operation has not been determined.

FINANCIAL SECTIONCONTENTS

44 TWELVE-YEAR SUMMARY
46 MANAGEMENT’S DISCUSSION
AND ANALYSIS
52 BUSINESS RISKS
54 CONSOLIDATED BALANCESHEETS
56 CONSOLIDATED STATEMENTS
OF INCOME
57 CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME

58 CONSOLIDATED STATEMENTS
OF CHANGES IN NET ASSETS
59 CONSOLIDATED STATEMENTS
OF CASH FLOWS
60 NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS
72 INDEPENDENT AUDITORS’ REPORT
73 CONSOLIDATED SUBSIDIARIESAND EQUITY-METHOD AFFILIATES
74 INVESTOR INFORMATION

For purposes of presentation, in this annual report, all amounts less than one billion yen or one million yen have been rounded down,
and hundredths of a percentage point have been rounded to the nearest whole number.

TOKYO GAS ANNUAL REPORT 2011

In addition, all graphs and tables represent fiscal years ended March 31 of the respective years.

43

TWELVE-YEAR SUMMARY
Years ended March 31

Millions of yen, except per share amounts

2011

2010

2009

2008

2007

¥ 1,535,242¥ 1,415,718¥ 1,660,162¥ 1,487,496¥ 1,376,958

1,137,077

1,046,166

Gas appliances and installation work

177,472

169,784

Other energies

221,292

157,297

Real estate

32,79732,784

162,302

161,690
1,257,574

1,087,044

999,521

Gas appliance sales

122,363132,236

135,407

Installation work

49,09457,32559,229For the Years
Net sales (Notes) 1, 5
City gas sales

Other
Gas sales

Real estate rental

35,63735,16934,034

Other business

363,783

320,361

285,407

Operating income

122,451

85,22965,20470,048

162,315

Net income

95,46753,781

41,70842,487

100,699

Comprehensive income

80,440————Depreciation*

149,336

146,117

141,083

142,421

133,142

Capital expenditures**150,202148,186

145,929

138,006

124,556

Free cash flow (Note) 2

94,601

51,71236,862

46,902

109,285

Amounts per share ofcommon stock (Yen)
Net income
Diluted net income (Note) 4
Net assets (Note) 3
Cash dividends applicable to the year

¥

35.63

¥

19.86

¥

15.63

¥

15.94

¥

37.50

—

—

15.37

15.50

35.69

320.70301.58284.72289.49293.11

9.00

9.00

8.00

8.00

8.00

At Year-End
Total assets¥ 1,829,661¥ 1,840,972¥ 1,764,185¥ 1,703,651¥ 1,692,635

Interest-bearing debt

584,169

555,919593,230

558,716

525,467

Total net assets

874,094

826,291

784,616

780,455

806,045

—

—

—

—

—

Operating income to net sales

8.0%

6.0%

3.9%

4.7%

11.8%

Net income to net sales

6.2%

3.8%

2.5%

2.9%

7.3%

ROE

11.4%

6.8%

5.4%

5.4%

13.2%

ROA

5.2%

3.0%

2.4%

2.5%

5.9%

Equity ratio

46.9%

44.2%

43.8%

45.1%

47.0%

Total shareholders’ equity

TOKYO GAS ANNUAL REPORT 2011

Ratios44

Notes:
1 Segment sales include intersegment transactions.
2 Free cash flow = net income + depreciation* – capital expenditures*** including amortization of long-term prepayments** purchases of property, plant and equipment + purchases of intangible assets + long-term prepayments
3 Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries have adopted the “Accounting Standard for Presentation of Net Assets in the
Balance Sheet” (Accounting Standards Board of Japan (ASBJ) Statement No.5; December 9, 2005) and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance
Sheet” (ASBJ Guidance No.8; December 9, 2005).
4 From the year ended March 31, 2010, diluted net income per share is not presented in the above table because there are no residual securities from the beginning of the fiscal year.
5 Effective from the year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted the “Accounting Standard for Disclosures about Segments of an Enterpriseand Related Information” (ASBJ Statement No.17; March 27, 2009) and “Guidance on Accounting Standard for Disclosures about Segments of an Enterprise and Related Information”(ASBJ Guidance No.20; March 21, 2008). Segment sales for the year ended March 31, 2010, are reference values reclassified to conform to the current segment classification.

TWELVE-YEAR SUMMARY

2000

2006

2005

2004

2003

2002

2001

¥ 1,266,501¥ 1,190,783¥ 1,151,824¥ 1,127,633¥ 1,097,589¥ 1,086,770

910,320834,658

831,114

792,453

750,438

740,731

672,069

130,825

135,108

133,873

142,635

149,203

146,516

127,916

59,74664,794

68,03370,56871,337

71,90768,651

992,255

34,187

34,70135,44336,34637,55137,60137,841

252,595

234,720

172,160

158,326

156,011

159,577

158,819

112,345

145,349

152,287

123,294

110,607

103,659

69,233

62,114

84,04744,78759,201

51,911

27,595

26,698

—

—

—

—

—

—

—

136,376

140,271

146,895

141,027

145,564

150,374

140,306

119,435

107,529

107,441

111,988

105,296111,397

124,975

79,057116,789

84,241

88,24092,17866,57242,029

23.48

¥

31.47

¥

16.44

¥

21.18

¥

18.47

¥

9.82

¥

9.50

21.70

28.24

14.98

19.11

16.66

9.13

8.84

270.46244.73221.53208.65200.75

196.72172.33

7.00

7.00

7.00

6.00

6.00

6.00

5.00

¥ 1,693,898¥ 1,668,734¥ 1,666,828¥ 1,676,064¥ 1,702,712¥ 1,797,669¥ 1,805,086

559,911624,105

682,744731,301

775,894

870,347

957,085

—

—

—

—

—

—

—

728,231648,766

598,453

579,706

564,077552,790484,239

8.9%

12.2%

13.2%

10.9%

10.1%

9.5%

7.0%

4.9%

7.1%

3.9%

5.3%

4.7%

2.5%

2.7%

9.0%

13.5%

7.6%

10.4%

9.3%

5.3%

5.9%

3.7%

5.0%

2.7%

3.5%

3.0%

1.5%

1.5%

43.0%

38.9%

35.9%

34.6%

33.1%

30.8%

26.8%

TOKYO GAS ANNUAL REPORT 2011

¥

¥

45

MANAGEMENT’S DISCUSSION AND ANALYSIS

Summary
In the fiscal year ended March 31, 2011, gas sales volume
increased 7.9% year-on-year, to 14,745 million m3, owing
to the commissioning of new power generation facilities
and other factors.
The rise in gas sales volume, together with an increasein gas unit prices under the gas rate adjustment system,
pushed up sales of city gas. In addition, there was an increasein electric power sales stemming from the commencementof operations at the Ohgishima Power Station. Consequently,
net sales climbed 8.4%, to ¥1,535.2 billion. Operating
expenses grew 6.2%, to ¥1,412.7 billion, as increases incity gas raw materials costs were partly offset by a decline
in depreciation of pension actuarial difference. As a result,operating income jumped 43.7%, to ¥122.4 billion, and ordinary income rose 45.5%, to ¥121.5 billion. Net income forthe year surged 77.5%, to ¥95.4 billion, boosted by ¥39.7
billion in extraordinary income from the sale of land in Toyosu.
With respect to appropriations to shareholders, theCompany maintained its existing policy of a total payout ratioof 60%. This means the sum of cash dividends and share
repurchases will be at least 60% of net income for the year.

TOKYO GAS ANNUAL REPORT 2011

Operating Environment in the Year Under Review
Macroeconomic Conditions
In the fiscal year ended March 31, 2011, the Japanese economy, despite showing signs of a turnaround on the back of
economic recovery trends worldwide, remained in a difficult-to-predict state due to several factors. These included
ongoing stagnation in personal consumption, the rapid appreciation of the yen, and rising crude oil prices. Reflecting thissituation, demand for energy languished amid consumption
restraint and contraction in corporate activities. Due to moderate economic recovery, however, the gas sales volume
for general industry bottomed out after a period of decline
following the collapse of Lehman Brothers, and recovered
to around 90% of pre-collapse levels. The gas sales volume
for power generation use also rose significantly, owing tocommencement of operations at the Ohgishima Power
Station and increased utilization of power generation facilities following the Great East Japan Earthquake.

46

Influence of Fluctuating Oil Prices and Foreign
Exchange Rates on the Company’s Operations
The purchase price of LNG, which accounts for the majorityof the resources used in the Group’s core city gas business,
is linked to the Japan Customs-cleared Crude price (hereafter JCC). Under the gas rate adjustment system, the gas
resource costs for the city gas business are reflected in sales,
and the Company’s revenues and operating expenses are
significantly influenced by fluctuations in crude oil prices.
In the first half of the year under review, the JCC remainedin the US$75 to US$79 per barrel range. In the second half,
however, it rose to above US$90 in January 2011 and above
US$100 in March. For the full fiscal year, the average was
US$84.14 per barrel, up US$14.76 from the previous year.
In foreign exchange rates, the yen remained at a high level,
and the average yen-dollar exchange rate was ¥85.74 forthe full fiscal year, reflecting the yen’s appreciation of ¥7.15
compared with a year earlier.
As a result, the year’s trends in crude oil prices had theeffect of pushing up the Company’s LNG purchase priceand contributing to increases in sales and gas resource costs.
Prices of Crude Oil and LNG
US$/MMBtu

US$/barrel

18

120

15

100

12

80

9

60

6

40

3

20

0

0

10/4

5

6

7

8

9

10

11

12

11/1

2

3

12

11/1

2

3

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

Yen–Dollar Exchange Rate
Yen/US$

100

90

80

70

10/4

5

6

7

8

9

10

11

Analysis of the City Gas Business
Sales increased year-on-year across all sectors (residential,commercial and others, industrial, and wholesale).
Residential Sector
There was a decline in sales volume per customer due toa decrease in the number of household occupants and afocus on saving energy and economizing. By contrast, there
was increase in the number of customers, while cool temperatures at the beginning and end of the fiscal year helped
boost demand for hot water and indoor heating. Accordingly,
residential demand grew 2.4%, to 3,520 million m3.
Commercial and Others Sector
For the year, our commercial business was affected by customers’ focus on saving energy and economizing, as wellas ongoing stiff competition from electricity. However, hightemperatures in the summer helped boost demand for air
conditioning. As a result, commercial demand climbed
3.4%, to 3,042 million m3.
Industrial Sector
In addition to increased demand for power generation at
the Ohgishima Power Station, demand from general industry was buoyed by moderate economic recovery, while theGreat East Japan Earthquake also pushed up power generation demand. Consequently, industrial demand rose
14.5%, to 6,237 million m3.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Wholesale Sector
Thanks to increased demand from other gas utilities, wholesale supplies grew 5.8%, to 1,947 million m3.
As a result, the overall gas sales volume increased 7.9%,
or 1,079 million m3, to 14,745 million m3.
Gas Sales Volume by Sector (Years ended March 31)
Million m3, 45MJ/m3

16,000Analysis of Segments
City Gas Sales
Gas sales increased 8.7%, or ¥90.9 billion, year on year, to¥1,137.0 billion, due to higher gas sales volume and a risein gas unit prices under the gas rate adjustment system. At
the same time, there were increases in LNG prices andresource costs associated with the higher gas sales volume.
As a result, operating income in this segment rose 17.9%,or ¥20.6 billion, to ¥136.1 billion.
Gas Appliances and Installation Work
Sales in this segment grew 4.5%, or ¥7.7 billion, year on
year, to ¥177.4 billion, while operating income declined
14.3%, or ¥0.3 billion, to ¥1.8 billion.

12,000

8,000

4,000

07
Residential

08

09

Commercial and others

10

11

Industrial

Wholesale

Analysis of Income and Expenses
Sales increased for the first time in two years, while income
rose for the second consecutive year.
In the fiscal year under review, gas sales increased 8.7%, or¥90.9 billion, to ¥1,137.0 billion, due to higher gas unit prices
under the gas rate adjustment system and a 7.9% rise in gas
sales volume. As a result, total net sales rose 8.4%, or ¥119.5
billion, from the previous year, to ¥1,535.2 billion.
Despite a ¥19.5 billion decline in the retirement benefits
accounting actuarial difference burden, which was deducted from miscellaneous salaries, there was a ¥103.6 billion
increase in gas resource costs due to high crude oil prices.
Accordingly, operating expenses increased 6.2%, or ¥82.3
billion, to ¥1,412.7 billion. As a result, operating income
jumped 43.7%, or ¥37.2 billion, to ¥122.4 billion.
Ordinary income climbed 45.5%, or ¥38.0 billion, to ¥121.5 billion, as income from weather derivatives compensated for a ¥4.7
billion decline in foreign exchange gains of overseas subsidiaries.
Among extraordinary items, a ¥39.7 billion gain on thesale of land in Toyosu to the Tokyo Metropolitan Government
was included as extraordinary income. We also reported
extraordinary losses in the form of a ¥2.1 billion loss on valuation of available-for-sale securities and a ¥3.2 billion loss
on disaster associated with damage from the Great East
Japan Earthquake that occurred on March 11. Accordingly,
net income surged 77.5%, or ¥41.7 billion, to ¥95.4 billion.
Net Income and Net Income per Share(Years ended March 31)¥ billion

Real Estate
Sales in this segment remained mostly unchanged, at ¥32.7
billion. Operating income declined 15.1%, or ¥1.0 billion, to¥5.7 billion.
Other
This segment includes facility construction and engineering, information processing, shipping, and credit and leasing.
In the year under review, sales edged up 0.4%, or ¥0.7 billion, to ¥162.3 billion, and operating income jumped 52.5%,
or ¥3.5 billion, to ¥9.9 billion.
Business Results by Segment (¥ million)
Sales
Years ended March 31

City gas sales
Gas appliances andinstallation work
Other energies
Real estate
Other
Total
Adjustments
Consolidated

2010

2011

1,046,166

1,137,077

169,784
157,297
32,784
161,690
1,567,722(152,004)
1,415,718

177,472
221,292
32,797
162,3021,730,942(195,699)
1,535,242

¥

120

40

90

30

60

20

30

10

0

Sales figures for each segment include intersegment transactions.

TOKYO GAS ANNUAL REPORT 2011

0

Other Energies
This segment consists of energy services, LPG, electric
power, industrial gas, and other products and services. In
the year under review, segment sales increased 40.7%, or¥64.0 billion, year on year, to ¥221.2 billion, and operating
income jumped 62.4%, or ¥4.3 billion, to ¥11.1 billion. Within
this segment, the electric power sales posted a 150.3%, or¥42.2 billion, to ¥70.2 billion, owing to the commencementof operations at the Ohgishima Power Station. Operating
income surged 271.4%, or ¥4.4 billion, to ¥6.0 billion.

007
Net income (left)

08

09

10

Net income per share (right)

11

47

MANAGEMENT’S DISCUSSION AND ANALYSIS

Operating Income
Years ended March 31

City gas sales
Gas appliances andinstallation work
Other energies
Real estate
Other
Total
Adjustments
Consolidated

2010

2011

115,539

136,181

2,184
6,874
6,732
6,497
137,828(52,598)
85,229

1,872
11,166
5,713
9,907
164,841(42,389)
122,451

Operating income figures for each segment include intersegment transactions.

Contribution to Net Sales by Segment
Years ended March 31

2010

2011

City gas sales
Gas appliances andinstallation work
Other energies
Real estate
Other

66.7%

65.6%

–0.9 point

10.8%
10.0%
2.1%
10.3%

10.3%
12.8%
1.9%
9.4%

–0.5 point+2.8 points–0.2 point–0.9 point

TOKYO GAS ANNUAL REPORT 2011

Equity Ratio
Total equity increased 5.5%, or ¥45.1 billion, to ¥858.9 billion. This was due primarily to an increase in retained
earning stemming from net income, which outweighed¥25.5 billion in cash dividend payments. Because total
assets edged down 0.6%, or ¥11.3 billion, to ¥1,829.6 billion, the equity ratio rose 2.7 percentage points, to 46.9%.

ChangeFinancial Position
Assets
At fiscal year-end, total assets amounted to ¥1,829.6 billion, down 0.6%, or ¥11.3 billion, from a year earlier. Total
property, plant and equipment rose 1.0%, or ¥11.4 billion,to ¥1,120.2 billion, due mainly to an increase in power generation equipment associated with the inclusion of
Ohgishima Power Co., Ltd. into the scope of consolidation. Total intangible assets jumped 47.1%, or ¥13.2 billion,to ¥41.1 billion, due mainly to investments in software.
Total investments and other assets declined 14.7%, or¥39.4 billion, to ¥228.9 billion, due mainly to a decrease in
the balance of long-term loans receivable.
Total current assets edged up 0.8%, or ¥3.6 billion, to¥439.3 billion. Within this amount, other current assets
increased ¥25.0 billion, to ¥98.0 billion, and cash anddeposits fell ¥17.0 billion, to ¥90.3 billion.

48

Changes in Treasury Stock
In the fiscal year ended March 31, 2011, the Company purchased 14.03 million shares of treasury stock due to arequest by shareholders opposed to merger by absorptionof consolidated subsidiaries. Despite the cancellation of
19,568 thousand shares during the year, total treasury
stock rose 18.6%, or ¥0.4 billion, to ¥2.3 billion.

Liabilities
Total liabilities declined 5.8%, or ¥59.1 billion, to ¥955.5
billion. Total noncurrent liabilities were down 1.2%, or¥7.6 billion, to ¥646.7 billion. Within this amount, bonds
payable increased ¥10.0 billion, but provision for retirement benefits decreased ¥34.1 billion. Total current liabilities fell 14.3%, or ¥51.5 billion, to ¥308.8 billion.
Within this amount, notes and accounts payable —trade fell ¥58.8 billion, to ¥76.1 billion, and other current
liabilities rose ¥7.6 billion, to ¥133.2 billion.
Net Assets
Total net assets increased 5.8%, or ¥47.8 billion, to ¥874.0
billion. This was due mainly to ¥95.4 billion in net income,as well as a 7.6%, or ¥60.6 billion, rise in total shareholders’equity, to ¥859.9 billion, which outweighed ¥25.5 billion in
cash dividends paid and a ¥15.6 billion decline in total accumulated other comprehensive income.

Interest-Bearing Debt
In the year under review, total interest-bearing debt
increased 5.1%, or ¥28.2 billion, to ¥584.1 billion, due
primarily to an increase in capital investments. As aresult, the D/E ratio remained unchanged, at 0.68.
Credit Ratings
To secure financial flexibility in regard to liquidity on handand capital policy, and to secure access to financial
resources through the capital markets, the Company
believes that it is necessary to maintain its credit rating
at a certain level. Tokyo Gas has acquired ratings from
Moody’s, Standard & Poor’s (S&P), Rating andInvestment Information, Inc. (R&I), and Japan Credit
Rating Agency, Ltd. (JCR). As of March 31, 2011, the ratings were as follows.
Moody’s

Aa2High creditworthiness and very low credit risk to meet long-term obligations.

S&P

AA–

Very strong capacity to meet obligations.
Difference from the highest rating, AAA, issmall. (Plus and minus signs indicate relative standing within each rating category.)

R&I

AA+

Very high creditworthiness supported bysome excellent factors.

JCR

AAA

The highest level of capacity of the obligor to honor its financial commitment on
the obligation.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Capital Expenditures and Depreciation
Capital expenditures rose 1.4%, or ¥2.1 billion, to ¥150.2
billion. This was principally attributable to investments in
the Ohgishima Power Station, which commenced operations during the period. Similarly, depreciation was up 2.2%,
or ¥3.2 billion, to ¥149.3 billion.

Cash Flows from Financing Activities
Net cash used in financing activities was ¥7.2 billion,
compared with ¥69.3 billion used in the previous year.
Main factors included ¥40.0 billion in proceeds fromissuance of bonds (up ¥10.0 billion), ¥20.0 billion in theredemption of bonds (down ¥40.2 billion), and a ¥15.0
billion increase in commercial papers.

Total Equity and Equity Ratio (At March 31)¥ billion

%

1,000

50

800

40

600

30

400

20

200

10

0

0

07

08

09

10

11

Operating Cash Flow
Aiming to aggressively invest in the gas business to prepare for future growth in demand, Tokyo Gas has madeoperating cash flow a key management indicator andhas disclosed its allocation policy. Operating cash flow is
calculated by adding depreciation to net income.
Operating cash flow for the fiscal year ended March
31, 2011 amounted to ¥244.8 billion, a year-on-yearincrease of ¥45.0 billion. The higher figure reflects a¥41.7 billion increase in net income and a ¥3.2 billion
increase in depreciation.

Total equity (left)

Interest-bearing Debt and D/E Ratio (At March 31)¥ billion

Times

600

1.2

400

0.8

200

0.4

0

0

07

08

09

10

11

Interest-bearing debt (left)
D/E ratio (right)

Cash Flows
Cash Flows from Operating Activities
Net cash provided by operating activities amounted to¥162.3 billion, down ¥131.8 billion from the previous
year. Main factors were a ¥52.5 billion decrease in notes
and accounts payable — trade (down ¥81.9 billion fromthe previous year), a ¥34.1 billion decrease in provision
for retirement benefits (down ¥64.2 billion), and a ¥39.8
billion gain on sales of noncurrent assets (down ¥39.5
billion). Main contrasting factors were ¥155.4 billion inincome before income taxes (up ¥71.9 billion) and a¥24.2 billion decrease in accounts receivable — other (up¥31.0 billion).
Cash Flows from Investment Activities
Net cash used in investment activities totaled ¥172.3 billion, compared with ¥177.2 billion used in the previous
year. Main components were ¥150.8 billion in the purchase of property, plant and equipment and intangible
assets (up ¥5.3 billion from the previous year), ¥21.7 billion in the purchase of investment securities (up ¥8.3 billion), and ¥3.1 billion in payments of long-term loans
receivable (down ¥14.7 billion).

Total Payout Ratio
Tokyo Gas has set an objective of a 60% total payout
ratio, which means to return 60% of net income toshareholders, as an indicator of its commitment toshareholder returns. Specifically, we define this new
indicator as the ratio of the sum of the income distributed as dividends funded by net income in FY n andshare repurchasing in FY n+1 to the net income in FY n.
In the fiscal year ended March 31, 2011, the Company
posted extraordinary income of ¥39.9 billion, due primarily to a gain on sales of noncurrent assets from the saleof land in Toyosu. Including this amount, the Company
maintained its existing policy of returning 60% of net
income to shareholders.
The Company plans dividends of ¥9.00 per share forthe fiscal year ended March 31, 2011, unchanged fromthe previous year, and share repurchases of ¥34.0 billion
in the fiscal year ending March 31, 2012. As a result, thetotal payout ratio for the fiscal year ended March 31,
2011 was 60.9%.
In regard to dividends, we maintained dividends at¥9.00 per share. In the future, our priority is to ensurestable dividends, with consideration for gradual increases over the long term and without reducing dividends.
With respect to share repurchases, our basic principle
is to cancel the shares. In the fiscal year ended March 31,
2011, we purchased treasury stock totaling ¥34.0 billion,
and we plan to cancel those shares at an early stage.
Millions of yen
Years ended March 31

2009

2010

2011

Net cash provided byoperating activities
159,561 294,110 162,345
Net cash used
in investment activities (163,575) (177,290) (172,305)
Net cash provided by(used in) financing
activities
30,932(69,375)(7,212)

TOKYO GAS ANNUAL REPORT 2011

Equity ratio (right)

49

MANAGEMENT’S DISCUSSION AND ANALYSISKey Management Indicators
ROA and ROE improve due to higher net income.
ROA
The average balance of total assets decreased, and net
income jumped 77.5% year-on-year, to ¥95.4 billion.
Accordingly, ROA improved 2.2 percentage points, to 5.2%.
ROE
The average balance of total equity increased, and net
income jumped 77.5% year-on-year, to ¥95.4 billion. As
a result, ROE improved 4.6 percentage points, to11.4%—the first double-digit result in four years.
TEP
Our goal is to generate profit in excess of capital costs.
This is reflected in our adoption of Tokyo Gas Economic
Profit (TEP: Net operating profit after tax prior to interest
payments minus the cost of capital) as one of our main
management indicators.
In the fiscal year ended March 31, 2011, Net
Operating Profit After Tax Prior to Interest Payments(NOPAT) increased ¥46.1 billion year-on-year, to ¥108.8
billion. The Weighted Average Cost of Capital (WACC)
remained unchanged, at 3.2%, and the cost of capitalincreased ¥0.7 billion, to ¥44.8 billion. Consequently,
TEP improved ¥45.4 billion, to ¥64.0 billion.
ROA and ROE (Years ended March 31)%

16

Forecast
We forecast an increase in sales, but a decline inincome in the fiscal year ending March 31, 2012.
In the fiscal year ending March 31, 2012, we expect consolidated net sales to increase 14.1%, or ¥216.8 billion, to¥1,752.0 billion; operating income to decline 53.5%, or¥65.4 billion, to ¥57.0 billion; and net income to fall 65.4%,
or ¥62.4 billion, to ¥33.0 billion.
In the fiscal year ended March 2011, ordinary income
was ¥121.5 billion, but in the year ahead we forecast a
decline of 57.2%, or ¥69.5 billion, to ¥52.0 billion. Principal
factors include a ¥61.1 billion year-on-year decline in nonconsolidated ordinary income of Tokyo Gas, a ¥12.2 billion
fall in ordinary income of consolidated subsidiaries, and a¥3.8 billion increase due to consolidated adjustments.
On a non-consolidated basis, Tokyo Gas is expected torecord a ¥61.1 billion year-on-year decline in ordinary income
compared with the year under review. Despite an expected
increase in sales stemming from high gas unit prices under thegas rate adjustment system, this will be surpassed by gas
resource costs, leading to a ¥27.5 billion decrease in gross profits on gas. The under-recovery of gas resource costs due to theslide time lag under the gas rate adjustment system is expected to push down profits by ¥26.7 billion. Although a decreasein miscellaneous expenses is expected, we also forecast a¥20.0 billion increase in operating expenses, due mainly tohigher miscellaneous salaries stemming from amortization of
the retirement benefit accounting actuarial differences.
Ordinary income of consolidated subsidiaries is projected to decline ¥12.2 billion, due primarily to the lower foreignexchange gains of overseas subsidiaries.
* The above forecasts are valid as of the date of the Company’s
consolidated financial results announcement for the fiscal year
ended March 31, 2011.

12

8

4

0

07
ROA

08

09

10

11

ROE

ROA = Net income / total assets(average of positions at start and end of fiscal year)
ROE = Net income / total equity(average of positions at start and end of fiscal year)

TEP (Years ended March 31)¥ billion

70
60
50

TOKYO GAS ANNUAL REPORT 2011

40

50

30

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.
Fluctuations in the cost of gas resources are passed on
to gas rates after at most five months under the “gas rateadjustment system.” Accordingly, in a single fiscal year there
can be under-recovery or over-recovery. However, over the
medium to long term, the effect on income is minimal.
The extent to which fluctuations in exchange rates andcrude oil prices will affect gross profit in the fiscal year ending March 31, 2012 is as follows.

20
10
0
-10

07

08

09

10

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

11

Exchange rate: Approximately ¥1.5 billion down (up) withdepreciation (appreciation) of ¥1/dollar
Crude oil price: Approximately ¥1.2 billion down (up) withan increase (decrease) in crude oil price of US$1/barrel
In the fiscal year ended March 31, 2011, the average exchange
rate was ¥85.74 to one dollar, and the crude oil price averaged US$84.14 per barrel. Forecasts for the fiscal year ending
March 31, 2012 are based on an exchange rate of ¥85.00 to
one dollar and an average crude oil price of US$116.25 per

MANAGEMENT’S DISCUSSION AND ANALYSIS

Ordinary Income Plan for Fiscal Year Ending March 31, 2012: Analysis of Factors (Year on Year)Gas gross margin decreased(Slide time lag effect – ¥26.7 billion) – ¥27.5 billion• Net sales: +¥168.4 billion(Gas sales volume & composition – ¥9.2 billion,
Sliding +¥177.4 billion, Other +¥0.2 billion• Gas resource costs: – ¥195.9 billion(Amount & composition +¥6.5 billion, Sliding – ¥204.1 billion, Other +¥1.7 billion)

FY2010¥121.5 billion

FY2011 (forecast)¥52.0 billion

Tokyo Gas
(Non-consolidated)– ¥61.1 billion

Fixed costs increased – ¥20.0 billion• General expenses decreased: +¥2.7 billion(Costs for advertising for marketing +¥3.2 billion,
Consignment costs – ¥2.7 billion, Rental fee +¥1.4 billion, etc.)• Personnel expenses increased on pension actuarial difference: –¥21.4 billion(Pension actuarial differences – ¥22.6 billion (+¥19.9 billion– ¥2.7 billion))• Depreciation and amortization increased: – ¥1.3 billion and others(Acquisition of new facility)
Other operation/Supplementary income decreased – ¥8.3 billion
Appliance sales – ¥1.2 billion,
Electric power (resource costs increased) – ¥5.9 billion and others

Consolidated
subsidiaries– ¥12.2 billion

Internal offset, etc.
+¥3.8 billion

Non-operating income decreased – ¥5.2 billion(-) Decrease in dividends income – ¥3.0 billion, Increase in interest expenses
paid on bonds – ¥0.6 billion,
Interest expenses paid on loans – ¥0.5 billion and others

Eliminations of dividends income +¥2.0 billion and others

barrel (as of the announcement date of the consolidated financial results for the fiscal year ended March 31, 2011.)
In regard to the risk of fluctuations in the gas resource
purchase price, although there can be under-recovery orover-recovery in a single fiscal year under the gas rate adjustment system, the Company hedges a certain portion of thisrisk through LNG swaps. In regard to foreign exchange rate
fluctuations, meanwhile, the Company hedges a certain
portion of the risk through forward exchange contracts.
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 indoor
heating. Mild winter weather can erode revenues and income
by reducing the volume of gas sold. In the commercial andothers sector, gas is mainly used for air conditioning systems,
so if temperatures are low in the summer or high in the winter, such temperature fluctuations can erode revenues andincome by reducing the volume of gas sold.
The average temperatures in the fiscal year ended
March 31, 2011 were 23.0˚C in the first half of the year,
10.4˚C in the second half, and 16.7˚C for the whole year.
Forecasts for the fiscal year ending March 31, 2012 arebased on an average of 16.7˚C for the whole year.
To control the risk of temperature-related fluctuations
in earnings, the Company hedges a certain portion ofthat risk through weather derivatives.

Interest Rate Fluctuation Risk
The Company’s interest-bearing liabilities, both longand short-term, mostly carry fixed interest rates, so
there is only a very small interest rate fluctuation risk
during the term of an obligation. However, there may befluctuation risk when loans are refinanced.
Stock Price Fluctuation Risk
The equities held by Tokyo Gas are primarily those of its
necessary business partners, which are held with theobjective of fostering mutual growth. Among them,equities of publicly listed companies are subject to market risk. Tokyo Gas has established management policies and rules and regularly reviews the necessity ofequity holdings and their asset valuations for handling ofsuch equities.
Monthly Gas Sales Volume for the Fiscal Year Ended
March 31, 2011 (Non-consolidated)
Million m3, 45MJ/m3

1,500
1,200
900
600
300
0

Impact of 1ºC Temperature Rise on Overall Gas Sales Volume
Rate of change

Summer (June–September)
0.1%
Winter (December–March)–2.3%
Intervening months (April, May, October, November) –2.1%
Annual–2.1%

10/4 5Residential

6

7

8

9

10

Commercial and others11

12 11/1 2
Industrial

3

WholesaleTOKYO GAS ANNUAL REPORT 2011

Change– ¥69.5 billion

51

BUSINESS RISKS

Described below are items in the annual Yuho securities
report concerning the Company’s business results andfinancial condition 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, 2011).
1. Accidents and Disasters(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 fields or LNG liquefaction plants, accidents
involving LNG vessels in transit, restrictions on port entry
into Tokyo Bay, or other situations preventing the procurement of gas resources may disrupt the supply of naturalgas. The Company strives to disperse procurement risks,
thereby ensuring its ability to procure LNG in a stable andflexible manner, through supply diversification. These efforts
include importing LNG from six countries and through 10
projects and flexibly allocating its own LNG ships.

TOKYO GAS ANNUAL REPORT 2011

(2) Natural Disaster Risk
Tokyo Gas engages in facility-dependent businesses
because city gas production and supply facilities are thefoundation of its business. The Company therefore enforces
measures to minimize the aftermath of natural disasters.
Some such measures include making facilities earthquakeproof to permit uninterrupted production and supply of city
gas even in the event of large-scale earthquakes of a magnitude equivalent to the Great Hanshin-Awaji Earthquake;taking emergency measures to prevent secondary disasters; preparation of a business continuity plan (BCP) thattakes into account large-scale earthquakes such as are
assumed by Japan’s Cabinet Office; the improvement ofcontingency plans; and regular drills for natural disasters
including earthquakes, typhoons, and tsunami. Despite suchmeasures, major 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.

52(3) City Gas and Electricity Production/Supply
Accidents or Supply Disruption
The production and supply of city gas and electricity that isessential to the life of customers and industry is the core of
the Company’s business activities. For this reason, Tokyo
Gas is implementing measures to prevent accidents and supply-side impairments through the systematic implementationof various security measures—including the formulation ofbusiness continuity plans to prepare for major interruptions
or accidents affecting gas supply—as well as the preparation of emergency response plans and the execution of regulardrills. However, large-scale leakages, explosions, or supply
difficulties in the process of city gas production or supply could
result not only in direct damages but also in tangible and intangible losses, including social responsibility. Remedying power
supply impairments may result in additional losses.
(4) Ensuring the Safety of City Gas and Quality
Problems Affecting Gas Equipment
Tokyo Gas has a responsibility to ensure the safe supply ofcity gas. Accordingly, the Company has in place safety measures that include reinforcing periodic customer safety checks,
increasing the number of categories included in checks, andencouraging upgrades to safer appliances. Tokyo Gas sells

gas appliances and other equipment under the Tokyo Gas
brand through consolidated subsidiaries and related companies and promotes the development of gas applianceswith enhanced safety features. Nevertheless, costs accompanying responses to accidents caused by city gas supply,
appliances, or other equipment could affect future earnings,
and other direct and indirect losses could result.
(5) Damage to Reputation Resulting from City Gas
Accidents Caused by Other Gas Companies
Accidents involving city 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 Risks(1) Market Price and Interest Rate Fluctuation Risks
Tokyo Gas might incur losses in the event of fluctuations
in market prices of Company-owned real estate, stocks,
pension assets, or other assets. In addition, interest rate
fluctuations could raise the Company’s interest burden.
However, as most of its interest-bearing debts are longterm, fixed-rate debts, Tokyo Gas expects the impact ofinterest rate fluctuations to be minimal.
3. Risks Accompanying Business Execution(1) Risks Faced by Existing Business
A. Changes in procurement costs
Changes in terms of contracts and negotiations with suppliers of LNG, from which city gas is produced, may affectprofitability. Also, as LNG and crude oil prices are linked,
and as crude oil sales contracts are denominated in U.S.
dollars, changes in crude oil prices and fluctuations in yendollar exchange rates can impact profitability.
Furthermore, if demand increases more than the amountprocured through LNG projects based on long-term contracts,
or trouble occurs at a shipping terminal or during transportation, or there are delays of LNG supply by new projects,
revenues may be affected by the cost of procuring spot LNG.
On the other hand, under the provisions for adjusting gas
rates to reflect resource costs, fluctuations in gas resource
prices are reflected in rates within five months at maximum.
However, if such fluctuations exceed 160% of the standard resource price, the excess amount cannot be collected.
In the event that such changes are reflected in gas rates
beyond the fiscal term, the bottom line may be affectedduring the following fiscal term as a result of the underrecovery or over-recovery of gas resource costs.
B. Decline in gas sales volume due to weather fluctuations
As sales of city gas accounts for approximately 70% of Groupsales, particularly hot summer and unseasonably warm winterweather can cause fluctuations in residential sales of gas used
to supply hot water and heating, as well as commercial and others sales to air condition buildings, thereby affecting revenues.
C. Decline in demand due to intensified competition
Tokyo Gas strives aggressively to enhance its sales activities
through such measures as introducing gas appliances that areenvironmentally conscious, efficient and convenient.
Nevertheless, the Company may face falling demand owing
to increasing competition with electric utilities and major companies entering into the gas business, as well as the possible
loss of LNG competitiveness against other energy sources due
to crude oil price fluctuation. Such factors may affect revenues.

BUSINESS RISKS

E. Delay in the development of new technology
Although the Group is developing new products and technologies with enhanced environmental designs and a highlevel of safety, it may not be able to develop and deliver theseproducts and technologies in a timely manner. This situation
could cause competitiveness to fall in comparison with otherforms of energy, and affect the Group’s execution of business.
F. Changes in laws, regulatory systems, or energy policies of the national governments or local governments
Tokyo Gas manages its operations in compliance with the
Gas Utility Industry Law, the Companies Act, the Financial
Instruments and Exchange Act, and other laws, regulations,and institutions, as well as the energy policies of the national and local governments. Any revisions to these laws,
regulations, institutions, or policies that prove detrimental
to the Tokyo Gas Group may affect business performance.
(2) Delayed Cultivation of New Markets
As described in its medium-term management plan, theCompany is cultivating new markets by promoting the adoption of the “ENE-FARM” residential fuel cell and new energy
systems incorporating solar light and heat. However, subsequent changes in the operating environment, includingchanges in energy policy by national or local governments,
could delay this cultivation, compel a change in businessstrategy and prevent the recovery of investment.
(3) Inability to Recover Investments
Tokyo Gas makes large ongoing investments in keepingwith the goal of “advancing and developing the integrated
energy business strategy” expressed in its medium-term
management plan. The Company evaluates profitability andrisks of all investments, capital contributions, loans, and debt
guarantees at the Investment Evaluation Committee, andmakes investment decisions based on a conclusion fromthe committee while consulting with the management council and the Board of Directors’ meeting, if necessary, froma standpoint of comprehensive management judgment. The
targets of these investments include construction of pipelines
and reinforcement of foundations for stable supply throughthe construction of LNG terminals and other facilities, the electric power and energy service businesses, development ofgas fields overseas, the LNG transport business, and IT andother elements required for ongoing business, as well as investment related to the use of owned real estate. Changes in theeconomic situation could render it impossible to recover theseinvestments or to benefit from their intended effects, consequently affecting the Company’s balance of payments.
4. Risks Related to Information Management
and System Operation(1) Outflows of Personal Information
To conduct its business as a public utility, Tokyo Gas collects
and manages personal information on its customers. The
Company has implemented measures to prevent leakage of

personal information by constructing a groupwide information
security system, conducting training on information security,and voluntarily monitoring such information. The Group also
performs internal audits to ensure proper construction andoperational status. Outflows of customers’ personal information despite these efforts may result in direct costs to remedy
the situation, as well as tangible and intangible losses, including damage to the trust of customers and other parties, withmore serious consequences than for other companies.
(2) Failure or Malfunctioning of IT Backbone Systems
Because the Group relies on IT systems for customer service and the calculation of gas rates, it has implemented
measures to minimize the impact on operations of unexpected events. Tokyo Gas employs a robust data centerwith superior fault resilience and disaster tolerance. The
Company also prepares and implements various security
measures and regular drills to ensure stable operation of
the systems. The shutdown or malfunction of these systems could delay customer response, as well as cause
tangible and intangible losses, such as reputational loss.
However, such IT system malfunctions are unlikely tohave any serious impact on the production and supply ofcity gas because the IT system for adjusting the production
and supply of city gas has its independent security measures in place. These include a backup system and wirelessnetwork operated by the Group.
(3) Interruption of Communication with Call Centers
Most communications between Tokyo Gas and its customers
take place via call centers. Interruptions to telephone service
to call centers would disrupt service to customers over wide
areas, and could incur serious tangible and intangible losses,
including damage to the Tokyo Gas Group’s brand image.
5. Risks Related to Corporate Social Responsibility(1) Response to New Environmental Regulations
The need to comply with new environmental laws or additional obligations to improve the environment might affectbusiness operations, and it could affect revenues.
(2) Compliance Violations
As compliance is fundamental to its operations, the Group has
established the Management Ethics Committee, chaired by
the president. This committee sets out the basic policies underwhich the Group executes actions to improve compliance.
Internal audits help ensure a full understanding of the Group’s
compliance with laws and regulations, corporate ethics, andsocial norms, and confirm the status of such compliance. Any
violations of laws, rules, and regulations or inappropriate responses to information disclosure or any action which contravenes
corporate ethics or social norms that occur despite these efforts
may result in direct costs to remedy the situation, as well as intangible and intangible losses, including social sanctions.
(3) Inadequate Customer Satisfaction or Responses
to Customer Needs
The Group considers customer satisfaction a key management
priority. Accordingly, the Group is pursuing a CS improvement
program under the basic policies set out by a CS improvement
committee chaired by the president. Inadequate customer satisfaction or inappropriate customer service may result in declining
corporate competitiveness and in tangible and intangible losses, including damage to the Tokyo Gas Group’s brand image.

TOKYO GAS ANNUAL REPORT 2011

D. Decline in existing demand
Decreased facility utilization due to economic recession,
the advancement of energy conservation activities, changes
in industry structure, or other factors may result in a partial
decrease in existing gas demand in the industrial and commercial sectors. Also, smaller families, changes in lifestyles,
the penetration of energy-saving appliances, and other factors may reduce demand from the residential sector.

53

CONSOLIDATED BALANCE SHEETSMarch 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

Assets

2010

2011

2011

¥ 186,467¥ 180,446$ 2,174,048

475,932

461,1095,555,530

Noncurrent assets
Property, plant and equipment (Note 11)
Production facilities
Distribution facilities (Note 3)Service and maintenance facilities (Note 3)

59,16962,149748,783

Other facilities (Notes 3 and 15)

295,494318,239

3,834,205
5,386

Inactive facilities

742

447

91,037

97,8501,178,916

1,108,843

1,120,243

13,496,904

Goodwill

1,460

1,198

14,434

Other (Note 15)

26,51739,944

481,253

27,977

41,143495,699

Investment securities (Notes 3, 5 and 6)

139,052

137,456

1,656,096

Long-term loans receivable (Note 3)

40,996

21,340257,108

Deferred tax assets (Note 10)

53,08739,085

470,904

Other

36,35031,928384,675

Construction in progress
Total property, plant and equipment

Intangible assets

Total intangible assets

Investments and other assets

Allowance for doubtful accounts(1,130)(909)(10,952)

268,357

228,900

2,757,831

1,405,178

1,390,286

16,750,434

Cash and deposits (Notes 3 and 13)

107,391

90,302

1,087,976

Notes and accounts receivable — trade156,398

160,128

1,929,253

Lease receivables and lease investment assets (Note 15)25,88826,789322,759

Merchandise and finished goods

3,291

3,591

43,265Work in process

16,388

8,937

107,675

Raw materials and supplies

37,41236,451

439,169

Deferred tax assets (Note 10)

16,606

15,624

188,241

Other (Note 3)

73,03498,096

1,181,880

Total investments and other assets
Total noncurrent assets

Current assets

TOKYO GAS ANNUAL REPORT 2011

Allowance for doubtful accounts

54

Total current assets
Total assets
Accompanying notes are an integral part of these financial statements.

(619)

(546)

(6,578)435,794439,374

5,293,663¥ 1,840,972¥ 1,829,661$ 22,044,108

CONSOLIDATED BALANCE SHEETS

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities and net assets

2010

2011

2011

¥ 301,491¥ 311,492$ 3,752,916

186,681

188,2392,267,940

4,448

17,330208,795

Noncurrent liabilities
Bonds payable (Notes 5 and 7)
Long-term loans payable (Notes 3, 5 and 7)
Deferred tax liabilities (Note 10)
Provision for retirement benefits (Note 9)

130,903

96,8701,167,108

Provision for gas holder repairs

3,597

3,565

42,952

Provision for safety measures

184

—

—

Asset retirement obligations

—

3,679

44,32527,012

25,535

307,651

654,319646,713

7,791,723

Current portion of noncurrent liabilities (Notes 3, 5 and 7)

53,456

48,765587,530

Notes and accounts payable — trade134,946

76,180917,831

Short-term loans payable (Note 7)

11,34817,825

214,759

Income taxes payable

34,94532,795395,120

8

6

72

Other
Total noncurrent liabilities
Current liabilities

Deferred tax liabilities (Note 10)
Asset retirement obligations
Other (Note 3)
Total current liabilities
Total liabilities

—

77

928

125,656

133,2031,604,855

360,362

308,853

3,721,120

1,014,681

955,567

11,512,855

Net assets (Note 12)
Shareholders’ equity
Capital stock*141,844

141,844

1,708,964

Legal capital surplus

2,065

2,065

24,880Retained earnings

657,387

718,439

8,655,892

Treasury stock**(1,986)(2,355)(28,373)

799,310

859,994

10,361,373

Valuation difference on available-for-sale securities

20,175

14,788178,169

Deferred gains or losses on hedges

1,690

1,145

13,795

Foreign currency translation adjustment(7,290)(17,008)(204,916)

Total accumulated other comprehensive income

14,575(1,073)(12,928)

Minority interests

12,404

15,174

182,819

Total net assets

826,291874,094

10,531,253¥ 1,840,972¥ 1,829,661$ 22,044,108

Total shareholders’ equity

Total liabilities and net assets***

Capital stock
Common stock
Authorized: 6,500,000,000 shares
Issued: 2,684,193,295 shares as of March 31, 2011 / 2,703,761,295 shares as of March 31, 2010
Treasury stock: 5,899,491 shares as of March 31, 2011 / 5,062,893 shares as of March 31, 2010TOKYO GAS ANNUAL REPORT 2011

Accumulated other comprehensive income

55

CONSOLIDATED STATEMENTS OF INCOME
Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales (Note 14)

2010

2011

2011

¥ 1,415,718¥ 1,535,242$ 18,496,892

Cost of sales

854,231974,781

11,744,349

Gross profit

561,487

560,460

6,752,530

Supply and sales expenses

403,671374,919

4,517,096

General and administrative expenses

72,58663,090760,120476,257

438,009

5,277,217

85,229122,451

1,475,313

Interest income

1,112

1,215

14,639Dividends income

1,091

1,541

18,566Equity in earnings of affiliates

3,796

3,605

43,434Foreign exchange gains

6,175

2,421

29,169Selling, general and administrative expenses

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

Miscellaneous income

8,450

8,111

97,723

20,626

16,895203,554

Interest expenses

10,303

9,689

116,735

Adjustments of charges for construction of distribution facilities

3,186

2,361

28,446

Miscellaneous expenses

8,845

5,747

69,241

22,336

17,798214,434

83,519121,548

1,464,434

Gain on sales of noncurrent assets—

39,927

481,048

Gain on sales of investment securities

—

726

8,747

—

40,653489,795

Total non-operating income
Non-operating expenses

Total non-operating expenses
Ordinary income
Extraordinary income

Total extraordinary income
Extraordinary losses
Impairment loss—

834

10,048Loss on disaster

—

3,268

39,373

Loss on valuation of investment securities

—

2,100

25,301

Product compensation extraordinary expenses

—

503

6,060

Total extraordinary losses

—

6,707

80,807

Income before income taxes

83,519155,494

1,873,422

Income taxes — current

43,41927,522

331,590

Income taxes — deferred(14,552)

31,901

384,349

Total income taxes

28,86659,424

715,952

54,652

96,0701,157,470

871

603

7,265

95,467$ 1,150,205

Income before minority interests
Minority interests in income
TOKYO GAS ANNUAL REPORT 2011

Net income

56¥

53,781¥Yen

U.S. dollars (Note 1)

2010

2011

2011

Amounts per share of common stock
Net income
Cash dividends applicable to the year

¥

19.86
9.00

¥

35.63
9.00

$

0.43
0.11

Accompanying notes are an integral part of these financial statements.
From the fiscal year ended March 31, 2011, the Company and its consolidated subsidiaries have applied the “Accounting Standard for Presentation of Comprehensive Income”(ASBJ Statement No.25; June 30, 2010). The said Accounting Standard was not applicable for the previous fiscal year ended March 31, 2010. However, income before minority
interests is shown for the sake of reference.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

2010
Income before minority interests¥

54,652

2011

2011
¥

96,070$ 1,157,470

8,769(5,375)(64,759)

771

(604)

(7,277)

5,065(7,095)(85,482)

Other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Share of other comprehensive income of associates
accounted for using equity method
Total other comprehensive income
Comprehensive income

258(2,554)(30,771)

14,865(15,630)(188,313)

69,51780,440969,157

68,58479,818

961,663

Comprehensive income attributable to:Shareholders
Minority interests

¥

932

¥

622

$

7,494

Accompanying notes are an integral part of these financial statements.
From the fiscal year ended March 31, 2011, the Company and its consolidated subsidiaries have applied the “Accounting Standard for Presentation of Comprehensive Income”(ASBJ Statement No.25; June 30, 2010).

TOKYO GAS ANNUAL REPORT 2011

The said Accounting Standard was not applicable for the previous fiscal year ended March 31, 2010.
However, figures for the previous fiscal year have been restated to conform to the presentation of the fiscal year ended March 31, 2011 for the sake of reference.

57

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

TOKYO GAS ANNUAL REPORT 2011

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
Changes of items during the period
Balance at the end of period
Retained earnings
Balance at the end of previous period
Changes of items during the period
Dividends from surplus
Net income
Disposal of treasury stock
Retirement of treasury stock
Change of scope of consolidation
Total changes of items during the period
Balance at the end of 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 of items during the period
Dividends from surplus
Net income
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Total changes of items during the period
Balance at the end of period
Accumulated other comprehensive income
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 accumulated other comprehensive income
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 of items during the period
Dividends from surplus
Net income
Purchase of treasury stock
Disposal of treasury stock
Change of scope of consolidation
Net changes of items other than shareholders’ equity
Total changes of items during the period
Balance at the end of period
Accompanying notes are an integral part of these financial statements.

58

2010

2011

2011

¥ 141,844¥ 141,844$ 1,708,964—
141,844—
141,844—
1,708,964

2,065

2,065

24,880

—
2,065

—
2,065

—
24,880631,045657,387

7,920,325(21,701)53,781(21)(5,418)(298)
26,342
657,387(25,549)
95,467(1)(7,919)(943)
61,052
718,439(307,819)
1,150,205(12)(95,410)(11,361)735,566
8,655,892(2,361)(1,986)(23,928)(5,149)
105
5,418
374
(1,986)(8,314)
25
7,919
(369)
(2,355)(100,169)
301
95,410(4,446)(28,373)772,594

799,310

9,630,241(21,701)53,781(5,149)84(298)
26,716
799,310(25,549)
95,467(8,314)23(943)
60,683859,994(307,819)
1,150,205(100,169)277(11,361)
731,120
10,361,373

11,466

20,175

243,072

8,709
8,709
20,175(5,386)(5,386)
14,788(64,892)(64,892)
178,169

920

1,690

20,361

769
769
1,690

(544)
(544)
1,145

(6,554)(6,554)
13,795(12,615)(7,290)(87,831)

5,324
5,324
(7,290)(9,717)(9,717)(17,008)(117,072)(117,072)(204,916)(228)

14,575

175,602

14,80314,803
14,575(15,649)(15,649)(1,073)(188,542)(188,542)(12,928)

12,25012,404

149,446

154
154
12,404

2,769
2,769
15,17433,36133,361
182,819784,616

826,291

9,955,313(21,701)53,781(5,149)84(298)
14,957
41,674¥ 826,291(25,549)
95,467(8,314)23(943)(12,879)
47,803¥ 874,094(307,819)
1,150,205(100,169)277(11,361)(155,169)
575,940$ 10,531,253

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2011 and 2010

2010
Net cash provided by (used in) operating activities
Income before income taxes¥ 83,519
Depreciation and amortization
142,110
Impairment loss—
Amortization of long-term prepaid expenses
4,007
Loss on retirement of property, plant and equipment
3,239
Loss (gain) on sales of noncurrent assets(382)
Loss (gain) on sales of investment securities(52)
Loss (gain) on valuation of investment securities
147
Increase (decrease) in provision for retirement benefits
30,168Interest and dividends income(2,204)
Interest expenses
10,303Equity in (earnings) losses of affiliates(3,796)
Decrease (increase) in notes and accounts receivable — trade15,419Decrease (increase) in inventories
19,740
Increase (decrease) in notes and accounts payable — trade
29,482
Increase (decrease) in accrued consumption taxes
5,106
Decrease (increase) in accounts receivable — other(6,830)Decrease (increase) in lease receivables and lease investment assets(294)
Other, net
9,695
Subtotal
339,380
Interest and dividends income received
6,249
Interest expenses paid
(10,755)
Income taxes paid
(40,763)
Net cash provided by (used in) operating activities
294,110
Net cash provided by (used in) investment activities
Payments into time deposits(8,181)
Proceeds from withdrawal of time deposits
6,625
Purchase of investment securities(13,462)
Proceeds from sales and redemption of securities
794
Purchase of property, plant and equipment(136,511)
Purchase of intangible assets(8,964)Purchase of long-term prepaid expenses(1,599)Proceeds from sales of noncurrent assets
735
Payments of long-term loans receivable(17,814)
Collection of long-term loans receivable
1,712
Other, net(623)
Net cash provided by (used in) investment activities(177,290)
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
4,931
Increase (decrease) in commercial papers—
Repayments of lease obligations(640)
Proceeds from long-term loans payable
13,066
Repayment of long-term loans payable(29,279)
Proceeds from issuance of bonds
30,000
Redemption of bonds(60,200)
Proceeds from stock issuance to minority shareholders
758
Repayments to minority shareholders(907)
Proceeds from sales of treasury stock
84
Purchase of treasury stock(5,149)Cash dividends paid
(21,695)
Cash dividends paid to minority shareholders(345)
Net cash provided by (used in) financing activities(69,375)
Effect of exchange rate change on cash and cash equivalents
1,064
Net increase (decrease) in cash and cash equivalents
48,509Cash and cash equivalents at beginning of year
64,009
Increase in cash and cash equivalents from newly consolidated subsidiary349
Cash and cash equivalents at end of year (Note 13)¥ 112,868
Accompanying notes are an integral part of these financial statements.

Thousands of
U.S. dollars (Note 1)

2011

2011

¥ 155,494
145,389
834
3,946
3,248
(39,849)
(725)
2,100
(34,104)(2,757)
9,689(3,605)(7,095)8,181(52,523)(5,260)24,227(871)(9,071)
197,248
6,900(9,840)(31,963)
162,345$ 1,873,422
1,751,675
10,04847,542
39,133(480,108)(8,735)25,301(410,892)(33,217)
116,735(43,434)(85,482)
98,566(632,807)(63,373)
291,892(10,494)(109,289)
2,376,482
83,133(118,554)(385,096)
1,955,964(5,847)
7,115(21,737)
2,331(137,624)(13,191)(2,814)653(3,188)1,719
277(172,305)(70,446)
85,723(261,892)
28,084(1,658,120)(158,928)(33,904)
7,867(38,410)
20,711
3,337(2,075,964)

8,915
15,000(659)
17,339(33,541)
40,000(20,000)——
23(8,314)(25,524)(451)(7,212)(3,716)(20,889)
112,868
68¥ 92,048

107,410
180,723(7,940)208,904(404,108)481,928(240,964)——
277(100,169)(307,518)(5,434)(86,892)(44,771)(251,675)
1,359,855
819$ 1,109,012

TOKYO GAS ANNUAL REPORT 2011

Millions of yen

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tokyo Gas Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2011 and 2010TOKYO GAS ANNUAL REPORT 2011

1. Basis of Presenting Consolidated Financial
Statements
Tokyo Gas Co., Ltd. (the “Company”) and its consolidated
subsidiaries maintain their accounts and records inaccordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act (formerly, theSecurities and Exchange Law) and its related accounting
regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which
are different in certain respects as to application anddisclosure requirements from International Financial
Reporting Standards. The Company, as a regulatedcompany, also follows the Ordinance for Accounting of
Gas Business for preparing such financial statements.
The accompanying consolidated financial statements
were prepared in accordance with the above-mentioned
principles, and a translation was prepared of these
consolidated financial statements as filed with theappropriate Local Finance Bureau of the Ministry of Financeand as required by the Financial Instruments and ExchangeAct. However, the financial statements, excluding the notes
to consolidated financial statements, are not restructured.
Furthermore, the information presented herein does notnecessarily constitute all of the information included in theJapanese version of the consolidated financial statements
filed as per the Financial Instruments and Exchange Act.
Equivalent U.S. dollar amounts are included for theconvenience of readers outside Japan, and are converted at
a rate of ¥83 per U.S. dollar, the prevailing exchange rate on
March 31, 2011. These conversions should not be construed
as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted
into U.S. dollars at this or any other rate of exchange.

60

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,
2011 and 2010, 63 and 61 subsidiaries, respectively, wereconsolidated. All significant inter-company transactions
and account balances are eliminated in consolidation.
The following four companies were newly establishedand added to the scope of consolidation from the current
fiscal year:
Ohgishima Power Co., Ltd.
Tokyo Gas QCLNG Pty Ltd.
Tokyo Gas Lifeval Sagamihara Co., Ltd.
Tokyo Gas Lifeval Minami-tama Co., Ltd.
In addition, TG Enterprise Co., Ltd. was removed fromthe scope of consolidation, owing to its absorption merger
into the Company, and Capty Customer Service Co., Ltd.
was also removed as a result of its liquidation.
The Company’s major unconsolidated subsidiaries
include TG e PRTEC Corporation.
Unconsolidated subsidiaries were not included in thescope of the consolidation because total assets, net sales,
the amount of net income/loss equivalent to the portion of
the Company’s interests, and the amount of retained
earnings, etc., equivalent to the portion of the Company’s
interests were 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 theCompany has the ability to exercise significant influencewith regard to operating and financial policies of theinvestees are accounted for by the equity method. For
the years ended March 31, 2011 and 2010, 5 and 4 affiliated companies, respectively, were accounted for by theequity method. MT Falcon Holdings Company, S.A.P.I.
de C.V. newly became an affiliated company accounted
for by the equity method from the current fiscal year.
The unconsolidated subsidiaries and affiliates notaccounted for by the equity method were excluded fromthe scope of application of equity methods, due to theimmaterial effect of the Company’s total interest on their
net income/loss and retained earnings on the consolidated
financial statements and were totally insignificant.
(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 QCLNG Pty Ltd
Tokyo Gas Pluto Pty Ltd
Tokyo Gas Gorgon Pty Ltd
TGE (SHANGHAI) LNG ENGINEERING CO., LTD.
All significant adjustments considered necessary during
the period 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 the case of acquisition expenses of the Company and its
consolidated subsidiaries that have been subsidized by thenational 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
is applied, based on the estimated useful life of the asset.
However, the straight-line method is applied for certain
buildings (excluding ancillary equipment). Previously, thedeclining balance method was used for the depreciation ofships owned by consolidated subsidiary Tokyo LNG Tanker
Co., Ltd., but from this fiscal year the straight-line method isbeing applied to more rationally reflect the relationshipbetween revenue and expenses, because the long-term
stable revenues achieved through freight contracts withshippers are expected to constitute a major part of the total
revenues of Tokyo LNG Tanker Co., Ltd. from this fiscal
year. As a result of this change, the cost of sales for this fiscal
year was ¥2,954 million less than would have been thecase under the previous method, and gross profit, operating
income, ordinary income, and income before income taxes
were greater by the same amount.
Accumulated depreciation on property, plant andNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(5) Intangible assets — the straight-line method is applied.
For software used by the Company and its consolidated
subsidiaries, the straight-line method is applied based on
the period of useful life within the Company and its
consolidated subsidiaries.
(6) Accounting for certain lease transactions — Financelease transactions that do not transfer ownership use
the same accounting method as is applied for ordinary
sales and purchase transactions.
When the Company is the lessee, those finance leasetransactions that do not transfer ownership andcommenced on or before March 31, 2008 are accounted
for based on standards for ordinary rental transactions.
(7) Goodwill — Goodwill is amortized on a straight-line
basis within 20 years (mainly 10 years), with the duration
determined by the reasons for accrual.
(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 three months 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.
(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 yearend, if
their fair values are readily available. The difference
between acquisition costs and book values of thesesecurities are reported, net of applicable taxes, as aseparate component of net assets. The cost of
securities sold is determined based on the moving
average method. Other securities with no fair values
are stated at moving-average cost.
If the fair value of held-to-maturity debt securities,
equity securities issued by unconsolidated subsidiaries
and affiliated companies, and other securities declines

significantly, and the decline 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) Financial instruments — The Company and its
consolidated subsidiaries raise funds as necessary,reflecting their plans for facility investment in theirmainstay gas business, and invest temporary surpluses inhighly stable financial assets. The Company may procure
funds through short-term bond issuance and othermeasures. The Company and its consolidated subsidiaries
use derivative financial instruments to hedge the belowmentioned risks, but do not use derivative financial
instruments for speculative trading purposes.
Trade notes and accounts receivable, which areoperating receivables, are subject to credit risks ofcustomers. A control system is in place to check
periodically the outstanding balances for each transaction
partner. Investment securities are subject to market pricefluctuation risk, so the Company regularly monitors market
prices and issuers’ financial conditions. Certain borrowings
bear floating rates of interest and are therefore subject tointerest rate fluctuation risk. Derivative transactions(interest rate swaps) are used to hedge this risk on a
portion of these borrowings.
The Company and its consolidated subsidiaries execute
various derivative financial transactions to hedge risks offoreign exchange rate fluctuations, fluctuations in prices ofraw materials, interest rate fluctuations and the effects ofchanges in temperature. The Company and its consolidated
subsidiaries manage the credit risk inherent in suchtransactions by executing them with creditworthy financial
institutions. Also, the use of derivative financial instruments
is based on internal policies and procedures for risk control.
For information on methods of accounting for derivativetransactions, please refer to Note 2. (11) Derivatives.
(11) Derivatives — Derivatives are stated at fair value at the
year-end. The Company and its consolidated subsidiaries
apply hedge accounting, using the deferral hedge accounting,provided that all criteria are met for hedge accounting.
Regarding forward exchange contracts and foreign
currency swap contracts that fulfilled certain conditions,the hedged foreign currencies receivable and payable arerecorded using the Japanese yen amount of thecontracted forward rate or swap rate (Designation
method). 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 toor deducted from the interest on the liabilities for which
the swap contract was executed (Exceptional accounting).
(12) Inventories — Inventory values are based on themoving-average cost method. Balance sheet values arecalculated using the book value reduction method basedon declining profitability.
(13) Allowance for doubtful accounts — For normal
receivables, an allowance for doubtful accounts is provided
using the historical experienced default ratio. For specificTOKYO GAS ANNUAL REPORT 2011

equipment is deducted directly from the balances of thecorresponding assets.
In the accompanying consolidated financial statements,
accumulated depreciation on property, plant and equipment
amounted to ¥3,141,760 million (US$37,852,530 thousand)and ¥3,028,281 million as of March 31, 2011 and 2010,
respectively.
The total amount of impairment loss is directly deductedfrom the amount shown for the respective asset.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

receivables such as bankruptcy/rehabilitation claims, anallowance for doubtful accounts is provided for theestimated amounts considered to be uncollectible after
reviewing individual collectability.

amount of such obligation is calculated using a discountrate of 2.3%, based on the assumption that the land will
be used for 30 years from the acquisition date. The impactof this change on profit and loss was negligible.

(14) Provision for retirement benefits — The Company andits consolidated subsidiaries provide an unfunded lumpsum payment plan and a funded pension plan as
retirement benefit schemes. The Company and certain
consolidated subsidiaries provide defined benefit plansand defined contribution plans. Retirement benefits underthese plans are determined based on 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 forretirement benefits based on the amounts actuariallycalculated using certain assumptions.
Provision for retirement benefits is provided based on
the estimated amounts of projected benefit obligations
and the fair 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 theestimated number of total service years. Prior service
costs are mainly charged to income when incurred, andactuarial gains and losses are charged to income mainly inthe fiscal year following the year in which they arise.

(18) Income taxes — Income taxes comprise corporation tax,
inhabitants’ taxes and enterprise tax (excluding enterprisetaxes based on “amount of net sales,” “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 thetax 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.

(15) Provision for gas holder repairs — The Company andcertain consolidated subsidiaries provide for periodic
repairs of gas holders by estimating future expendituresand charging them to income in equal annual amounts.
The difference between the actual expenditure and theamount provided is charged to income in the year repairs
are completed.

TOKYO GAS ANNUAL REPORT 2011(16) Translation of financial statements denominated inforeign currency — The Company’s receivables and payables
denominated in foreign currencies are translated into
Japanese yen at the year-end rates, and foreign exchange
gains or losses are charged to current income/expense.
Assets and liabilities of the foreign subsidiaries are translated
into Japanese yen at the exchange rates prevailing at theiryear-end date. Profit and loss accounts for the year aretranslated into Japanese yen at the exchange rates prevailingat their year-end date as well. Differences in yen amounts
arising from the use of different rates are presented as“Foreign currency translation adjustment” and “Minority
interests” in net assets.

62(17) Adoption of accounting standards for asset retirement
obligations — Effective from the year ended March 31,
2011, the Company and its consolidated domestic
subsidiaries have adopted the “Accounting Standards for
Asset Retirement Obligations” (ASBJ Statement No.18;
March 31, 2008) and “Guidance on Accounting Standards
for Asset Retirement Obligations” (ASBJ Guidance No.21;
March 31, 2008). The asset retirement obligation inquestion is mainly the obligation to restore the land to precontract status in connection with the real estate rental
contract of the land for power generation facilities. The(19) 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 ofincome, enterprise tax included in “Selling, general andadministrative expenses” amounted to ¥15,613 million(US$188,108 thousand) and ¥14,539 million for the years
ended March 31, 2011 and 2010, respectively.
(20) Research and development expenses — Researchand development expenses are charged to income as
incurred. In the accompanying consolidated statements ofincome, research and development expenses included
in “Selling, general and administrative expenses” and“Cost of sales” amounted to ¥9,913 million (US$119,434
thousand) and ¥9,232 million for the years ended March
31, 2011 and 2010, respectively.
(21) 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
for the period. Diluted net income per share is omitted
because the Company does not have any residual securities.
Cash dividends per share have been presented on an
accrual basis and include dividends approved or to beapproved after the balance sheet dates, but they areapplicable to the year then ended.
(22) Comprehensive Income — Effective from the year
ended March 31, 2011, the Company and its consolidated
subsidiaries have adopted the “Accounting Standard for
Presentation of Comprehensive Income” (ASBJ Statement
No.25; June 30, 2010). The amounts corresponding to“Valuation and translation adjustments” and “Total valuationand translation adjustments” in the previous term areshown as “Accumulated other comprehensive income”
and “Total accumulated other comprehensive income.”(23) Reclassifications — Certain prior year amounts havebeen reclassified to conform to the fiscal year ended
March 31, 2011 presentation. These changes had no
impact on previously reported results of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Pledged Assets
Pledged assets at March 31, 2011 and 2010 were as follows:
Millions of yen

2010

Thousands of
U.S. dollars

2011—
Distribution facilities¥ 6,535 ¥Service and—maintenance facilities
13
8,319
Other facilities
10,370350 13,198
Investment securities
Long-term loans
2,824
receivable
35
1,487
1,760
Cash and deposits
55Other current assets¥ 19,071 ¥ 25,835

2011
$

—

2010

2011

Long-term loans payable(including current
portion of noncurrent
liabilities)¥ 8,071 ¥ 6,616
54
56
Other current liabilities¥ 8,127 ¥ 6,670

At March 31, 2011

Book value

Fair value

Difference(1) Bonds payable $ 4,114,361 $ 4,250,735 $ (136,361)(2) Long-term loans
2,493,108 2,543,072(49,964)
payableNote: including items due within one year—
100,229
159,01234,024
17,91660$ 311,265

Liabilities secured by the above assets at March 31, 2011
and 2010 were as follows:
Millions of yen

Thousands of U.S. dollars

Thousands of
U.S. dollars

2011$ 79,711
651$ 80,361

4. Extraordinary Income and Losses
In the fiscal year ended March 31, 2011, the Company andits consolidated subsidiaries recorded extraordinary incomeof ¥39,927 million (US$481,048 thousand) mainly due togains from the transfer of land resulting from the sale ofreal estate, and disaster-related extraordinary losses of¥3,268 million (US$39,373 thousand) associated withdamage from the Great East Japan Earthquake.

5. Financial Instruments
Book values and fair values of the financial instruments asof March 31, 2011 and 2010 were as follows:

Method of calculating the fair value of financial
instruments, and items related to securities andderivative transactions(1) Bonds payable — the fair value is calculated bydiscounting to their present value the total amount ofprincipal and interest on bonds issued by theCompany and consolidated subsidiaries by an interest
rate that takes into account the period remaining andcredit risk.
(2) Long-term loans payable — the fair value is calculatedby discounting to their present value the total amountof principal and interest by the assumed interest rateon new borrowings of the same type.
The items of which estimated fair value was deemed to
be extremely difficult are not included in the above table.
Also, the items described below are not included in theabove table.
As notes and accounts receivable-trade (with a bookvalue of ¥160,128 million (US$1,929,253 thousand)) aresettled within a short time, their fair values and bookvalues are nearly identical. For information about
investment securities (with a book value of ¥62,566 million(US$753,807 thousand)) and derivative transactions (witha book value of ¥175 million (US$2,108 thousand)(receivables)), please refer to Note 6. Securities and Note
8. Derivative Transactions, respectively. Most financial
receivables and securities with maturities are redeemed ina short period (within one year).
The maturity amounts of bonds payable, long-termloans payable and other interest-bearing debt maturating
after the balance sheet date are indicated in Note 7.
Short-Term Loans Payable, Bonds Payable and Long-Term
Loans Payable.

Millions of yen

At March 31, 2011

Book value(1) Bonds payable(2) Long-term loans
payable¥ 341,492 ¥ 352,811 ¥ (11,318)
211,075

Difference(4,147)(A) Held-to-maturity debt securities

Millions of yen

At March 31, 2010

Book value(1) Bonds payable(2) Long-term loans
payable¥ 321,491 ¥ 336,354 ¥ (14,862)
220,060

Fair value

224,155

6. Securities
Acquisition costs, book values and fair values of securities
with available fair values at March 31, 2011 and 2010
were as follows:

Difference(4,094)

Millions of yen

2010

Thousands of
U.S. dollars

2011

Securities with fair value exceeding book value:$Book value
¥
45 ¥
40
46
41
Fair value
$
¥
1 ¥
1
Difference

2011
482
494
12

TOKYO GAS ANNUAL REPORT 2011

206,928

Fair value

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(B) Available-for-sale securities
Millions of yen

2010

2011

Thousands of
U.S. dollars

2011

Securities with book value exceeding acquisition cost:
Acquisition cost
¥ 23,571 ¥ 12,478 $ 150,337
459,687
57,43838,154
Book value¥ 33,867 ¥ 25,675 $ 309,337
Difference

Thousands of
U.S. dollars

Millions of yen

2010

2011

2011

Securities with book value not exceeding acquisition cost:
Acquisition cost
¥ 12,218 ¥ 26,669 $ 321,313
293,639
11,93924,372
Book value¥ (278) ¥ (2,296) $ (27,663)
Difference

Available-for-sale securities not included in the above table amounted to ¥34,416 million (US$414,651 thousand) and ¥35,368
million at March 31, 2011 and 2010, respectively. Investments in unconsolidated subsidiaries and affiliated companies
amounted to ¥45,478 million (US$547,928 thousand) and ¥44,267 million for the years ended March 31, 2011 and 2010,
respectively. These items do not have market value and determining their estimated fair value was deemed to be
extremely difficult and therefore, they are not included in the above table.

7. Short-Term Loans Payable, Bonds Payable and Long-Term Loans Payable
The average annual interest rates for short-term loans payable at March 31, 2011 and 2010 were 0.3% and 0.6%,
respectively.
Bonds payable and long-term loans payable at March 31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars

Millions of yen

Domestic unsecured bonds

Due in 2016 at a rate of 4.0%
Due in 2018 at a rate of 2.625%
Due in 2010 at a rate of 2.01%
Due in 2011 at a rate of 1.39%
Due in 2012 at a rate of 1.35%
Due in 2023 at a rate of 1.01%
Due in 2013 at a rate of 1.41%
Due in 2014 at a rate of 1.59%
Due in 2024 at a rate of 2.29%
Due in 2025 at a rate of 2.14%
Due in 2015 at a rate of 4.1%
Due in 2027 at a rate of 2.29%
Due in 2015 at a rate of 1.4%
Due in 2015 at a rate of 1.658%
Due in 2019 at a rate of 1.405%
Due in 2040 at a rate of 2.135%
Due in 2020 at a rate of 1.203%
Loans from banks, insurance companies and government agencies
at rates of 0.43% to 5.28%:
SecuredUnsecuredTOKYO GAS ANNUAL REPORT 2011

Less: amounts due within one year

64

2010

2011

¥ 27,700
40,00020,00030,00020,00020,00030,00020,00010,00010,00013,80019,996
9,995
20,00030,000——¥ 27,700
40,000—30,00020,00020,00030,00020,00010,00010,00013,80019,996
9,995
20,00030,00020,00020,000$8,071
211,989
541,552
53,379¥ 488,173

6,616
200,311548,420
48,688¥ 499,732

79,711
2,413,386
6,607,470
586,602$ 6,020,867

2011
333,735
481,928—
361,446
240,964
240,964
361,446
240,964
120,482
120,482
166,265
240,916
120,422240,964
361,446
240,964
240,964

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The annual maturities of bonds payable and long-termloans payable at March 31, 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

2012
2013
2014
2015
2016
2017 and thereafter$

586,602522,855
549,771
571,723
644,410
3,732,072$ 6,607,470¥ 48,688
43,39745,63147,45353,486
309,762¥ 548,420

Note: The Company has a specific commitment line contract with the main correspondent financial institution of ¥30,000 million (US$361,446 thousand) in total.

8. Derivative Transactions
Contract amounts, fair values and recognized gains on interest rate swaps and the commodity derivatives not accounted
for using hedge accounting and weather derivatives at March 31, 2011 and 2010 were as follows:
Millions of yen

Thousands of U.S. dollars

Contract amounts
Total

Of which,longer thanContract amounts
Fair value

Recognized
gains

At March 31, 2011
one year(losses)Interest
rate swaps¥ 23,208 ¥ 23,208 ¥ (1,352) ¥ (1,352)
Weatherderivatives
300
—
—
—
¥ 23,508 ¥ 23,208 ¥ (1,352) ¥ (1,352)

Total

Of which,longer than

Fair value

Recognized
gains

At March 31, 2011
one year(losses)Interest
rate swaps$ 279,614 $ 279,614 $ (16,289) $(16,289)
Weatherderivatives
3,614
—
—
—
$ 283,229 $ 279,614 $ (16,289) $(16,289)

Millions of yen
Contract amounts
Total

At March 31, 2010
Commodity
derivatives¥ 4,438
Weatherderivatives
600¥ 5,038

Of which,longer than
one year

Fair value

Recognized
gains(losses)

¥ —

¥ 745

¥ 745

—
¥ —

—
¥ 745

—
¥ 745

The table below indicates hedge accounting methods, main items hedged, contract amounts and fair values as of March
31, 2011 and 2010, on derivatives transactions to which hedge accounting is applied.
Millions of yen

At March 31, 2011

Contract amounts
Type of contracts

Main items hedged
Total

Currency related
Forward foreign
Deferral hedge
accounting
exchange contracts
Deferral hedge
Foreign currency
accounting
swap contracts
Designation method Forward foreignfor forward
exchange contracts
foreign exchange
contracts, others

Accounts payabletrade
Accounts payabletrade
Accounts payabletrade

Commodity related
Deferral hedge
Price swap
accounting
contracts

Accounts payabletrade

Interest related
Deferral hedge
accounting
Exceptional
accounting

Bonds and longterm loans payable
Long-term loans
payableInterest rate swap
contracts
Interest rate swap
contracts¥

921

Of which,longer than one year

¥

1,026

Fair value

831¥ (135)——(Note 2)

10,715¥ 12,664

¥

—
831

¥

—

¥ 13,996¥ 13,996

¥
¥

—
—

¥
¥

246
246

¥ 25,441¥ 25,441¥ 1,432

8,414¥ 33,856

414¥ 25,856¥

TOKYO GAS ANNUAL REPORT 2011

Hedge accounting method(Note 2)—65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Millions of yen

At March 31, 2010

Contract amounts
Hedge accounting method

Type of contracts

Main items hedged

Of which,longer than one year

Total

Currency related
Forward foreign
Deferral hedge
accounting
exchange contracts
Designation method Forward foreignfor forward
exchange contracts
foreign exchange
contracts, others

Accounts payabletrade
Accounts payabletrade

Commodity related
Deferral hedge
Price swap
accounting
contracts

Accounts payabletrade

Interest related
Deferral hedge
accounting
Exceptional
accounting

Bonds and longterm loans payable
Long-term loans
payableInterest rate swap
contracts
Interest rate swap
contracts

Fair value

1,007

¥

921

¥

15,790¥ 16,798

¥

—
921

¥

—

¥ 23,643¥ 23,643

¥
¥

—
—

¥
¥

1,651
1,651

¥ 10,512¥ 10,512¥959

10,472¥ 20,984

8,414¥ 18,926

¥

¥

(67)

(Note 2)

(Note 2)—Thousands of U.S. dollars

At March 31, 2011

Contract amounts
Hedge accounting method

Type of contracts

Currency related
Forward foreign
Deferral hedge
accounting
exchange contracts
Deferral hedge
Foreign currency
accounting
swap contracts
Designation method Forward foreignfor forward
exchange contracts
foreign exchange
contracts, others

Main items hedged

Accounts payabletrade
Accounts payabletrade
Accounts payabletrade

Commodity related
Deferral hedge
Price swap
accounting
contracts

Accounts payabletrade

Interest related
Deferral hedge
accounting
Exceptional
accounting

Bonds and longterm loans payable
Long-term loans
payableInterest rate swap
contracts
Interest rate swap
contracts

Total

Of which,longer than one year

Fair value$ 11,096$ 10,012$ (1,627)

12,361——129,096$ 152,578—$ 10,012$—$ 168,627$ 168,627

$
$

$
$

2,964
2,964

$ 306,518$ 306,518$ 17,253

101,373$ 407,904

4,988$ 311,518$——(Note 2)

(Note 2)—

TOKYO GAS ANNUAL REPORT 2011

Note1: Fair values of exchange forward contracts, commodity derivatives and interest rate swaps are calculated at the rates indicated by the financial institutions handling thesetransactions for the Company. Contract amounts of commodity derivatives are solely nominal values, and are not indicative of the magnitude of market risk or credit risk concerningderivatives transactions. Contract amounts of weather derivatives are stated at the maximum receivable or payable amounts under the contracts. Fair values of weather derivatives are not stated, as their fair values cannot be calculated.
Note2: The accounting for exchange forward contracts employing designation method and interest rate swaps employing exceptional accounting are included in the fair values of the hedged
items (accounts payable-trade and long-term loans payable).

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Millions of yen

2010

2011

Thousands of
U.S. dollars

2011

Projected benefit
obligation¥ 340,792 ¥ 343,085 $4,133,554
Unrecognized priorservice costs
1,723
1,531
18,446
Unrecognizedactuarial differences
16,832(5,847)(70,446)
Less: Fair value ofpension assets(228,447) (241,898) (2,914,434)
Provision for
retirement benefits ¥ 130,903 ¥ 96,870 $1,167,108
Net periodic retirement benefit expenses for the years
ended March 31, 2011 and 2010 were as follows:
Millions of yen

2010

2011

Thousands of
U.S. dollars

2011

Service costs —benefits earned
during the year
¥ 9,199 ¥ 8,634 $ 104,024
Interest cost on projected
benefit obligation
6,405
7,045
84,880
Expected return onplan assets(4,359)(4,555)(54,880)
Amortization of
actuarial differences
32,284(19,599) (236,133)
Amortization of priorservice costs
(192)
(192)
(2,313)
Other
4,313
4,105
49,458Net periodic retirement
benefit expenses¥ 47,651 ¥ (4,561) $ (54,952)

Significant components of deferred tax assets andliabilities as of March 31, 2011 and 2010 were as follows:

1.5
0.5
38.2

Note is omitted for the year ended March 31, 2010, as thedifference between the statutory effective tax rate and theactual effective tax rate after the adoption of tax-effectaccounting is less than 5% of the statutory effective tax rate.

(8,469)90,198(10,653)
76,766(128,349)
924,892—

16,249195,771

11,74813,21324,961—
23,14339,393—278,831474,614

65,236 ¥ 37,373 $ 450,277

Millions of yen

2010
94,233

Change during
the year¥ (8,680)

2011¥

85,553

Fair value as ofMarch 31, 2011

¥ 326,869

Millions of yen
Book value

¥

36.2%

47,778 ¥ 35,440 $ 426,988
626,253
51,97950,889Book value

2009

Statutory effective tax rate
(Adjustments)
Valuation allowance
Other
Actual effective tax rate after the adoptionof tax-effect accounting

2011

11. Investment and Rental Properties
Book values and the fair values of investment and rental
properties owned by the Company and some of its
consolidated subsidiaries are indicated below. Book value
is determined by subtracting accumulated depreciationfrom the acquisition cost. Fair values as of March 31,
2011 and 2010 are based primarily on the real estateappraisal value determined by a real estate appraiser.

¥

2011

2011

2010
Deferred tax assets:
Provision for
retirement benefits ¥
Other
Less:
Valuation allowance
Subtotal
Deferred tax liabilities:
Reserve for advanced
depreciation of
noncurrent assets
Valuation difference
on available-for-salesecurities
Other
Subtotal
Deferred tax¥
assets-net

The discount rate and the rate of expected return on plan
assets used by the Company and its consolidated subsidiaries
are mainly 2.0% and 2.0% for the year ended March 31,
2011, and 2.1% and 2.0% for the year ended March 31, 2010.

10. Income Taxes
The Company is subject to multiple taxes based on taxable
income, which, in the aggregate, indicate a statutory
effective tax rate in the Company of approximately 36.2%
for the years ended March 31, 2011 and 2010.

Thousands of
U.S. dollars

Millions of yen

98,150Change during
the year¥ (3,916)2010¥

94,223

Fair value as ofMarch 31, 2010

¥ 378,103

Thousands of U.S. dollars
Book value

2010

Change during
the year2011$ 1,135,337$(104,578)$ 1,030,759

Fair value as ofMarch 31, 2011

$ 3,938,181
TOKYO GAS ANNUAL REPORT 2011

9. Provision for Retirement Benefits
Provision for retirement benefits included in the liabilities
section of the consolidated balance sheets as of March 31,
2011 and 2010 were as follows:67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Net Assets(A) Distribution to shareholders
Under the Japanese Companies Act (“the Act”), dividends
can be paid at any time during the fiscal year in addition to
the year-end dividend upon resolution at a shareholders’meeting. Interim dividends may also be paid upon aresolution of the Board of Directors provided that thearticles of incorporation of the company so stipulate, andthat the company meets certain criteria.
The Act 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 other capital surplus, other retained earnings andtreasury stock. Under the Act, the balance of net assets
after distribution of dividends must amount to no lessthan ¥3 million.
The maximum amount that the Company can distributeas dividends is calculated based on the non-consolidated
financial statements of the Company in accordance withJapanese laws and regulations.
At the general meeting of shareholders held on June 29,
2011, the Company’s shareholders approved payment ofyear-end cash dividends of ¥4.5 (US$0.05) per share
aggregating ¥12,052 million (US$145,205 thousand) tothe shareholders of record as of March 31, 2011.
Such appropriations have not been accrued in the
consolidated financial statements for the year ended
March 31, 2011. 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 Act, the entire amount paid for new shares isrequired to be designated as capital stock. However, acompany may, through a resolution of the Board of
Directors, designate an amount not exceeding one-half ofthe price of the new shares as legal capital surplus, whichis included in capital surplus.
Under the Act, in cases in which a dividend fromsurplus is made, the smaller of an amount equal to 10%of the dividend or the excess, if any, of 25% of capitalstock over the total of legal capital surplus and legal
retained earnings must be set aside as legal capitalsurplus or legal retained earnings. Legal retained earnings
are included in retained earnings in the accompanying
consolidated balance sheets.
Under the Act, legal retained earnings and legal capitalsurplus could be used to eliminate or reduce a deficit, or
could be capitalized generally by a resolution of theshareholders’ meeting.
Legal capital surplus and legal retained earnings may not
be distributed as dividends. Under the Act, however, alllegal capital surplus and all legal retained earnings may betransferred to other capital surplus and other retained
earnings, respectively, which are potentially available fordividends.
(C) Treasury stock
The Act provides for companies to purchase treasury
stock and dispose of such treasury stock by a 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 aspecific formula.

13. 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, 2011 and 2010 were as follows:
Thousands of
U.S. dollars

Millions of yen

2011

2010

TOKYO GAS ANNUAL REPORT 2011

Cash and deposits
Less: Time deposits with maturities over three months, etc.
Negotiable certificates of deposit included in other current assets
Cash and cash equivalents

68¥ 107,391(4,522)
10,000¥ 112,868¥¥

90,302(3,254)5,000
92,0482011$ 1,087,976(39,205)
60,241$ 1,109,012

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Segment Information
Effective from the year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted the“Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement
No.17; March 27, 2009) and “Guidance on Accounting Standard for Disclosures about Segments of an Enterprise and RelatedInformation” (ASBJ Guidance No.20; March 21, 2008). The Group’s reported segments are regularly reviewed by the Boardof Directors using the segregated financial information available within each segment to determine the allocation ofmanagement resources and evaluate business results.
The Group uses the four reported segments of (1) city gas sales, (2) gas appliances and installation work, (3) otherenergies, and (4) real estate.
The same accounting method which is applied to the consolidated financial statements is applied to segment accounting.
Income of a reported segment is calculated based on operating income. Intersegment sales and transfers are attributable
to transactions within group companies, and are calculated based on the market value.
The amount of net sales, income and loss, assets, and other items by reported segment is as follows:
Millions of yen

For 2011
City gas sales

Net sales:
External sales
Intersegment sales& transfers
Total
Segment income
Segment assets
Depreciation expenses
Increase in property,
plant, equipment,
and intangible assets

Gas appliances
and installation
work

Other energies

Real estate¥1,077,221 ¥ 164,814 ¥ 208,329 ¥

11,715 ¥Other

Adjustments

73,161 ¥Consolidated— ¥1,535,242

59,856
12,658
12,962
21,08189,140(195,699)—
1,137,077
177,472
221,292
32,797
162,302(195,699) 1,535,242¥ 136,181 ¥
1,872 ¥ 11,166 ¥5,713 ¥
9,907 ¥ (42,389) ¥ 122,451¥ 981,747 ¥ 57,125 ¥ 163,400 ¥ 196,567 ¥ 161,588 ¥ 269,232 ¥1,829,661
114,435
1,048
16,454
8,716
7,167(2,432)
145,389

105,880

1,111City gas sales

Gas appliances
and installation
work

21,0542,940

19,485(3,084)

147,388

Millions of yen

For 2010
Net sales:
External sales
Intersegment sales& transfers
Total
Segment income
Segment assets
Depreciation expenses
Increase in property,
plant, equipment,
and intangible assets

Other energies¥1,017,692 ¥ 160,150 ¥ 151,524 ¥Real estate

11,472 ¥Other

Adjustments

74,878 ¥Consolidated— ¥1,415,718

28,473
9,633
5,772
21,31286,812(152,004)—
1,046,166
169,784
157,297
32,784
161,690(152,004) 1,415,718¥ 115,539 ¥
2,184 ¥
6,874 ¥
6,732 ¥
6,497 ¥ (52,598) ¥ 85,229¥1,009,021 ¥ 63,458 ¥ 111,913 ¥ 163,523 ¥ 162,471 ¥ 330,584 ¥1,840,972
113,217
947
9,846
9,136
11,208(2,246)142,110

113,697

774

6,110

3,019

25,697(2,712)

146,586

TOKYO GAS ANNUAL REPORT 2011

The amounts by segment have been reclassified to conform to the newly adopted segment classification from the year ended March 31, 2011.

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Thousands of U.S. dollars

For 2011
City gas sales

Net sales:
External sales
Intersegment sales& transfers
Total
Segment income
Segment assets
Depreciation expenses
Increase in property,
plant, equipment,
and intangible assets

Gas appliances
and installation
work

Other energies$12,978,566 $ 1,985,711 $ 2,509,988 $Real estate

141,145 $Other

Adjustments

881,458 $Consolidated— $18,496,892

721,157
152,506
156,169
253,988
1,073,976 (2,357,819)—
13,699,723
2,138,217
2,666,169
395,145
1,955,446 (2,357,819) 18,496,892$ 1,640,735 $
22,554 $ 134,530 $
68,831 $ 119,361 $ (510,711) $ 1,475,313$11,828,277 $ 688,253 $ 1,968,675 $ 2,368,277 $ 1,946,843 $ 3,243,759 $22,044,108
1,378,735
12,627
198,241
105,012
86,349(29,301) 1,751,675

1,275,663

13,386

253,663

35,422

234,759(37,157)

1,775,759

Segment income adjustments for the years ended March 31, 2011 and 2010 are –¥42,389 million (–$510,711 thousand)and –¥52,598 million respectively. The segment income adjustment includes corporate expenses not allocated to therespective reported segments. Corporate expenses are primarily general and administrative expenses that are notassignable to a reported segment.
Segment asset adjustments for the years ended March 31, 2011 and 2010 are ¥269,232 million ($3,243,759 thousand) and¥330,584 million respectively. The segment asset adjustment includes corporate assets not allocated to the respective
reported segments. Corporate assets are primarily financial assets that are not assignable to a reported segment.
Segment income is adjusted to reflect operating income as recorded on the Consolidated Statements of Income.

15. 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 that do not transfer
ownership and commenced on or before March 31, 2008
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 nottransfer ownership for the years ended March 31, 2011
and 2010, and future lease payments including interest asof March 31, 2011 and 2010, are shown below.
Millions of yen

2010

TOKYO GAS ANNUAL REPORT 2011

70

Millions of yen
Acquisition
cost

Accumulated
depreciation

Net book
value

Other facilities¥ 3,955
58
Other intangible assets¥ 4,014¥ 1,80551¥ 1,856¥ 2,1507¥ 2,157¥ 1,534131¥ 1,665¥ 2,54632¥ 2,578

For 2011

For 2010¥ 4,080
Other facilities
163
Other intangible assets¥ 4,244

Thousands of
U.S. dollars

2011

422
Lease payments
¥
441 ¥
422
441
Depreciation expenses
Future lease payments
inclusive of interest:
380
421
Within 1 year
1,776
2,157
Over 1 year
¥ 2,578 ¥ 2,157

leased property to the lessee on an “as if capitalized”
basis as of March 31, 2011 and 2010 were as follows:

2011
$

5,084
5,084

4,578
21,398$ 25,988

Acquisition cost, accumulated depreciation and net
book value for property held under the above-mentioned
finance leases that do not transfer ownership of theThousands of U.S. dollars
Acquisition
cost

Accumulated
depreciation

Net book
value

Other facilities$47,651
699
Other intangible assets$48,361$21,747614$22,361$25,904
84$25,988

For 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information as lessor
The breakdown of lease investment assets as of March
31, 2011 and 2010 were as follows:
Millions of yen

2010

Thousands of
U.S. dollars

2011

2011

Information as lessor
Future lease payments under noncancelable operatingleases as of March 31, 2011 and 2010 were as follows:
Millions of yen

2010

2011

Thousands of
U.S. dollars

2011

Claims for lease fees
¥ 21,797 ¥ 23,433 $ 282,325
116
131
1,578
Estimated residual value
Equivalent interest
received(3,545)(3,877)(46,711)¥ 18,368 ¥ 19,686 $ 237,181

Future lease payments:
Within 1 year
¥ 1,622 ¥ 1,611
10,3809,426Over 1 year
¥ 12,003 ¥ 11,037

Scheduled recovery amounts of claims for lease fees
related to lease receivables and investment assets as ofMarch 31, 2011 and 2010 are as follows:

16. Commitment and Contingent Liabilities
At March 31, 2011, the Company and its consolidated
subsidiaries were contingently liable for (1) debt
guarantees in the amount of ¥13,148 million (US$158,410
thousand) for financial institution loans to companies
other than consolidated subsidiaries and (2) ¥38,700
million (US$466,265 thousand) as guarantors for domestic
unsecured bonds issued by the Company, and assigned tocertain banks under debt assumption agreements made in
the years ended March 31, 2002, 2003 and 2004.

Millions of yen

2010
Lease receivables
Within 1 year
More than 1 year
but within 2 years
More than 2 years
but within 3 years
More than 3 years
but within 4 years
More than 4 years
but within 5 years
More than 5 years

2011¥ 1,177 ¥ 1,243

2011$ 14,976

1,178

1,206

14,530

1,134

1,093

13,169

1,029

1,020

12,289

959
3,007

953
2,396

11,482
28,867

Millions of yen

2010
Lease investment assets
Within 1 year¥
More than 1 year
but within 2 years
More than 2 years
but within 3 years
More than 3 years
but within 4 years
More than 4 years
but within 5 years
More than 5 years

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2011

4,933 ¥ 5,137

2011$ 61,892

4,246

4,481

53,988

3,568

3,814

45,952

2,882

3,167

38,157

2,266
3,899

2,472
4,360

29,78352,530$ 19,410
113,566$ 132,976

17. Subsequent Events(1) Resolution on acquisition of treasury stock
At a meeting on April 28, 2011, the Board of Directors
resolved for the Company to acquire treasury stock, as
follows.
No. of shares to be acquired: Limited to 110 million shares
Total value of shares to be acquired:
Limited to ¥34,000 million (US$409,639 thousand)
Period of acquisition:
From May 2, 2011 to March 31, 2012

Operating leases
Information as lessee
Future lease payments under noncancelable operatingleases as of March 31, 2011 and 2010 were as follows:

2010
Future lease payments:
Within 1 year¥
Over 1 year¥

Thousands of
U.S. dollars

2011

238 ¥
326
720
864
959 ¥ 1,190

2011
$

3,928
10,410$ 14,337

TOKYO GAS ANNUAL REPORT 2011

Millions of yen

71

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”) andconsolidated subsidiaries as of March 31, 2011 and 2010, and the related consolidated statements of income, consolidated
statements of comprehensive income, changes in net assets and cash flows for the years then ended, expressed inJapanese yen. These consolidated financial statements are the responsibility of the Company’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 thatwe plan 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 forour 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, 2011 and 2010, and the results of their operations and their
cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2011 are 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 GAS ANNUAL REPORT 2011

Tokyo, Japan
June 29, 201172

CONSOLIDATED SUBSIDIARIES AND EQUITY-METHOD AFFILIATES
As of March 31, 2011

Main Consolidated Subsidiaries
Company

Tokyo Gas Urban Development Co., Ltd.
Ohgishima Power Co., Ltd.
Tokyo Gas Toyosu Development Co., Ltd.
Nagano Toshi Gas Co., Ltd.
ENERGY ADVANCE Co., Ltd.
Gastar Co., Ltd.
Tokyo LNG Tanker Co., Ltd.
Tokyo Gas Energy Co., Ltd.
Capty Co., Ltd.

Tokyo Gas Chemicals Co., Ltd.
Park Tower Hotel Co., Ltd.
Tokyo Gas Yokosuka Power Co., Ltd.
Chiba Gas Co., Ltd.
Tokyo Gas Lease Co., Ltd.

TG Information Network Co., Ltd.
Tsukuba Gakuen Gas Co., Ltd.
Tokyo Gas Engineering Co., Ltd.
Capty-Livelic Co., Ltd.
Nijio Co., Ltd.

Business

EquityFY2010 Net sales Operating
Capital owned by(¥ million)
income(¥ million) Tokyo Gas[% of outside sales] (¥ million)(%)

Real estate leasing
11,530Generation and supply of electricity
5,350
Real estate leasing
5,000
City gas business in Nagano Prefecture 3,800
Energy service, district heating and
3,000
cooling, cogeneration orders, andmaintenance
Production, sales, and maintenance
2,450
of gas appliances
LNG and LPG transportation and
1,200chartering of carriers
Sales of liquefied petroleum gas (LPG) 1,000
Installation of gas supply lines,
1,000
water supply and drainage lines, airconditioning systems, newconstruction, and construction ofgas mains and service lines
Sales of gas for industry and1,000
chemicals and development of LNG
cryogenic utilization technology
Management of “Park Hyatt Tokyo” 1,000
hotel and restaurants
Independent Power Producer for TEPCO
980
Supply of city gas to Yachiyo City,
480
Narita City, and surrounding cities
Leasing of information equipment,
450
gas appliances and officeequipment, and credit administration
connected with installations
Information processing services,
400
software development, and sales ofcomputer equipment, etc.
Supply of city gas in Tsukuba City
280
and Tsukuba Mirai City
Comprehensive engineering
100
services with a particular focus onenergy-related workGas facility construction, gas
50
appliance sales, and maintenance
Procurement and sales of natural
47
gas and electricity

100.0
75.0
100.0
89.2
100.0

32,289 [34.7]
39,028 [25.6]
507 [100.0]
12,783 [100.0]
61,464 [94.9]

5,693
1,777
19
1,073
1,613

66.7

28,103[39.7]

1,684

100.0

16,813[22.8]

4,142

100.0
100.0

33,07650,565[77.0][31.1]

491
871

100.0

15,151[68.6]

496

100.0

7,097

[96.0]

–995

75.0
100.0

7,585
16,499[96.6][96.5]

610
1,060

100.0

8,392

[74.0]

482

100.0

18,648

[4.4]

73

100.0

7,816

[99.8]

394

100.0

42,054[74.1]

2,415

100.0

8,620

[60.8]

193

100.0

40,603[24.0]

4,775

Number of consolidated subsidiaries: 63

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.,Tokyo Carbonic Co., Ltd., Tokyo Gas Pluto Pty Ltd,
Japan Super Freeze Co., Ltd.,
Miho Gas Co., Ltd., Shoei Gas Co., Ltd.,Tokyo Gas Auto Service Co., Ltd.,Tokyo Gas Telemarketing Co., Ltd.,Tokyo Gas LPG Terminal Co., Ltd.,
Kawasaki Gas Pipeline Co., Ltd.,Tokyo Gas Remodeling Co., Ltd., Washinomiya Gas Co., Ltd.,Urban Communications, Inc., Tochigi Gas Co., Ltd.,TGI Financial Solutions Co., Ltd.,

Tosetz Co., Ltd., Tokyo Kiko Co., Ltd.,
Capty Customer Service Co., Ltd.,
Enelife Carrier Co., Ltd., Showa Unyu Co., Ltd.,Tokyo Rare Gases Co., Ltd., Tokyo Auto Gas Co., Ltd.,Tokyo Gas Lifeval Kazusa Co., Ltd., Capty Tech Co., Ltd.,Tokyo Gas Lifeval Higashi-Ohta Co., Ltd.,Tokyo Gas Lifeval Minami-Setagaya Co., Ltd.,Tokyo Gas Lifeval Chiba Co., Ltd.,Tokyo Gas Gorgon Pty Ltd,TGE (SHANGHAI) LNG ENGINEERING CO., LTD.,Tokyo Gas Yamanashi Co., Ltd.,Tokyo Gas Pipeline Co., Ltd.,Tokyo Gas Chemicals Sales, Inc.,Tokyo Gas Facility Service Co., Ltd.,Tokyo Gas Lifeval Sagamihara Co., Ltd.,Tokyo Gas Lifeval Minami-Tama Co., Ltd.,Tokyo Gas QCLNG Pty Ltd.

Equity-Method Affiliates

TOKYO TIMOR SEA RESOURCES INC.
GAS MALAYSIA SDN. BHD.
East Japan Housing Evaluation Center Co., Ltd.

Bajio Generating VOF
MT Falcon Holdings Company, S.A.P.I. de C.V.

TOKYO GAS ANNUAL REPORT 2011

Other Subsidiaries

73

INVESTOR INFORMATIONAs of March 31, 2011

TOKYO GAS CO., LTD .
Head Office
1-5-20 Kaigan, Minato-ku,
Tokyo 105-8527, Japan
URL:
http://www.tokyo-gas.co.jp/index_e.html
Overseas Offices
New York Representative Office1540 Broadway, Suite 3920
New York, NY 10036 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
Kuala Lumpur Representative Office
Level 30, Menara Standard CharteredNo. 30 Jalan Sultan Ismail, 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

Independent Auditors
KPMG AZSA LLC

Issued Number of Shares
2,684,193,295 shares

Agent to Manage Shareholders’Registry
The Chuo Mitsui Trust and Banking
Company, Limited
3-33-1 Shiba, Minato-ku,
Tokyo 105-8574, Japan

Number of Shareholders
150,978
Stock Listings
Tokyo Stock Exchange,
Osaka Securities Exchange, andNagoya Stock Exchange(Trade code: 9531)

Number of Employees
16,134(Consolidated basis, excluding
workers on loan and part-timeworkers)

Principal Shareholders
Name

Nippon Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust a/c)
The Dai-ichi Life Insurance Company, Limited(Standing Proxy, Trust & Custody Services Bank, Ltd.)The Master Trust Bank of Japan, Ltd. (Trust a/c)
Fukoku Mutual Life Insurance Company(Standing Proxy, Trust & Custody Services Bank, Ltd.)SSBT OD05 OMNIBUS ACCOUNT—TREATY CLIENTS(Standing Proxy, The Hongkong and Shanghai Banking
Corporation Limited Tokyo Branch Office)Tokyo Gas Group Employees Shareholding Association
Japan Trustee Services Bank, Ltd. (Trust a/c 9)
Mizuho Trust & Banking Co., Ltd. Employee Pension
Trust Dai-ichi Mutual Life Insurance Company AccountStandby Trustee Trust & Custody Services Bank, Ltd.
State Street Bank and Trust Company (505103)(Standing Proxy, Mizuho Corporate Bank, Ltd.
Settlement & Clearing Services Division)

Number ofshares held(Thousands)

Percentageof shareownership (%)

163,000
140,840
120,472

6.09
5.26
4.50

116,365
49,8744.34
1.86

46,822

1.75

44,57135,86835,490

1.66
1.34
1.33

29,4511.10

Note: Percentage of share ownership is calculated by the number of shares excluding treasury stock (5,899 thousand shares).

Monthly Stock Price Range (Tokyo Stock Exchange)
Yen

700
Stock price (left)
Monthly trading volume (right)

600

500

TOKYO GAS ANNUAL REPORT 2011

400

74

300

Thousandsof shares

300,000
200
200,000100

0

100,000

05
06
07
08
09
10
11
02
03
04
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 30

Further Information
Please direct comments regarding the content of this reportor requests for other publications to:Tokyo Gas Co., Ltd., Investor Relations Section,
Finance & Managerial Accounting Dept.
Tel: +81-3-5400-3888
Fax: +81-3-5472-3849
E-mail: tgir@tokyo-gas.co.jp

Financial Data and Graphs
For purposes of presentation, in this annual report, all amounts less than one billion yen
or one million yen have been rounded down, and hundredths of a percentage point havebeen rounded to the nearest whole number.
In addition, all graphs and tables represent fiscal years ended March 31 of therespective years.

TOKYO GAS ANNUAL REPORT 2011

Forward-Looking Statements
Statements made in this annual report with respect to Tokyo Gas plans, strategies,
and beliefs, and other statements that are not expressions of fact are forward-looking
statements about the future performance of the Company. As such, they are basedon management’s assumptions and opinions stemming from currently available
information, and therefore involve risks and uncertainties. These risks anduncertainties include, without limitation, general economic conditions in Japan, theexchange rate between the yen and the U.S. dollar, and the ability of Tokyo Gas tocontinue to adapt to rapid technological developments and deregulation.

75

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.

Printed in Japan