Gas Business Regulations
1. Overview of Gas Business Regulations• ‌General gas utilities are granted the right to establish regional monopolies within their service area but are subject to regulation under theGas Business Act in order to protect user interests.
• ‌As part of the move toward deregulation, regulations under the Gas
Business Act have been lessened for large-scale users, defined as
those that purchase 100,000 m3 or more a year, whereas users thatpurchase less than 100,000 m3 a year remain fully regulated.
The Gas Business Act imposes restrictions on gas utilities inseveral areas. Significant restrictions can be categorized as follows.

1

meant to allow gas utilities to operate their business in an appropriate manner.
• ‌Approval from the Ministry of Economy, Trade and Industry is
required to raise rates, but lowering rates only requires notification
to be submitted.
2

Obligation to Supply (Scope of Restrictions)• ‌In exchange for receiving monopoly rights within their city gas
supply area, gas utilities are required by principle to supply to any
user upon request. Moreover, once supply has been commenced,
the utility may not cease supply without justifiable grounds.

Gas Rates (Scope of Restrictions)• ‌The Act states that “The rates consist of fair costs incurred as aresult of efficient management and fair profits. (Article 17, paragraph(2), item (i)),” and rates must undergo inspection by the Ministry ofEconomy, Trade and Industry.
• ‌The production costs required to supply gas to customers andthe costs required to fulfill safety responsibilities are considerednecessary costs for gas utilities, and these costs may therefore
be factored into gas rates to within an appropriate extent.
• ‌In regard to profits, capital costs related to facilities necessary tooperate a gas business, based on profit figures calculated using
the total of shareholder capital cost and debt cost, may be factored
into gas rates to within an appropriate extent. This provision is3

Safety Responsibilities• ‌Gas utilities are responsible for ensuring the safety of gas facilities,including users’ assets. “Gas facilities” refers to all facilities installed
for the purpose of supplying gas as well as auxiliary facilities andincludes gas generating facilities, pipelines, gas meters, and gastaps. Gas utilities are required to maintain all gas facilities at levels
safe for operation.
• ‌If gas utilities manufacture their own gas facilities, they are required
to ensure that these facilities conform to technical standards. Gasutilities are also obligated to inform users with regard to potential
dangers that could arise from gas usage and conduct inspections
to assess conformity to technical standards of certain gas facilities.

point
Gas Business Act and Deregulation Trends
Gas utilities operate their business in accordance with the Gas
Business Act. The scope of deregulation under the Act has
gradually been expanded. Initially, only large-scale users thatpurchase 1 million m3 or more a year were subject to deregulation.

However, this hurdle has been reduced, and now users thatpurchase 100,000 m3 or more a year are subject to deregulation.
Moreover, discussions are under way to examine the possibility offully deregulating residential sales.

Scope of Deregulation
53%
Prior to 2004
1 million m3 or more
Manufacturers and large-scalecommercial facilities

56%
2004
500,000 m3 or more
Medium-scale factories, etc.

63%
2007
100,000 m3 or more
Small factories, etc.

100%
Being considered for deregulation
Less than 100,000 m3
Residential andsmall commercial users

Regulated areas

9Tokyo Gas Annual Report 2014

2. Gas System Reform
1

Our Stance2

Gas system reform will result in intensified competition. Conversely,
these revisions will give gas utilities more independence and autonomy. Even should the market become fully deregulated, we believethat this situation will represent a significant opportunity for Tokyo Gas
to grow by responding to customer needs. We are confident in theCompany’s success in this endeavor due to the following strengths,
which are not found among the competition.

Overview of Gas System Reform

In November 2013, discussions regarding the possibility of gas
system reform commenced at a commission meeting held by theMinistry of Economy, Trade and Industry. While specific frameworks
are still being formulated, hearings have been held with various gas
utilities, and the expansion of the scope of deregulation in the retailmarket is being discussed, with full deregulation proposed asa possible option.

1. Relationship with more than 11 million customers
2.	Advanced energy solution technologies provided as a leader in thefield of natural gas
3.	Robust infrastructure centered on the Tokyo metropolitan area,including LNG terminals and pipeline facilities

3. Electricity System Reform
1

Our Stance2

Electricity system reform represents a substantial business opportunity for Tokyo Gas. Our ability to take advantage of this opportunity islargely due to three strengths: our superior LNG procurement capabilities; our LNG terminals, pipelines, and other infrastructure; and ourcompetitive power sources—namely, our natural gas-fired thermal
power plants that employ highly efficient combined cycle generation
methods. By leveraging these strengths, we will advance boldly into
the electricity market as soon as the system revisions allow.

Overview of Electricity System Reform

Electricity system reform is being instituted with the aim of ensuring astable supply of power, reducing electricity rates, and providing users
with a wider range of options.
Specifically, revisions are slated to proceed based on the following
schedule.
• Phase 1 (scheduled tentatively for 2015): Establishment of anorganization for operations of wide-area electrical grids• Phase 2 (scheduled tentatively for 2016): full deregulation of theretail market• Phase 3 (scheduled tentatively for 2018–2020): Separation ofpower transmission and distribution networks and abolition of retailrate regulations

Generation Costs by Power Source: Variable Costs (representation)

Variable costs (¥ / kWh)

LNG-fired thermal, oil-fired thermal, etc.

High-efficiency
LNG-fired thermal

Coal-fired thermal
Hydro

Nuclear

Supply capacity (MW)Tokyo Gas Annual Report 201410