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
OverheadIncome taxes+Fair return
Calculated using theratebase system, whichinvolves 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

Q240

What is the GAS RATE ADJUSTMENT SYSTEM?

The price of LNG is significantly influenced by crude oilprices 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.)
Standardaverage gas
resource cost
53,8106,010

B (Jul.)A (Jun.)A (Jan.–Mar.)

5,144

month
12345

678

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 newbusinesses, 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 TokyoGas 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 “smartenergy 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 areand other renewable energy forms.
With the commissioning in 2010 of the Ohgishima

TOKYO GAS ANNUAL REPORT 2011

Q341

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 to1,300 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 tohelp 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 theLNG 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, wheredemand 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 whollyMarch 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.

42Tokyo 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.