Features of Japan’s City Gas Companies

Stable Business Structure and Customer Orientation
Mountainous terrain and lack of resources have had a major impact on the gas rate system and developmentof gas infrastructure in Japan. Most natural gas, the main resource for city gas, must be imported as liquid
natural gas (LNG), and gas rates must cover the cost of liquefaction and regasification. Furthermore gas suppliers are responsible for ensuring safe use of gas at the customer’s site, so rates must also include the costof periodic inspections and safety measures at customers’ premises—making prices generally higher than inEurope or North America. Deregulation of the electric power and gas industries in Japan has progressed sincethe 1990s to the point where annual contracted volumes of 100,000 m3 or more are now unregulated.

Deregulated Areas and Regulated Areas
In Japan’s gas market, suppliers are limited to either city gas suppliers or community gas suppliers for a given district.
Japan’s city gas market is divided into regulated areas, such as small-volume customers, in which rates are set under
the Gas Utility Industry Law, and deregulated areas, such as large-volume customers, in which consumers can freely
choose their supplier.
Regulated Areas: In order to avoid overlapping investment in pipelines and the like, monopolistic supply is permitted
for specified city gas companies within their supply districts. At the same time, supply obligations are imposed on thosecompanies, and small-volume customers are protected by gas-rate and maintenance regulations.
3
Deregulated Areas: Only consumers with annual contracts for 100,000 m of gas or more are eligible to take part.
Business entry into these areas is open to new entrants, such as large-volume gas suppliers or city gas suppliers outside
their supply districts.
Unlike Europe and North America, Japan has no nationwide pipeline network. Each city gas supplier delivers andsells city gas through a pipeline network developed for its own service area.
Features of the Rate Structure
Many city gas companies import LNG as their source of natural gas, and gas resource costs can be influenced dramatically by trends in crude oil prices and exchange rates. To adjust gas rates automatically in line with fluctuations with gas
resource costs, the gas rate adjustment system has been introduced. The system is intended to increase the transparency of gas companies’ efforts to achieve more efficiency and to quickly reflect economic conditions in their rates. Under
this system, the meter rate gas unit price is readjusted every three months based on the three-month average of the gas
resource price from customer clearance statistics. Thanks to this system, the impact of fluctuations in crude oil prices
and exchange rates on the revenue and expenditure of gas companies is neutral over the long term.

Deregulation Schedule

Gas Rate Adjustment System

2004

Before 2004
Tokyo Gas

Major users

330% 1 million m or more

500,000 m3 or more

Large-scale factories(Manufacturing) Medium-sized factories(Chemicals and Metal)/
hotels/large-sized hospitals
and commercial complexes

Electricity Industry

453%

26% 2,000 kW or more

40% 500 kW or more

65%

63%

Adjustment of specific unit price

100,000 m3 or more● Deregulation extended to customers
using more than 2 million m3 in 1995,
and in 1999, 1 million m3.

Small-scale factories(Textiles and Machinery)/hospitals/business hotels
50 kW or more

6 months later

Fluctuation of average gas resource costMaximum (¥/t)
86,1002007+2,690
Standard averagegas resource costs +¥53,810/ton – 0

101112123456789101112

1

2

month–2,690● I n 2000, deregulation extended tocustomers using more than 2,000 kW.

The scheme provides for adjustment of the specific unit price component of gas rates
at three-month intervals in correspondence with fluctuation in gas resource costs
owing to factors such as exchange rates and crude oil prices.

Nonadjustment band5