FREQUENTLY ASKED QUESTIONS

Optional agreements

Q1

How does Tokyo Gas set its rates?

Tokyo Gas is permitted to offer rates

From a marketing perspective, the two companies are fierce-

dential sectors. We predict this competition will grow stronger inand service terms other than those outlined in the above service

ly competitive. We compete for gas sales, especially in the area

coming years. To prevail, we must offer customers optimal value.

agreement. This enables the Company to make efficient use ofof industrial supplies, following TEPCO’s recent entry into theTokyo Gas believes it is crucial to provide solutions, including

its gas production and supply facilities. These agreements havegas market. Meanwhile, the long-standing competition between

energy services, that truly meet the needs of users, not simply toto be reported to METI and the selection of this option is up togas and electric power is intensifying in the commercial and resi-

supply gas or power in isolation.

the customer.

Large-volume supply

Tokyo Gas’ rates are divided into the following three categories:

A March 1995 amendment to the Gas

Utility Industry Law deregulated tariffs and area of supply for

Service agreement

Tokyo Gas uses “regulated” rates

customers with contract volumes of two billion m 3 or more.

approved by the Minister of Economy, Trade and Industry

Rates and other supply terms can be determined by agreement(METI) to bill customers for gas supplied through pipelines tobetween gas suppliers and customers. Since April 2004, large-

meet general demand. Under a May 1999 amendment to Japan’s

volume customers have been defined as customers with yearly

Gas Utility Industry Law, it became possible to reduce thesecontract volumes of 500,000 m or more.

assets, so our basic policy calls for the active development of thismarket. There is also a possibility that hostile takeovers would

Q3

Does Tokyo Gas have an M&A strategy targeting

have an adverse effect on our wholesale business, so we have no

local gas companies?

plans for aggressive M&A.
We have made acquisitions in the past, however. We

3assumed operation of the municipal gas business of Konosu

rates simply by notifying METI, provided the change does notadversely affect any customers.

Operating cost, etc.

• Cost of gas resources• Personnel expenses• Overheads• Depreciation• Non-operating expenses• Income taxes＋Fair return

Calculated using the rate-basesystem, which involves multiplying fixed-asset investments, etc.
by the appropriate ratio of fairreturn−“Regulated” rates are calculated using a rate-base system.

Tokyo Gas currently wholesales gas to 17 city gas companies

City in Saitama Prefecture, which was privatized in April 2002.

A simplified version of this calculation is shown in the follow-surrounding its service area. These sales account for about 10%

If an optimal M&A opportunity with the potential to increase

ing equation:of total sales volumes, and we anticipate a high growth rate of

our corporate value and benefit our customers arises, we will

5.3% annually over the next five years. The wholesale supply

consider acting on the opportunity in line with the wishes ofbusiness allows Tokyo Gas to earn income without an increase in

the other party.

Deductions, etc.

＝• Profit from gas appliance sales,etc.
• Profit from real estate business,etc.

Total fair cost

Represents an appropriate profit
added to an appropriate cost
under efficient management

fairness of TPA charges and enhance the transparency of rev-Q4

Have there been any important developments recently

enues and expenditures concerning the use of pipelines, generalin terms of deregulation? What is the status of thegas utilities and pipeline operators are required to disclose

third-party access scheme?

accounts based on accounting procedures introduced for TPA.
An April 2004 amendment to the Gas Utility Industry Law
broadened the scope of liberalization to include customers withTo promote fair competition in the gas market, all owners andannual contract volumes of 500,000m 3 or more, as well as

TEPCO both procure over 70% of their total LNG requirements

operators of gas supply pipelines are required to provide third-expanding TPA arrangements as described above. Tokyo Gas

Although you regard Tokyo Electric Power as yourthrough joint projects. Because joint purchasing translates into

party access (TPA), and draw up and publish TPA agreements.

now has two types of TPA agreements: one for retailing to large-biggest competitor, you purchase LNG jointly. Whatlarger contract volumes, our bargaining power with sellers isThis change allows access to pipelines owned by firms that werevolume customers and the other for wholesaling.

are the implications of this relationship?

strengthened, allowing us to purchase LNG at a lower cost.

not subject to regulation under the Gas Utility Industry Law,

The average unit price in TPA agreements for retailing is set

Tokyo Gas has three LNG terminals in Tokyo Bay. Of these,such as electric power companies and suppliers of natural gas

at ¥7.20/m3 (Tokyo area) and the average unit price for whole-the Negishi LNG Terminal and Sodegaura LNG Terminal are

produced in Japan. Until recently, TPA was possible only for gas

sale customers is ¥6.60/ m3.

There are two facets to the relationship between Tokyo Gas andjointly operated with TEPCO. The benefits of joint operation

retailing. Now it is also available for wholesaling. To ensure theTokyo Electric Power Company (TEPCO): cooperation and com-include reduced capital investment and operating costs.

petition. We cooperate on the procurement of LNG, and weMoreover, since the two companies have different peak demand

jointly operate LNG terminals.

seasons, we can level loads and improve capacity utilization,

Q2

As far as LNG procurement is concerned, Tokyo Gas and[ 33 ]TOKYO GAS ANNUAL REPORT 2004

leading to lower gas manufacturing costs.

TOKYO GAS ANNUAL REPORT 2004

[ 34 ]