Our Vision and Strategy
Tokyo Gas Co., Ltd.

Annual Report 2013

Editorial Policy
This annual report is based on the rigorous selection and concentration of information, such as financial
data, business strategy explanations, and information about other areas of importance, to better facilitate
investors’ efforts to analyze the Company. For additional information, please refer to the following tools
and websites.

Details of Challenge Vision 2020
The Tokyo Gas Group’s Vision for Energy and the Future ~Challenge 2020 Vision~(Released November 2011)
http://www.tokyo-gas.co.jp/IR/english/library/pdf/vision/vision2020_01.pdf

CSR Activities
Tokyo Gas Group CSR Report
http://www.tokyo-gas.co.jp/csr/index_e.html

Financial and Industry Data
(EXCEL Spreadsheet Data Available)

Investors’ Guide

Investorsʼ Guide 2013
Tokyo Gas Co., Ltd.
東京ガス株式会社

http://www.tokyo-gas.co.jp/IR/english/library/invguid_e.html

Quarterly Financial Results
Consolidated Financial Results Bulletin
http://www.tokyo-gas.co.jp/IR/english/library/earn_e.html

Forward-looking Statements
This annual report includes various management goals and other forecasts relating to the “Challenge 2020 Vision” announced in
November 2011 and other strategies. This information is based on forecasts, assumptions, and available information when preparing
the “Challenge 2020 Vision” and other strategies and does not guarantee the achievement of goals and forecasts or future businessresults. Further, this information may change due to changes in business conditions. Therefore, placing undue reliance on this information is not advised. In addition, the target figures for fiscal 2013 are based on the judgment of management and the information
available when the figures were published (April 26, 2013). The Company will disclose the latest information to the Tokyo Stock
Exchange in a timely manner and at the same time publish it in the investor relations section of its website (http://www.tokyo-gas.
co.jp/index_e.html).

Contents

Business results
and initiatives
in fiscal 2012

Tokyo Gas
businessdevelopment

P.

Policies ofManagement22.	‌Operating Performancein Fiscal 2012:
A Three-Minute Overview

4P.
4.	‌LNG Value ChainP.

8

8.	‌Discussion with 
the President
9. ‌	‌Analysis of changes in conditions after
announcement of “Challenge 2020 Vision”
9.	‌LNG value chain’s value creation
9.	‌Progress of “three diversifications”
in raw material procurement
10. Progress of overseas businesses
10. 	‌Strategies aimed at reducing raw material
prices10. 	‌Analysis of demand trends for generalindustrial use
11. Electric power business plan
11. Gas rates policy
11.	‌Scenario for achievement of cogeneration
systems target
11. Possibility of revising long-term vision
12.	‌Cash flow distribution and returns toshareholders
12. Fiscal 2013 outlook

Business conditions,distinctive featuresof Tokyo Gas, andProgress of Growth
Strategy

13

Key Points
regardingCorporate
Governance
Systems

P.

P.

31

13.	‌‌Growth Strategy—Enhancing the LNG
Value Chain

32.	‌Corporate Governance14.	The Potential of Natural Gas

32. Internal Control System

16.	‌Understanding Tokyo Gas throughComparison

33. Outside Directors

18.	‌Procuring Resources in a Stable
and Affordable Manner andExpanding Overseas Operations
22.	‌Building a Production and Supply
Infrastructure to Cultivate Demand
25. Providing Diverse Energy Solutions
30. Capital Expenditures Plan

32.	Overview of Corporate
Governance Systems

33.	Audits by Audit & Supervisory
Board Members
34. Officer Remuneration

Management’s
Analysis ofOperating
Performancein Fiscal 201240P.

40.	‌Management’s Discussion
and Analysis
46.	‌Consolidated Financial
Statements
51.	‌‌Consolidated Subsidiaries
and Equity-Method
Affiliates

35. Advisory Committee
35. Independent Auditors
35. Compliance
36. Risk Management System
37.	Board of Directors and Audit &Supervisory Board Members

Tokyo Gas

Annual Report 2013

1

Operating Performance in Fiscal 2012: A Three-Minute Overview

Before Analyzing the Figures[ Factors That Affect Our Earnings ]Gross profits in the gas business are determined by the increase in gas sales volume (volume difference) and the gap between the sellingand purchase prices (price difference).

Gas Sales Volume

Gas Rate Adjustment System and Slide Time Lag

The Company’s net sales depend on sales of city gas, which

To increase the transparency of gas rates and encourage

account for around 70% of the Company’s total. Therefore,

providers to be clear about their efforts to achieve higher busi-changes in selling volume directly impact net sales. Factors thatness efficiencies, the gas rate adjustment system was introduced.

have a major effect on selling volume are temperature andThrough this system, average raw material prices over a three-economic and other fluctuations.

month period according to trade statistics are compared to theraw material cost that is used as the standard (standard average[ Temperature ]raw material cost), and the gas rates are adjusted using a defined

Demand in the residential sector stems mainly from demand for hot

calculation method based on the differences. Under this system,

water and indoor heating, so selling volume declines when winters

the impact of changes in raw material costs on a gas company’s

are warm, resulting in lower sales and income. In the commercial

earnings is essentially neutral. However, a time lag of up to fivesector, gas is used mainly for air conditioning, so cool summers andmonths (called a slide time lag) exists between the payment ofwarm winters cause gas sales volume to decrease, reducing sales

raw material costs and the reflection of such changes in gas rates.

and income.

Consequently, fluctuations in crude oil prices and exchange rates
may result in the under-recovery or over-recovery of raw material[ Economic and Other Trends ]costs if this lag cuts across a fiscal year, thereby affecting income.

Economic and other trends affect business in the industrial andcommercial sectors. In the industrial sector, plant utilization rates fallwhen economic conditions are sluggish, reducing sales volumes. In
the commercial sector, meanwhile, lackluster economic performance

How the Slide Time Lag in Rates Works
The average raw material price over the past three months is calculated every month,and then reflected in the gas rate three months later. (Example: The average raw
material cost for January through March is reflected in the June gas rate.)can, for example, lower hotel utilization rates, and commercial
All Japan LNG pricefacilities may shorten hours of operation, lowering sales volume.

Raw Materials
Raw material costs account for a substantial portion of the

Average resource prices reflected
in gas rate

Underrecovery

Overrecovery

Company’s operating expenses. These costs tend to fluctuate inline with gas sales volumes
andbeaffectedby changes in crude
格価
平本
日全
GNL均
格価rates.
料原均平用適金料スガ
oil prices and exchange

FY N

FY N+1[ Crude Oil Prices ]The price of LNG, which is the raw material of city gas, is linked to thePension Actuarial Differences

crude oil price. Therefore, fluctuations in the crude oil price may affect

Actuarial differences arise from differences between expectedresource prices.

and actual investment returns on pension assets, as well as on[ Exchange Rates ]度年 1+Ndifferences between expected and actual retirement benefits.

度年 N

These costs are written off as a lump sum in the fiscal year

LNG purchase contracts are denominated in U.S. dollars. Accord-following the year in which they arise and are posted as operating

ingly, yen appreciation against the U.S. dollar causes raw material

expenses. Accordingly, major actuarial differences can have a

costs to decline on a yen basis. Conversely, yen depreciation against

substantial impact on revenues and expenses in the following

the U.S. dollar pushes raw material costs upward.

fiscal year.

Liquefied natural gas (LNG): LNG is produced by cooling gas (natural gas) composed primarily of methane (CH4) down to around minus
162°C, thereby liquefying the gas. Liquefaction reduces the volume down to 1/600 that of the gas, allowing large amounts to be transported
by tanker.

2

Tokyo Gas

Annual Report 2013

Performance

Major Initiatives

Results in fiscal 2012:

Reducing Resource Costs and Expanding
Overseas Operations‌Increases in both sales and income

Up 1.3%Gas Sales Volume: 	

Gas sales volume rose 200 million m year on year, or 1.3%, to15,390 million m3, following a substantial increase in industrial
demand centered on demand for power generation applications.
3

Up 9.2%Net Sales: 	Net sales increased ¥161.4 billion, or 9.2%, to ¥1,915.6 billion, due
to higher gas sales volume, a rise in city gas sales that resulted fromthe gas rate adjustment system, and favorable sales of electricity.

Up 120.7%

Net Income: 	

Net income was up ¥55.6 billion, or 120.7%, to ¥101.6 billion,
following higher operating income due to increases that resulted fromthe slide time lag effect as well as improvements in the balances of
non-operating and extraordinary items.

March 2013
Acquired first upstream interests in the U.S.
through participation in a shale gas development joint venturein the Barnett basin
April 2013
Concluded a Heads of Agreement for Sale andPurchase regarding the procurement of natural gas from the Cove
Point LNG Project, the Company’s first long-term agreement
employing a Henry Hub index linked price formula
June 2012
Acquired a 26.66% stake in a natural gas-fired thermal
power plant with generation capacity of 425 MW in Belgium‌
Investment
abroad business operating income: Up ¥3.7 billion(—% year on year)

Building a Production and Supply Infrastructure
to Cultivate Demand
March 2012
Completed the Chiba–Kashima Line in March 2012
followed by the Kashima Waterfront Line in May 2012 andcommenced supply to TEPCO’s Kashima Thermal Power Station, etc‌Captured new demand for 405 million m3 of gas in the Kashima area
July 2012
Began constructing the Hitachi LNG Terminal in
Hitachi City, Ibaraki Prefecture, to be the Company’s 4th LNG
receiving terminal (scheduled to commence operations in fiscal 2015)
February 2013
Decided plans to accelerate natural gas infrastructure development in Ibaraki, including joint construction of a newpipeline into the Mito area with Tobu Gas, approval of constructionplans for the Koga–Moka Line, and examination of land and submarine routes for the Hitachi–Kashima Line (provisional name)

Providing Diverse Energy Solutions
Shareholder Returns in Fiscal 2012
Dividend payments amounted to ¥25.7 billion and treasury stockwith a total value of ¥36.0 billion was acquired. The total payout
ratio—60.7% of net income—remained above 60%. Dividends
were raised to ¥10 per share, up ¥1 per share from theprevious fiscal year’s ¥9 per share.

October 2012
Decided on construction of a third unit at the
Ohgishima Power Station and commenced construction in
November 2012
April 2013

Launched new “ENE-FARM” systems‌Electric
power business operating income: Up ¥11.2 billion(+140.7% year on year)

For details, see P.40 Management’s Discussion and Analysis

Summary of Operating Results

Billions of yen

Fiscal 2012

Fiscal 2011

Change%+1.3

Gas sales volume (Million m3, 45MJ/m3)

15,39015,190+200

Net sales

1,915.6

1,754.2+161.4+9.2

Operating expenses

1,770.0

1,677.1

+92.9

+5.5

Operating income

145.6

77.0

+68.6

+88.9

Ordinary income

147.4

75.6

+71.8

+95.0

Net income

101.6

46.0

+55.6

+120.7

Economic Frame

Pension Investment (non-consolidated)
JCC($/bbl)Exchange rate(¥/$)

Averagetemperature (ºC)

Fiscal 2012

113.9

82.9

16.7

Fiscal 2011

114.2

79.1

16.4

Investment yield(costs deducted)

Discount rateYear-end assets(Billions of yen)

Fiscal 2012

6.10%

1.4%

276.0

Fiscal 2011

5.13%

1.7%

254.0

Fiscal 2010

2.70%

2.0%

235.0

Tokyo Gas

Annual Report 2013

3

LNG Value Chain

Natural Gas
Resource Development

As well as ensuring the stable procurement of gas
resources, we aim to lower procurement prices in a bid toensure fair prices in the Asian market. To achieve these goals,
in addition to conventional large-scale projects we are pursuingunconventional sources of natural gas and actively taking
various upstream interests.

Overseas MidDownstream Operations

To allow for flexible resource procurement and to ensure fair
prices in the Asian market, we are leveraging both our power
generation businesses centered on natural gas and our
proprietary know-how and pushing forward with energy
services projects.

Developing Business throughthe LNG Value Chain
We aim to develop our business throughout the LNG value chain, maximizing value through linked
business spanning the procurement and transportation of LNG, the production and supply of citygas, and the provision of energy solutions.
Overview of Major Overseas Upstream Operations
Annual contracted quantity(Thousands of tons)

Commencementof project

DurationContract type1,000
1,500 –1,750
1,100

2006
2012
(2014)

17 years (–2022)
15 years
25 years

FOB
Ex-Ship, FOB
FOB

Queensland Curtis

1,200(2014)

20 years

Ex-Ship

Ichthys
Cordova
Barnett

1,050(2016)

15 years

FOB

3.07
5.0
1.0
1.25 (Upstream)
2.5 (Midstream)
1.575

—

Production

—

—

3.75

—

Production

—

—

25.0

Project

DarwinPluto
GorgonUpstream interest(%)

Darwin LNG Project

Belgium, T-Power
Natural gas power project(Tokyo Gas interest: 26.66%) Capacity 425 MW

Tokyo

Malaysia, Gas Malaysia Sdn. Bhd.
City gas supply project(Tokyo Gas interest: 14.8%)

VietnamCommissioned FEED projectat LNG receiving terminal

Major Overseas Upstream Operations
Major Overseas Mid-Downstream Operations
New LNG project
Existing LNG project4

Tokyo Gas

Annual Report 2013

Procurement andTransportation
We import more than 12 million tons of LNG per year, based onlong-term contracts through 11 projects in 6 countries, centeredon politically stable regions.
We strive to keep transportation costs down by using ourown eight-tanker fleet efficiently to meet our own needs as well
as by providing transportation for other companies.

Tokyo Gas LNG Imports by Country
Thousands of tons

FY

Location

2010

2011

2012

Composition

Malaysia

4,479

4,479

4,409

(34.7%)

Australia

2,297

2,264

3,379

(26.6%)

Brunei

1,155

1,362

1,439

(11.3%)

Indonesia

843

1,011

835

(6.5%)

Russia

1,605

1,678

1,682

(13.2%)

Qatar

358

290

235

(1.9%)

Alaska

139

—

—

—

Other

440

826

734

(5.8%)

Total

11,315

11,91012,712(100.0%)A carrier Tokyo Gas manages directly

Mexico, MT Falcon
Natural gas power generation(Tokyo Gas interest: 30%)
Capacity 2,233 mw

Mexico, Bajio
Natural gas power generation(Tokyo Gas interest: 49%)
Capacity 601 mw

Brazil, EcogenBrazil, Malhas Project

Energy services project(Tokyo Gas interest: 10%)Natural gas pipeline project(Tokyo Gas interest: 15%)

Tokyo Gas

Annual Report 2013

5

LNG Value Chain

Production andPower Generation

SupplyTokyo Gas provides a stable supply of city gas via apipeline network totaling 60,298 km (consolidated),
centered on the Tokyo metropolitan area. Moving forward,
we will extend our pipelines into regions of demand,promote earthquake preparedness measures, and build
supply networks that are highly resistant to disaster.

With three plants in the Tokyo metropolitan area, our LNG storage
and production facilities are some of the largest in the world. We arecontinuing to expand our production system to meet growing
demand for city gas. We also operate highly efficient power generation facilities that employ leading-edge technology and feature
reduced environmental impact. By fiscal 2020, we expect toincrease our generation capacity of the current 2,000 MW tobetween 3,000 MW and 5,000 MW.

Power Generation Business

‌
Tokyo
Gas Yokosuka Power
Co., Ltd.
240 MW

Tokyo Gas Baypower Co., Ltd.
100 MW x 1 station

100 MW

Ohgishima Power Co., Ltd.
407 MW x 3 stations*

1,221 MW

Kawasaki‌Natural Gas Power
Generation Co., Ltd.

Capacity
Generation
method240 MW x 1 station

Combined cycle generation

Combined cycle generation

Combined cycle generation

Combined cycle generation

420 MW x 2 stations

Start ofoperation

2006

2003

Rollout of operations sincecommencement in 2010

2008

Tokyo Gasinterest

75%

100%

75%

49%

* ‌Unit 3 is scheduled to start up operations infiscal 2015.

Supply Networks
Sodegaura LNG Terminal
Import volume
FY2012
Storage
capacity
Vaporization
capability

Tokyo Gas supply area

4.942 million
ton/year
1,610,000 kl
1,310 t/h

Ohgishima LNG Terminal
Import volume
FY2012
Storage
capacity
Vaporization
capability

3.991 million
ton/year
600,000 kl
1,115 t/h

Negishi LNG Terminal
Import volume
FY2012
Storage
capacity
Vaporization
capability

3.058 million
ton/year
1,155,000 kl
460 t/hHitachi LNG Terminal
Scheduled to commence
operations in FY2015
Storage
230,000 kl
capacity
Vaporization—
capability
Conceptual drawing ofcompleted terminal	‌Tokyo Gas high-pressure transmission
pipelines	‌Pipelines in which Tokyo Gas has
invested	‌Other companies’ pipelines	‌Tokyo Gas high-pressure transmission
pipelines under construction
Tokyo Gas Group supply area	‌Supply areas of wholesale customers

6

Tokyo Gas

Annual Report 2013

840 MW

Gas Sales and Service
In the residential sector, spearheaded by Tokyo Gas LIFEVAL communitybased marketing systems, we are proposing lifestyle values based on gas.
We are also working to promote “ENE-FARM” residential fuel cells and aresupplying electricity. In the commercial and industrial sectors, we
introduce cogeneration and air conditioning systems and promote fuelconversion from other sources. In these ways, we help to provide energy
and contribute to reductions in CO2 emissions.

Gas Sales Volume

LNG tank lorries“Ene-Farm” residential fuel cell

For wholesale use

For residential use

1,953 million m3

3,535 million m3



Hitachi LNG Terminal(Under construction)

13%



23%

Total

15,390 million m3
FY2012For industrial use

For commercial use

7,055 million m3

2,847 million m3

Regenerative burner system

Cogeneration system



46%



18%

Ohgishima LNG Terminal

Negishi LNG Terminal

Sodegaura LNG Terminal

Tokyo Gas

Annual Report 20137

Discussion with the President

We will steadily implement
measures in accordancewith the “Challenge 2020
Vision” with the aim offurther enhancing the
LNG value chain.
Tsuyoshi Okamoto
President and Representative Director

In November 2011, Tokyo Gas announced its “The Tokyo Gas
Group’s Vision for Energy and the Future~Challenge 2020
Vision~,” also referred to as the “Challenge 2020 Vision.” This
plan is meant to serve as a road map to guide us on our quest
to continue growing the Group while improving the value we
provide to customers and society as a leader in the field of
natural gas. Over the period of a year and a half since thevision was announced, the entire Group has avidly pushedforward with initiatives geared toward enhancing the LNG value
chain. Looking ahead, it is highly likely that conditions in theoperating environment will undergo various changes. However,
we will remain forward looking regardless of these changes,
with the future of energy always in view, as we advance rapidly
toward the vision we have established for the Group in 2020.

Index

8

In this section, the president of Tokyo Gas explains his

Fiscal 2012 in Review

thoughts concerning items of particular interest to inves-

Operating Performance in Fiscal 2012: A Three-Minute Overview

tors. For information regarding performance in fiscal 2012,(Performance Highlights)

P.2

an overview of the “Challenge 2020 Vision,” and a detailed

Management’s Discussion and Analysis (Detailed Analysis)

P.40

look at progress under the vision, please refer to the corre-

Overview and Progress of the “Challenge 2020 Vision”

sponding pages listed on the right.

Growth Strategy—Enhancing the LNG Value Chain

Tokyo Gas

Annual Report 2013

P.13

‌There have been various changes in the operating environment over the year and a half

Q since the “Challenge 2020 Vision” was announced. Have there been any alterations to thescenarios you have envisioned in light of these changes?
Okamoto: Enhancing the LNG value chain is at the very heart of the“Challenge 2020 Vision,” and we are making steady progress in thisenhancement. There have been many changes in the operating
environment, but these all remain within the range of possibilities we
had considered when the vision was formulated, and I therefore see
no reason to revise our assumptions. As was assumed, the shale gas
revolution in the United States has served as a catalyst for change inglobal energy trends. As one such change, in May 2013, the U.S.
Department of Energy granted approval to a Japanese company toexport LNG to countries that have not entered into free-trade agreements with the United States. This is the first time for a

Japanese company to receive such approval.
Further, the yen has been rapidly depreciating, but we did notassume that exchange rates would stay at the level of ¥80 to US$1.
On the contrary, we have assumed that yen exchange rates willremain in a range of between ¥90 and a little over ¥100 to US$1 into
the long term. The impacts of foreign exchange rate fluctuations on
raw material costs will be neutralized over the medium-to-long termby the gas rate adjustment system. Nevertheless, more than ever,customers will expect us to work to reduce resource costs to lighten
their burden, and we will work to live up to those expectations.

In reference to the “LNG value chain,” specifically what “values” are you creating?

Q Okamoto: Specially, we are creating three significant values

with regard to the LNG value chain.
The first value is the maximization of earnings. We believe thatTokyo Gas developing operations spanning from upstream to downstream areas will enable us to improve profitability in each area and,
thereby, maximize earnings. For example, improving investment
efficiency in upstream ventures will allow us to secure earnings fromupstream areas while also producing liquefied natural gas (LNG) at acompetitive price. Further, using this competitively priced LNG in ourdomestic gas operations will in turn help improve the profitability ofthese operations. In this way, it will be possible for us to maximize
earnings throughout the entire value chain.
The second value is the overall optimization of operations, which
will be accomplished by taking advantage of the various perspectives
we will acquire through operations spanning upstream to downstream
areas. Tokyo Gas provides energy in response to demand fromlarge-scale power generators as well as customers in the industrial,commercial, and residential sectors. In each area, demand is moved
in a different manner by conditions specific to that market before it
finally becomes directed at natural gas provided by Tokyo Gas. We
develop our operations while predicting what demand will look likethree, five, or sometimes even 10 years into the future. Being moreclosely connected to markets will help us better predict future market
conditions through operations in downstream areas. If we are able to
make better predictions, we will also be able to make better decisions

regarding future business development. In turn, this will help us
develop production and supply infrastructure in an optimal mannerand also assist us in matching resource development efforts inaccordance with future market conditions. Specifically, we will be able
to alter the types of involvement in projects, supply periods andvolumes, and contract conditions as necessitated by market
demand. At the same time, the ability to secure stable demand overthe long term through involvement in downstream areas is a powerfulnegotiating tool for participation in upstream projects. Participation in
upstream resource development projects helps us acquire volumes of
LNG with greater flexibility and a more diverse range of prices, which I
believe enables us to provide new value when responding to downstream demand.
The third value is created by the fact that having operations thatspread from upstream areas to downstream areas enables us toaccumulate expertise in all of these areas. Clearly, this will be aninvaluable asset in comprehensively developing global operations thatspan the value chain. For example, we are able to serve emerging
countries considering the introduction of natural gas generation byleveraging expertise and business foundations that encompass allareas of the value chain, starting from securing resource supplies andprogressing on to procurement, infrastructure development, andsales. This comprehensive expertise will enable us to contribute to
the development of such countries and will also provide us with anumber of different business opportunities.

How are efforts advancing in the three areas of diversification for resource procurement?

Q Okamoto: The decision to procure LNG from the Cove PointLNG Project in the United States has the possibility of enabling theCompany to import LNG from this country, the world’s foremost
producer of natural gas, into Japan. This decision represents a large
stride forward in all three areas of diversification—diversification of
resource suppliers, diversification of procurement contract conditions,and diversification of our global LNG network. In order to advance theproject, we must first wait to receive approval to export LNG from the
U.S. Department of Energy. Assuming that we are able to acquire thisapproval, we expect to secure 1.4 million tons of LNG per year from
Cove Point. One important element of this project is that it is theCompany’s first long-term LNG procurement contract to have theprice linked to the natural gas market through the use of the Henry

Hub index. Considering the current Henry Hub price, we expect thatthe final cost of delivering this LNG to Japan will be significantly lower
than LNG procurement from other suppliers, even after liquefaction
and transportation costs are accounted for. Another importantelement is the fact that the procurement contract has no restrictions
on shipment destinations*. While we primarily plan to import LNG
from this project into Japan, the option of reselling this resource toEurope or other markets opens the possibility of developing global
LNG sales networks. Of course, we are also considering the possibility of supplying this LNG to other overseas projects in which Tokyo
Gas participates, such as natural gas-fired thermal power plants.
* Pending the receipt of approval to export LNG from the U.S. Department of Energy

Tokyo Gas

Annual Report 20139

Discussion with the President

How are efforts advancing in overseas businesses?

Q Okamoto: In March 2013, we acquired 25% working

interests in the shale gas development joint venture in the Barnett
basin in Texas State in the United States. This is our first time toacquire interests in an upstream project in the United States; therefore, this move has substantial strategic significance. First of all, themove has allowed us to address the overconcentration of our natural
gas resource development projects in Asia and Australia. More
importantly, it enabled us to do this by expanding operations in theworld’s foremost natural gas producing country, the United States. In
addition, our stake will entitle us to sell between 350,000 tons and

500,000 tons of natural gas resources a year in LNG equivalent. By
marketing this gas in the United States, we should be able to expand
earnings by capturing the country’s growing natural gas demand.
Should there be a notable increase in the Henry Hub price, the priceof procuring LNG from the Cove Point LNG Project in the UnitedStates will be impacted. However, our participation in the upstream
Barnett basin project will enable us to hedge against this risk, which
is another significant benefit of our participation. I believe this represents a prime example of our efforts to stabilizing the earnings of theentire Tokyo Gas Group while also pursuing ongoing growth in profits.

What will be the future direction of efforts to reduce resource procurement costs?

Q Okamoto: There has been no change to our policy tosteadily advance initiatives that contribute to diversification in thethree aforementioned areas. However, in doing this, we must
consider the fact that it is growing more difficult to participate in
upstream natural gas resource development projects with eachcoming year. As such, we must carefully develop plans if we aim toachieve profitability and, at the same time, secure a stable supply of
resources. If we concentrate our efforts on specific countries, then it

will be difficult to advance the diversification of pricing schemes andcontract conditions. Therefore, we must explore possibilities inconsideration of a wide range of options as we work to advancebasic business strategies.
The shale gas revolution has brought with it the potential for a
substantial leap in the volume of natural gas supplied on the global
market. In addition, development in Mozambique is advancing on oneof the world’s largest gas fields. This field is so large that it is said tosurpass those in Qatar. We expect that this field will be a major
supply point in the future. Further, the development of natural gas
projects is accelerating in the far east of Russia and in eastern
Siberia. These sellers of natural gas are starting to consider theirvarious options, and as such the range of viable options for buyers
like Tokyo Gas is expanding. For example, should we commence
procurement from Mozambique, it would be possible for us toconclude procurement contracts with prices linked to the National
Balancing Point (NBP) index, which is the standard index in Europe.
Likewise, participation in projects in Russia could enable us to enter
into contracts with conditions differing from those of contracts linked
to the U.S. Henry Hub index. The benefits of such contracts for ouroperations would be immense.
A number of our current procurement contracts are approaching
their renewal periods. With regard to these contracts, I think there isroom to improve contract conditions, even within the traditional crude
oil price linked framework. We plan to suggest new terms duringcontract negotiations with these concerned parties.

While industrial demand for power generation purposes is strong, we have yet to see

Q a recovery in general industrial demand. What is your view on this situation?
Okamoto: Throughout fiscal 2012, power generation demand and theacquisition of new customers were major contributing factors to growth
in gas sales volumes. Conversely, demand from current generalindustry customers remained low, giving reason for concern. To
address this concern, we will work to solicit the environmental benefitsof natural gas as well as its viability as a business continuity planmeasure while, at the same time, reducing resource costs to fueldemand expansion. However, I believe we cannot expect a recovery ingeneral industrial demand until we see a full-fledged recovery in theJapanese economy and the manufacturing industry as a whole.

10

Tokyo Gas

Annual Report 2013

Gas Sales Volume by Use
Billion m3
25.0

1.4 times

20.0
15.0

15.2 billion m3

15.4 billion m3

2011

2012

22.0 billion m3

10.0
5.0
0

Residential
Commercial
Industrial (general industrial)

Industrial (power generation)

2020
Wholesale

FYHave there been any changes in the Company’s plans for the electric power businessQ or the scenario Tokyo Gas has developed for accomplishing these plans?
Okamoto: There have not been any changes in the scenario we haveenvisioned. We are currently in the process of constructing Unit 3 of
the Ohgishima Power Station, which is scheduled to have a generation capacity of 407 MW. Once Unit 3 is operational, the total
generation capacity of our electric power business will rise to 2,400
MW, positioning us within view of a total capacity of 3,000 MW. This
capacity will be further augmented through an alliance with Tokyo

Electric Power Company (TEPCO). The results of alliances underconsideration will affect what part of the 3,000 MW—5,000 MW
range our generation capacity finally falls into. In forming alliances, weare advancing consideration based on the stance that alliances
should contribute to the supply of low-priced electricity, the invigoration of the electricity market, and the expansion of options for use
by customers.

‌What tariff measures will be instituted for large-volume and small-volume customers?

Q Also, it is my understanding that Tokyo Gas will once again lower tariffs for small-volume
customers, as the Company did previously in March 2012. What is the reasoning behind
implementing successive tariff reductions over such a short period?
Okamoto: For the small-volume segment, a regulated area, werevise tariffs in accordance with rate manuals and based on forecasts
established in consideration of fair provision costs. In fiscal 2012,
demand increased to a greater degree than was expected, and webelieve that demand will increase in fiscal 2013 as well. We have also
judged that the reductions to fixed costs that resulted from our efforts
to improve managerial efficiency will be greater than initially anticipated. All of these factors were considerations behind the decision torevise tariffs for small-volume customers. We plan to make the final
decision with regard to the timing and rate of tariff revisions in midfiscal 2013. This decision will be made in consideration of earnings

and provision cost forecasts, which will be formulated based on
projected future trends in the Japanese economy and theelectricity market, including the possible resumption of operationsat nuclear power plants, as well as how these trends will impact
the gas industry.
As the large-volume segment is completely deregulated, ourbasic policy is to decide tariffs though negotiations with customers.
Recently, customers have been suffering under the burden created byyen depreciation, and their overall energy costs have been rising due
to electricity rate hikes and other factors. In recognition of this, we arealways working to lighten their burden.

What scenario are you envisioning for meeting the goal of raising the stock of commercial

Q and industrial cogeneration systems to 4,000 MW in fiscal 2020?
Okamoto: Customers are becoming increasingly aware of thebenefits of cogeneration systems that Tokyo Gas has continued topromote, principally the lack of electricity transmission losses and theability to recycle exhaust heat realized through onsite generation. It
takes a relatively long period of seven or eight years to recover the
initial investment in a cogeneration system. For this reason, it isimportant for customers to consider the energy security and business

continuity benefits of these systems, rather than only focusing on
the economic considerations. We remain steadfast in our quest tocommunicate these benefits. Going forward, we will work to meetthe goal you spoke of by reducing the facility costs associated withcogeneration systems and taking advantage of support from thegovernment and other administrative bodies.

Some of the goals outlined in the “Challenge 2020 Vision” have already been met.

Q Is there any possibility of you revising your plans?
Okamoto: It is true that we surpassed the levels assumed in“Challenge 2020 Vision” for consolidated net income, return on equity(ROE), and return on assets (ROA) in fiscal 2012, and the forecasts
released for fiscal 2013 project that goals will be met in that year as
well. However, at the present moment, there has been no change in

Fiscal 2012

the underlying assumptions of our “Challenge 2020 Vision,” and I see
no need to revise the direction of the vision accordingly. In fact, I do notthink it would be appropriate to change only the numerical targets ofthe vision when only a year and a half has passed since its release.

Fiscal 2020(“Challenge 2020 Vision” targets)¥240.4 billion

Approx. ¥250.0 billion / year
(FY2012–FY2020 total: ¥2,240.0 billion)

ROE

11.5%

Approx. 8%

ROA

5.3%

Approx. 4%

D/E ratio

0.69

Approx. 0.8 (each fiscal year)

Total payout ratio

60.7%

Approx. 60%

Consolidated operating cash flow

Tokyo Gas

Annual Report 201311

Discussion with the President

What are your policies for cash flow distribution? Also, what shareholder returns were

Q issued for fiscal 2012, and what is your forecast for fiscal 2013?
Okamoto: Our “Challenge 2020 Vision” calls for total consolidated
operating cash flow of ¥2,240 billion between fiscal 2012 and fiscal
2020, and we will also procure a total of ¥240 billion from outside of
the Company. Of this amount, 68%, or ¥1,680 billion, is earmarked
for capital expenditures; 15%, or ¥380 billion, for investments andfinancing; and 17%, or ¥420 billion, for shareholder returns.
Our shareholder return policy calls for a total payout ratio ofaround 60%, including dividends and repurchases of stock scheduled
for retirement. After examining revenue / expense and funding plans
leading up to fiscal 2020 on the basis of our balance sheet structure,‌CapitalExpenditures, Investments and Financing,
Shareholder Returns Fiscal 2012– Fiscal 2020: Approx. ¥2,480.0 billion

Trends in Total Payout Ratio%
80

Capital expenditures17%

we believe it will be possible to maintain a debt-to-equity ratio (D/E
ratio) of approximately 0.8 times. We therefore intend to continue
issuing returns in line with our current policy.
Our basic policy is to maintain stable dividend payments, and we
also aim to gradually increase dividends over the medium-to-longterm. For fiscal 2012, we raised dividend payments by ¥1 yen per
share from the previous fiscal year, to ¥10 per share. In addition, we
repurchased our own shares, paying ¥36 billion for 60,368 thousand
shares, and these shares have already been retired. In fiscal 2013, we
forecast a dividend of ¥10 per share.

¥1,680.0 billion

60

Investments and financing

15%¥380.0 billion
68%

Stock
repurchases

40

Shareholder returns

20¥420.0 billion

Dividends

0Consolidated operating cash flow

¥2,240.0 billion

08

External debt (interest bearing debt), etc.

¥240.0 billion

Total payout ratio

Capital expenditures, Investments and financing,
Shareholder returns

09

10

11

12

FY

Dividend payout ratio¥2,480.0 billion

What is your forecast for fiscal 2013?

Q Okamoto: In fiscal 2013, consolidated gas sales volume isforecast to decline 609 million m3, or 4.0%, to 14,781 million m3. Thisdecrease will be largely due to the shift to the tolling scheme for a
portion of the gas sold for power generation purposes. When the
tolling portion is included, gas sales volume is expected to increase
287 million m3, or 1.8%, from fiscal 2012’s level.
For consolidated net sales, we are forecasting a year-on-yearincrease of ¥200.4 billion, or 10.5%, to ¥2,116.0 billion, which will
result from a rise in unit prices under the gas rate adjustment systemand higher LNG sales.
Operating income will rise ¥15.4 billion, or 10.6%, to ¥161.0
billion. This increase is because the slide time lag effect will result in
an improvement of ¥30.5 billion, effectively offsetting the rise inresource prices stemming from yen depreciation.
For details, see P.40 Management’s Discussion and Analysis
Million m3, 45MJ/m3, Billions of yen

Fiscal 2013

Gas sales volume
Including tolling portion
Net sales
Operating expenses
Operating income
Ordinary income
Net income
Slide time lag effectAmortization of actuarial differences

12

Tokyo Gas

Annual Report 2013

Fiscal 2012

(Forecasts announced on
April 26, 2013)

Change%15,39015,987
1,915.6
1,770.0
145.6
1,47.4
1,01.6– 10.5– 4.4

14,781
16,273
2,116.0
1,955.0
161.0
155.0
101.0
+20.0
– 2.2

– 609
+287
+200.4+185.0
+15.4
+7.6
– 0.6
+30.5
+2.2

– 4.0
+1.8
+10.5
+10.5
+10.6
+5.1
– 0.7
–
–

Growth Strategy—Enhancing the LNG Value Chain

Tokyo Gas has been accelerating efforts to enhance its LNG value chain based on
the target corporate profile for the Tokyo Gas Group clearly set out in “Challenge
2020 Vision.” This section focuses on our main achievements since announcing“Challenge 2020 Vision” in November 2011 and strategies going forward.
14

The Potential of Natural Gas

16

Understanding Tokyo Gas through Comparison

18

Procuring Resources in a Stable and Affordable Mannerand Expanding Overseas Operations

22

Building a Production and Supply Infrastructure to Cultivate Demand

25

Providing Diverse Energy Solutions

30

Capital Expenditures Plan

Tokyo Gas

Annual Report 201313

Enhancing the LNG Value Chain

The Potential of Natural Gas
Natural gas produces energy that is much cleaner than other fossil fuels, and thus demand isrising for this resource around the world.

Environmental Benefits of Natural Gas
Natural gas is a combustible gas mixture consisting primarily of

Comparison of Emissions (Coal=100)

hydrocarbon methane (CH4). Like oil and coal, it is a fossil fuel.

Natural gas

Oil

Coal

SOx

0

70

100

NOx

40

70

100

CO2

60

80

100

However, it is composed of a lower percentage of carbon (C)than these substances. For this reason, it releases relatively small
quantities of carbon dioxide (CO2) during combustion. After being
processed to the point that it can be used to generate energy
through combustion, natural gas contains almost no nitrogen (N).
It is also exceptionally easy to control this fuel. Accordingly,
nitrogen oxide (NOx) emissions during burning are incredibly low.
In addition, when liquefied, natural gas contains almost no sulfur
or other impurities, meaning that no sulfur oxide (SOx) is emitted,
thus making natural gas a source of energy with an incredibly low
environmental impact.

Spreading Use of Natural Gas
Demand for natural gas is rising rapidly on a global scale. This

Global Primary Energy Demand Estimates

trend can be attributed to such factors as increased affordability, aMillion tons crude oil equivalent (Mtoe)

result of the establishment of international pipeline networks, and

18,000the spreading usage of unconventional natural gases; strong
demand in emerging nations; and attention garnered through the

17,197 Mtoe
14,922 Mtoe

12,00012,730 Mtoe

potential for natural gas to be used as an alternative for nuclear
power, which has become more significant amidst the acceleration of a global anti-nuclear movement in response to the nuclear
accidents in Japan. According to the estimates of the International
Energy Agency (IEA), demand for natural gas, which is moreenvironmentally sound than oil and coal and more economicallyfeasible than renewable energies, is expected to rise by 50% or

21%

25%

22%

6,000

0

2010
Coal
Biomass

Oil

2020

Natural gas
Nuclear
Other renewable energy

2035
Hydro

Source: IEA, World Energy Outlook 2012, New Policies Scenarios

more by 2035. Furthermore, the share of natural gas among
primary energies is expected to rise from the current 21% to 25%.

Rising Volume of Reserves
When considering the volumes of reserves that are recoverable

year, it is entirely possible that the remaining natural gas

with current technologies, which exceeds the current volume inresources may be able to sufficiently supply the world for overproved reserves, it can be estimated that there exists, primarily in

200 years.

Russia and the Middle East, reserves boasting volumes of
conventional natural gases in the range of 421 trillion m3. Furthermore, reserves of unconventional natural gases have recently

CBM

been discovered at a rapid pace, and volumes of roughly 331

6.3% 47 trillion m3

trillion m3 are thought to exist, primarily concentrated along theTight sand gas
10.1% 76 trillion m3

Pacific Rim. This means that the combined total for the volume of
conventional and unconventional gases in the reserves spread
across the globe could be as much as 752 trillion m3. Looking at
the current production volume of natural gas of 3.2 trillion m3 per

14

Reserves of Conventional and Unconventional Gases

Tokyo Gas

Annual Report 2013

Shale gas27.7% 208 trillion m3
Unconventional gases
44.1% 331 trillion m3

Conventional gases
55.9% 421 trillion m3

Total

752
trillion m3

Recoverable Reserves
Eastern Europe / Eurasia
174 trillion m3

OECD Europe
45 trillion m3

OECD America
122 trillion m3

Middle East
137 trillion m3

Asia / Pacific
128 trillion m3

Africa74 trillion m3
Latin America
71 trillion m3

Conventional gas
Unconventional gas
Source: “Golden Rules Case,” Golden Rules for a Golden Age of Gas, World Energy Outlook, International Energy Agency, May 2012

Growing Demand in the Japanese Market
 omestic and Global Primary Energy
DConsumption Volumes

The ratio of natural gas usage among other primary energies inJapan is notably lower than the global average of 23.9%. However,%following the Great East Japan Earthquake, which occurred on

1.7

0.9

March 11, 2011, use of natural gas for thermal power generation

3.8

has been increasing in an attempt to develop alternatives to nuclear
4.5

power. Also, dispersed power sources, such as cogeneration, have

22.0%
23.9%

6.7
1.9

26.0

been reassessed to be viable sources of power. Consequently, thepercent of primary energy consumption attributable to natural gasJapan

has risen rapidly from the 17% recorded in 2010 to the present levelWorld

24.6 29.9

Natural gas

Natural gas
Oilof approximately 22%, and demand for this resource is expected toCoalrise in the future.

Oil

33.1

Nuclear

Coal
Nuclear

45.6

Hydro

Hydro
Renewable energy

Renewable energy

Source: BP Statistical Review of World Energy, June 2013

Differing Prices between Regions
Japan suffers from a lack of gas resources. It also is without anincreased supply in the United States following the shale gasinternational pipeline network, forcing it to rely on LNG imports

revolution. In Japan, meanwhile, the rising price of crude oil has

utilizing tankers. Regardless of these factors, the price of LNG incaused a subsequent rise in the price of LNG due to the link

Japan was nearly the same as the price in Europe or the United

between the prices of these two resources and demand forStates up until a few years ago. The price of LNG in Europe andnatural gas as a replacement for nuclear power has grown. In thisthe United States has remained at approximately the same level

manner, the price of LNG in Japan has increased, further

since then due to such factors as the global economic recession

widening the gap between prices in Japan and those in Europethat followed the Lehman Shock of September 2008 and theand the United States.

Prices of Crude Oil and LNG

Gas Prices by Region

US$ / MMBtu

US$ / barrel

25

150

20

120

15

90

10

60

5

30

0

0

ʼ05/3

ʼ06/3

ʼ07/3

ʼ08/3

ʼ09/3

ʼ10/3

All Japan LNG Prices (Trade statistics) (US$ / MMBtu)
JCC Prices (Trade statistics) (US$ / barrel)
Dubai (US$ / barrel)
WTI (US$ / barrel)

ʼ11/3

ʼ12/3

ʼ13/3

US$ / MMBtu
18

12

6

0

2007/4
Japan (All Japan LNG)

2010/4
Europe (NBP)

2013/4
U.S.A. (Henry Hub)

Source: Compiled by Tokyo Gas from various materials

Source: Compiled by Tokyo Gas from various materials

Tokyo Gas

Annual Report 201315

Enhancing the LNG Value Chain

Understanding Tokyo Gas
through Comparison
Developing businesses from upstream activities to sales in areas where major potential demand is expected

Business Structure
Activities Spanning Resource Development to Sales
Different from energy companies in Europe and the United States,

providers of city gas. At the same time, the law obliges providers

the Tokyo Gas Group conducts a chain of business operations

to supply gas safely throughout their districts. Although thisextending from resource procurement and transportation toarrangement creates a monopoly on supplying users who

customer sales and service.

consume less than 100,000 m3 of gas per year (46MJ/m3),

In Japan, the Gas Business Act assigns supply districts togas rates are regulated.

Differences in Business Structure between the Tokyo Gas Group and European and U.S. Energy Companies
Natural gas resource
development

Procurement,
transportation

Production,
power generation

SupplySales, services

Business Structure of Tokyo Gas
Business is conducted through an
LNG value chain spanning upstream todownstream operations

Common Business Structurein Europe
As one aspect of European integration,
formerly monopolistic national providers
are being compelled to separate andprivatize their operations to create
consistency across the market.
Nowadays, production, transportation,and supply are typically handled bydifferent companies. A common
division is into companies that handle(1) importing and domestic production,(2) transportation and storage, and(3) distribution and retail.

Common Business Structure in
the United States
Gas industry regulation in the UnitedStates comprises two layers: federal
regulation and the regulations of individual states. For interstate pipelines,
U.S. law requires pipeline operations to
be conducted by different companies
than those handling procurement,
supply, and sales*. Here, the gas
business tends to be divided into fourtypes of entities: (1) producers,(2) interstate pipeline operators,(3) gas distribution companies,and (4) marketers.
* ‌Operation of pipelines within individual states differs
by state.

columncolumnElectric Power System Reforms and the Gas Business16

Gas businesses are subject to the same system as electricity busi-

There are presently discussions ongoing in Japan about reforms toness with rate systems for regulated areas, while gas resource costs

the electric power system in order to ensure stable supply; to limit

are decided based on the comprehensive cost principle and changes

electricity rates as much as possible; and to increase options forin resource costs under the gas rate adjustment system are reflectedcustomers and opportunities for energy companies. On April 2, 2013,

in rates. Through these systems, gas businesses enjoy healthy growth,

the Cabinet approved the “Policy on Electricity System Reform,”

while at the same time there has been an increase in gas rate trans-

which consists of measures to enhance nationwide system operation;

parency, and the results of efforts to make business more efficient

to fully liberalize the retail market and power generation; and to ensure

have become clearer. The government intends to perform a complete

the neutrality of the transmission and distribution sector throughreview of gas business systems based on the progress of electricity

legal unbundling.

power system reforms.

Tokyo Gas

Annual Report 2013

Business Area’s Potential
300km

Major Potential Demand Expected in the Tokyo Area
The Kanto region, which extends for a 200-kilometer radius‌
Gas
Sales Volumes of the Four Leading Companies(consolidated)around Tokyo, accounts for about 40% of Japan’s GDP and isJapan’s largest area of concentrated energy demand. Althoughindustrial demand is particularly concentrated in northern
Kanto, pipelines are still limited and we will extend necessary
pipelines to cultivate demand. We will also boost gas supply
capacity through the construction of the Hitachi LNG Terminal.

Million m3
18,000+1.3%

12,000– 2.0%

6,000

+0.2%
+0.4%

0

‌Energy demand concentration in the Kanto region(200-kilometer radius)Tokyo Gas
Fiscal 2011

Osaka Gas

Toho Gas

Source: Compiled by Tokyo Gas from individual companies’ public documents

Hitachi LNG
Terminal

 otential for Industrial and Commercial Demand inP
the Kanto Region (200-kilometer radius around Tokyo)
100~200-km area

100-km area

2.0 billion m

7.0 billion m

3

3

Cogeneration system /Power generation
0.3 billion m3
Tokyo Gas high-pressure trunk lines(under construction)
Sodegaura
LNG Terminal
Ohgishima LNG Terminal
NegishiLNG Terminal

Saibu Gas

Fiscal 2012

Tokyo Gas high-pressure trunk lines(under consideration)
Tokyo Gas high-pressure trunk lines(medium-to-long-term concept)
Tokyo Gas pipelines (in service)

Fuel conversion
1.7 billion m3

Total

9.0

Fuel conversion
5.1 billion m3

billion m3

Cogeneration system /Power generation
1.9 billion m3

Other companies’ pipelines(in service)
Tokyo Gas supply area
Tokyo Gas Group supply area
Other gas companies’ supply areas• Factories

Developing Business in One of the World’s Largest Economic Areas
As of September 2007, Tokyo Gas had more than 10 million

Europe and the United States. Furthermore, although Japan’s

customers, and the figure is currently around 10.98 million (astotal population began to decline in 2010, our customer baseof March 31, 2013). This business base is on a par with thoseis expected to continue increasing due to the ongoing influx ofof leading public service companies in the gas business inpeople into the Tokyo metropolitan area.

‌Customers
for the Four Leading Companies(consolidated)
Millions
12‌CustomerComparison among the World’s Leading
Gas Companies
Millions

+1.1%

20

15.66

15

+0.6%

8

10.98

10
4

+1.0%

– 0.4%

8.08

5
0

0

Tokyo Gas
Fiscal 2011

Osaka Gas

Toho Gas

Fiscal 2012

Source: Compiled by Tokyo Gas from individual companies’ public documents

Saibu Gas

Tokyo Gas

Centrica(Tokyo area)(U.K.)

Gas customers

Sempra(U.S.)

Electricity customers

Source: Compiled by Tokyo Gas from individual companies’ public documents(Figures for the two companies other than Tokyo Gas are as of December 31, 2012.)

Tokyo Gas

Annual Report 201317

Enhancing the LNG Value Chain

Strategy

Procuring Resources in a Stable and Affordable
Manner and Expanding Overseas Operations
Demand for liquefied natural gas (LNG) is expected to grow into the future, and
it is likely that the price of this resource in the region known as the Far East willcontinue to remain at a higher level than prices seen in the United States and

Scheduled investment inoverseas businesses underthe “Challenge 2020 Vision”

320.0

Europe. Amid these circumstances, we will work to diversify and expand our
network of suppliers along with the range of our upstream businesses so that¥

we may procure resources in a stable and affordable manner. At the same time,(16% of total investment)

billion

we are developing natural gas-fired thermal power generation ventures overseas
to construct an overseas LNG value chain.

Background for Strategies: Traditional Resource Procurement Frameworks
Traditional LNG procurement frameworks

Gas Prices by Region

generally entailed a price formula linking the

US$ / MMBtu

price of LNG to the price of crude oil and20

included conditions forbidding changing theshipment destination of procured LNG as well as

15

reselling. As such, the absence of pipelines andother infrastructure in Asia forced the region to10

accept LNG prices higher than those in the
United States and Europe, creating an “Asia5premium” on LNG. Looking ahead, natural gas
demand is growing on a global scale and it islikely that the Asia Premium will continue. In suchan environment, traditional procurement frameworks that forbid shipment destination changes

0

2006/4

2009/4

Japan (All Japan LNG)

Europe (NBP)

2013/4

U.S.A. (Henry Hub)

Source: Compiled by Tokyo Gas from various materials

and reselling lack sufficient flexibility.

ActionAccelerating Diversification in Three Areas to Reduce Resource
Procurement Costs

Under the “Challenge 2020 Vision,” ¥320.0 billion, or 16% of total

fiscal 2020. Through this investment, we aim to grow overseas

capital expenditures, investments, and financing, will be directedbusinesses to the extent that 25% of total net income is gener-

toward overseas businesses over the period from fiscal 2012 toated by these businesses. As one facet of these efforts, we will

Three Areas of Diversification for Resource Procurement
1. Resource suppliers

Present

Primarily Asia andAustralia

2. Procurement contract conditions

3. Global LNG network

Primarily crude oil linked
Mostly long term
Shipment destination restrictions

Focused on transactions between
exporting nations and Japan

Crude oil linked
Henry Hub-linked
NBP-linked
Combination of differing periods
No shipment destination restrictions

Network linking gas fields andpower plants and other users
around the world

•
•
•

•

FutureAsia, Australia, and therest of the world

•
•
•
•

18

Tokyo Gas

Annual Report 2013

diversify and expand our network of suppliers along with therange of our upstream businesses to procure resources in a morestable and affordable manner. These initiatives will be centered on
three areas of diversification.
The first area is “the diversification of resource suppliers.”
While Asia and Australia have previously been our major
suppliers, we will branch out to procure resources from a wider
range of countries around the world.
The second area is “the diversification of procurement
contract conditions.” Traditional procurement frameworks haveprimarily employed crude oil linked price formulas and forbiddenchanging shipment destinations. However, in the future, we willconclude contracts with a wider range of conditions, such as
price formulas linked to the Henry Hub index and other indexes
and freedom in changing shipment destinations. We expect thatFirst shipment received from Pluto LNG Project

this will enable us to procure resources in a more stable andaffordable manner and with increased flexibility.
The third area is “the diversification of our global LNG

in Maryland State on the east coast of the United States. Also, in
March 2013, we entered into a sale and purchase contract tonetwork.” By building upon our current contracts for trade mainly

acquire 25% working interests in the shale gas development joint

between resource exporting nations and Japan, we will develop a

venture in the Barnett basin in Texas State in the United States

global network enabling resources to be traded between regions

from Quicksilver Resources Inc. Focus 1around the world where Tokyo Gas holds gas fields, power
plants, or other such establishments.
In April 2012, the Pluto LNG Project, a project in Australia inFurther, in February 2013, an agreement was reached with
Astomos Energy Corporation entitling the Company to receive a
total amount of approximately 400,000 tons of U.S. liquefied

which the Company holds interests, commenced LNG produc-

petroleum gas (LPG) for a six-year period beginning 2013. This istion. In addition to receiving LNG from this project, Tokyo Gas

the first agreement calling for Tokyo Gas to purchase LPG withrecorded revenues from upstream equity interests through LNG

the price indexed to U.S. propane linked prices, and we believe

sales in fiscal 2012. Other LNG projects we participate in are also

this will contribute to more stable procurement and lower

progressing smoothly, and we are actively fortifying our overseas

resource procurement costs. In the future, we will introduce

business foundations.

Mozambique, which boasts some of the world’s largest gas

For example, Tokyo Gas has entered into a Heads of Agreement for Sale and Purchase with Sumitomo Corporation infields, and other African nations into the list of candidate locations
for business development as we seek out new resource supplies.

relation to LNG produced by the Cove Point LNG Project,

ActionEstablishing a Global LNG Value Chain

Tokyo Gas will expand its overseas natural gas-fired thermal

in Belgium’s T-Power NV, which was the first time for Tokyo Gas

power generation and gas supply business on a global scale toto participate in such a project in Europe. As a result, our total

secure stable revenues and further the establishment of a global

overseas generating capacity (including other companies’ inter-

LNG value chain.

ests) now amounts to 3,259 MW.

In addition, we will supply LNG procured through agreements

Tokyo Gas is also accelerating the overseas development ofwith no restrictions on shipment destinations to fill orders

its engineering and energy services businesses. Efforts in thisreceived from power plants and other users. When necessary,area include an alliance with Malaysian national energy company

alternative gas will be procured through pipelines, enabling us toPetronas and the signing of a memorandum of understanding

resell said LNG. In these ways, we will introduce a new elementwith Petrovietnam Gas, of Vietnam, involving the construction ofof flexibility into our operations.

an LNG value chain. Also, consolidated subsidiary Energy

Overseas power generation ventures that Tokyo Gas has

Advance Co., Ltd., has acquired a stake in Ecogen Brasil

participated in up until this point include the Bajio power plantSoluções Energéticas S.A., of Brazil, through a joint venture

and the MT Falcon power plant, both situated in Mexico. Adding

company with Mitsui & Co., Ltd.

to this list, in June 2012 the Company acquired a 26.66% stake

Tokyo Gas

Annual Report 201319

Enhancing the LNG Value Chain

Past Initiatives

November 2011
Overseas business
January 2012Concluded sale and purchase contract (December2011) regarding Ichthys LNG Project and approved
business participation plans

November 2011

Announced “Challenge 2020 Vision”
December 2011

Overseas business
March 2012

Overview of the Ichthys LNG Project

Signed Memorandum of Understanding withPetrovietnam Gas

Gas-condensate field:	‌Offshore of Western Australia,
Block WA-37-R
Liquefying facilities:	‌Darwin, Northern Territory, Australia

Overseas procurement

March 2012

Liquefying capacity:	‌8.4 million ton/year (LNG) with two
4.2 million ton liquefaction trains

March 2012Concluded Heads of Agreement for Sale andPurchase of LNG regarding Brunei LNG Project

Planned commencement:	‌October–December 2016
Participating interest:	‌66.07% for INPEX Group companies, 30.0% for TOTAL Group
companies, 1.575% for Tokyo
Gas and other companies(as of March 2013)

June 2012

Overseas business
June 2012

Completed acquisition of stake in Belgium natural
gas-fired thermal power plant

Submarine
pipeline

Overseas procurement

Ichthys Field

June 2012
Liquefaction
facilities(Darwin)

Ichthys gascondensate field

September 2012

Australia

Received shipment of LNG from Pluto LNG ProjectOverseas procurement
August 2012Concluded Memorandum of Agreement with
Malaysia LNG Sdn. Bhd. to renew LNG sale andpurchase contract

Overseas business
December 2012

Participated in energy services business in Brazil
December 2012
Overseas procurement
April 2013

Agreed to procure LNG from
Cove Point LNG Project in Maryland, the U.S.
Overseas procurement
February 2013

March 2013 perating Income inO
the Overseas Business

Purchased LPG with price indexed to U.S. propane
linked prices¥ billion
6.0

5.1

Overseas business

4.0

March 2013

0Participated in shale gas development joint venturein Barnett basin in Texas, the U.S.

2.4

2.0

July 2013

–1.3

–2.0

2011

20

Tokyo Gas

Annual Report 2013

2012

2013
(plan)FY

Greatly Advancing Diversification through Participation in Upstream
and Downstream Projects in North America

Focus

1

Participating in the Cove Point LNG Project and Upstream Shale Gas Development in Barnett Basin
Tokyo Gas has continued to develop the Cove Point LNG Project,in Maryland State in the United States, in cooperation with
Sumitomo Corporation (“Sumitomo”). In April 2013, the Company
concluded a Heads of Agreement for Sale and Purchase with
Sumitomo that will entitle wholly owned subsidiary TG PLUS Co.,
Ltd., to purchase 1.4 million tons of LNG per year from this project.
Through this project, we will export natural gas procured in
the U.S. market in the form of LNG. Further, this project represents a large step forward in our efforts to advance our threeareas of diversification as it involves procurement from the UnitedStates, where shale gas production is rapidly accelerating; is theCompany’s first long-term contract with prices linked to the Henry
Hub index; and the contract conditions allow for free selection of
shipment destinations*. After receiving approval from the U.S.
Department of Energy to export LNG from this project tocountries that have not entered into free-trade agreements with
the United States, the Company plans to begin importing LNG
from this project into Japan in 2017. Separately, we acquired our
first upstream interests in the United States through our participation in the shale gas development project in the Barnett basin.
U.S. company Quicksilver Resources is the operator of thisproject, which is currently producing approximately 275 million
cubic feet per day (natural gas equivalent) of shale gas and natural
gas liquids to be marketed in the United States. A stake of 25%
working interests will be acquired in this project through TG
Barnett Resources LP, a wholly owned subsidiary of Tokyo Gas
America Ltd., and it is estimated that this will entitle the Company
to receive between 350,000 tons and 500,000 tons of gas
resources a year in LNG equivalent.
* This assumes export approval is received from the U.S. Department of Energy.

Initiatives in North America
Cove Point LNG Project

Barnett Basin
Basin:

U.S. Barnett basin in Texas

Land Area:

Approx. 130,000 acres

Term:	‌Approx. 20 years from the
project start date

Proved Reserve:

1.2 Tcfe of natural gas

LNG Quantity:	‌1.4 million tons per annum
Contract Price:	‌Henry Hub index linked
formulaCurrent Net Production: 275 MMcfe per day
Participating Interest:	‌75% for Quicksilver
Resources Inc.
and 25% for TG Barnett
Resources LP

Delivery Terms: 	‌FOB

Tokyo Gas America Ltd. (Houston)‌ ‌Scheme of Cooperative Ventures with Sumitomo
Dominion Resources(Tolling operator)

U.S. Gas Market

Natural gas tolling agreement
LNG sale and purchase agreement

Pacific Summit Energy(Tolling customer)[Wholly owned subsidiary of Sumitomo]

A

Q‌Would it be best for Tokyo Gas to focus on the• ‌Heads of Agreement for Saleand Purchase of LNG

TG PLUS

Sumitomo(LNG seller)

1.4 million
tons per year

[Wholly owned
subsidiary of Tokyo Gas]

Tokyo Gas

Japanese buyers (LNG purchasing)Natural gas sale and purchase agreement

FA• ‌Natural gas
Tolling agreementQgas business? Specifically, why is the Company

Q‌As Tokyo Gas expands the scope of operations
through diversification in three areas, how will it

investing in the Barnett basin project and other

respond to risks, such as country risk, in countries

upstream businesses?

where it lacks operational knowledge?

‌Investment in upstream businesses not only enables us to securea certain level of income; it also brings other benefits. For example,
should resource procurement costs associated with the Cove
Point LNG Project increase due to a rise in the Henry Hub index,
the revenues generated by upstream interests in the Barnett basin
will also increase. In this manner, investment in upstream businesses helps stabilize the earnings of the entire Tokyo Gas Group.

A‌Diversification efforts will be conducted only after thoroughinvestigations so as to minimize our exposure to risks to thegreatest degree possible. At the same time, we feel that thedevelopment of a more diverse business portfolio will enable
us to mitigate risks through dispersion.

Tokyo Gas

Annual Report 201321

Enhancing the LNG Value Chain

Strategy

Building a Production and Supply Infrastructure
to Cultivate Demand
By bolstering our production and supply infrastructure, we will lay the

Scheduled investment ininfrastructure development underthe “Challenge 2020 Vision”

foundation for enhancing the LNG value chain by cultivating demand.

730.0

¥

billion(35% of total investment)

Background for Strategies: Growing Natural Gas Demand in the Tokyo Metropolitan Area
In response to the growing demand for natural
gas and the expansion of the area to which it issupplied, Tokyo Gas has increased its manufac-

LNG Sales Volume
Billions of m3 (bcm)“Challenge 2020 Vision”
target25.0

turing capacity by reinforcing its network of LNG
terminals and extended its transportation pipeline
network. Our policy for capital expenditures in

22.0 bcm
20.0

infrastructure development is to conduct such
expenditures after thoroughly investigating latent

15.0

demand and confirming the presence of guaranteed demand to an extent that justifies theinvestment amounts.

10.0

Natural gas has been increasingly garnering
attention in recent years because it is vastly moreenvironmentally friendly than other fossil fuels.

5.0

Another factor behind this increased attention isthe ever growing volume of recoverable reserves.

0

Following the Great East Japan Earthquake,

2005

2006

2007

2008

2009

2010

2011

2012

2013

demand for natural gas began rising rapidly in2014(plan)

2021(plan)
Years ended March 31

Japan, with demand growth particularly strong for
power generation. Tokyo Gas estimates that latent commercial and industrial demand for natural gas equating to 9.0 billion m3
exists within a 200-kilometer radius around Tokyo. The primary agent of this demand is the desire to convert to natural gas fromother fuel sources or to use this fuel source in cogeneration or other power generation systems.

ActionAccelerating the Development of Production and Supply Infrastructure

Under the “Challenge Vision 2020,” ¥730.0 billion, or 35% of total
capital expenditures, investments, and financing, will be directed
toward infrastructure development over the period from fiscal

Scheduled commencementof usageName

2012 to fiscal 2020. A particular strategic focus will be invest-

October 2013

Shin-Negishi Linements to address latent demand in the northern Kanto region by

October 2013

Yokohama Line II

February 2015

Kisarazu Rinkai Line II

October 2015

Saito Line

March 2016

Ibaraki–Tochigi Line

March 2016

Tochigi Line extension

March 2018

Koga–Moka Linebolstering supply capacity and creating pipeline loops that will
boost supply stability.
March 2012 marked the completion of the Chiba–KashimaLine. This trunk pipeline enabled us to commence supply to the
Kashima Waterfront Industrial Zone. Situated in Ibaraki Prefecture, this is one of the Kanto region industrial zones.

22

Trunk Pipeline Installation Plans

Tokyo Gas

Annual Report 2013

In addition, the Kashima Waterfront Line, which wascompleted in June 2012, has commenced supply to a new gas

Hitachi–Onahama Line(provisional name)turbine generation facility at the Kashima Thermal Power Stationof Tokyo Electric Power Company, Incorporated.
Further, July 2012 saw the start-up of construction of the

Ibaraki–Tochigi Line
Gunma Connecting
Trunk Line, Phase II

Hitachi LNG
Terminal
Koga–Moka Line
New pipeline
for Mito area

Hitachi–Kashima Line(provisional name)

Hitachi LNG Terminal in the Hitachi District of Ibaraki port, in
Ibaraki Prefecture—our 4th LNG receiving terminal. We aim tobegin operations at the Hitachi LNG Terminal in March 2016, in
conjunction with the commencement of usage of the Ibaraki–
Tochigi Line. Also, plans have been approved to accelerate the

Saito Linedevelopment of infrastructure in Ibaraki Prefecture, primarily in theareas surrounding the terminal. Focus 2

Soka–Yashio Line

Yokohama Line II

Shin–Negishi Line

Tokyo Gas high-pressure trunk lines (under construction)
Tokyo Gas high-pressure trunk lines (under consideration)

Sodegaura
LNG Terminal

Tokyo Gas high-pressure trunk lines (medium-to-long-term concept)
Tokyo Gas pipelines (in service)

Kisarazu RinkaiLine II

Negishi LNG Terminal

Ohgishima LNG Terminal‌Pipelines in which Tokyo Gas has invested
Other companies’ pipelines (in service)
Tokyo Gas supply area
Tokyo Gas Group supply area
Other gas companies’ supply areas

Focus

2

Accelerating Development of Natural Gas Infrastructure in Ibaraki

Cultivating Demand Based Outof the Hitachi LNG Terminal

Pipeline Network in Ibaraki Prefecture

Estimating that its gas sales volume will outstrip current supply
capacity by the late 2010s, Tokyo Gas is moving forward with
the Hitachi Project. The Hitachi LNG Terminal, which webegan constructing in July 2012, will play a central role inTochigi

Ibarakiadvancing this project. This terminal will be connected to the
Ibaraki–Tochigi Line that we started building on the Tochigi
Prefecture side in January 2012, and both are scheduled to

Hitachi LNG
Terminal

Koga–Moka Linebe operational during fiscal 2015.

New pipeline
for Mito Area

In the future, we will connect the Hitachi LNG Terminal to

Hitachi–Kashima
Line(provisional name)the pipelines displayed on the map to the right. We believe
this will greatly facilitate our efforts to cultivate demand in thenorthern Kanto region, centered on Ibaraki Prefecture. At thesame time, this will allow pipeline loops to be established,significantly enhancing energy security throughout theWestern Ibaraki
industrial area

Mito–Tsuchiuraindustrial area

Kashima
Waterfront
industrial
area

Kanto region.

Chiba	Natural gas infrastructure (under consideration)
	‌Tokyo Gas pipelines (under construction)
	‌Other companies’ pipelines (in service)	‌Major industrial areas in Ibaraki

Tokyo Gas

Annual Report 201323

Enhancing the LNG Value Chain

F

A

Q

Q

‌The “Challenge 2020 Vision” calls for the Tokyo Gas

AGroup to conduct aggressive investments. What is the‌Our basic approach toward investment is to make decisions

based on economic rationality, and we will only invest in

likelihood that this will result in excessive investment

projects from which we can expect appropriate returns.

in projects with insufficient profitability?

The Investment Evaluation Committee is responsible for
evaluating projects and making judgments regarding
economic rationality.

Investment Evaluation Committee
Overview

results. Prior to investment, the committee considers possible

To evaluate the economic rationality of investments, themeasures that could be implemented should the projects comeCompany has established “the Investment Evaluation

into conflict with these standards while also evaluating invest-

Committee.” This committee conducts objective, multifaceted

ment risk factors.

evaluations of estimates formulated by planning departments.
Before investment proposals are presented to the Corporate

Post-Investment Monitoring

Executive Committee for deliberation and approval, the Invest-

In addition to evaluating projects before investment, the Invest-

ment Evaluation Committee evaluates their economic rationality

ment Evaluation Committee continues to evaluate investmentsfrom a quantitative perspective. It then reports these findings toperiodically after they are concluded to ensure that they are

the Corporate Executive Committee.

properly managed. Should a project come into conflict withwithdrawal standards, the likelihood of achieving the initial
goals of the investment is reevaluated. When deemed neces-

Scope of Evaluations

The Investment Evaluation Committee evaluates investmentssary the committee will propose withdrawal to the Corporate

targeting increased profitability or business development in a

Executive Committee.

wide range of areas.
Committee Membership

The Investment Evaluation Committee is chaired by the execu-

Evaluation Methods

The conditions required to generate future cash flows aretive officer in charge of finances and its members include theevaluated, and net present value (NPV) and the internal rate ofgeneral managers of the Corporate Planning Department andreturn (IRR) are calculated based on projected cash flows. The

the Finance Department. Based on the nature of the projects

committee also formulates withdrawal standards that consider

being discussed, Tokyo Gas Group members that are knowl-

whether or not investments are producing the anticipatededgeable on the subject may be asked to participate.

Board of Directors
MonitorReport submission
ReportPresident(Corporate Executive Committee)
Settlement and monitor

Reportsubmission

Approval

Business Departments /Subsidiaries and AffiliatesQ

24‌You have mentioned plans to address industrial

Investment Evaluation Committee

Information exchangeAT‌ he gas sales volume target for fiscal 2020 of 22.0 billion m3

demand in the Tokyo metropolitan area as a means of

set out in the “Challenge 2020 Vision” was formulated in

expanding gas sales volumes. Is there no risk thatconsideration of the possibility that a decline in demand

factories move overseas and the demand will decline?

could result from the hollowing out of the industry.

Tokyo Gas

Annual Report 2013

Strategy

Providing Diverse Energy Solutions
By providing various energy solutions centered on natural gas, we aim todiversify the range of circumstances in which natural gas is used and, thereby,enhance the LNG value chain.

Scheduled investment incultivating energy demand underthe “Challenge 2020 Vision”

¥

600.0

billion(29% of total investment)

Background for Strategies: Quest for Stable Provision of Energy to the Tokyo Metropolitan Area
The supply and demand situation for electricity underwent

energy security in the event of disasters or power outages, andstructural changes following the Great East Japan Earthquake.

contribute to electricity peak savings. In addition, smart energy

As generation by nuclear power plants has declined, othernetworks are seen as a new, forward-thinking way of recycling

power sources are increasingly being used to fill the supply gap.

energy, and verification testing of these networks is progressing

In particular, natural gas-fired thermal power plants are continu-

at an accelerated pace. Diversifying the uses of natural gas andally being operated at full capacity in consideration of the fact

the sales venues the Company employs in light of thesethat they are relatively low-cost and friendly toward the environ-changes will help increase total transaction volumes of natural

ment. At the same time, dispersed energy systems are rapidly

gas over the long term and, thereby, contribute to reductions ingarnering attention. This is because such systems feature a

procurement costs. In other words, these efforts are importantvariety of benefits as they emit less CO2 than conventionalin advancing the enhancement of the LNG value chain from thelarge-scale centralized power generation facilities, enhancedownstream side.

300k

m

ActionCultivating Demand by Promoting Advanced Use of Natural Gas
and Fuel Conversion

General industry demand will play an important part in achieving

Natural gas is gaining attention for its merits in terms ofour goal of expanding gas sales volume to 22.0 billion m3 in fiscalenergy savings, CO2 reductions, and low operating costs. In light2020. Therefore, we aim to cultivate an increase in generalof this trend, Tokyo Gas is cultivating new demand by highlighting

industry demand from fiscal 2011’s 3.4 billion m to 7.0 billion m

the benefits of combining fuel conversion from heavy fuel oil andin fiscal 2020, effectively doubling this demand.

kerosene to natural gas and by introducing highly efficient appli-3

3

ances and advanced uses of natural gas in cogeneration systems.
‌Energy demand concentration in the Kanto region(200-kilometer radius)

In fiscal 2012, we successfully cultivated demand equivalent toapproximately 0.4 billion m3 in the Kashima Waterfront Industrial
Zone following the completion of the Chiba–Kashima Line. In the

North Kanto
Industrial Zone

Hitachi LNG Terminal

future, we expect to cultivate demand of as much as 2.0 billion m3
in this area.

Kashima Waterfront
Industrial Zone
Tokyo–Chiba
industrial Zone

 as Sales Volumes in the Kashima WaterfrontG
Industrial Zone
Million m3
800
600

Tokyo–Yokohama
Industrial Zone

Tokyo Gas high-pressure trunk lines(under construction)
Sodegaura
LNG Terminal

Negishi LNG Terminal

Ohgishima LNG Terminal

Tokyo Gas high-pressure trunk lines(under consideration)
Tokyo Gas high-pressure trunk lines(medium-to-long-term concept)
Tokyo Gas pipelines (in service)
Other companies’ pipelines(in service)

400
200
0

2012

2013
( plan)FY

Industrial zone

• Factories

Tokyo Gas

Annual Report 201325

Enhancing the LNG Value Chain

Focus

3

Promoting Fuel Conversion in the Kashima
Waterfront Industrial Zone

As one example of the Company’s efforts to cultivate city gas demand through fuelconversion to natural gas in the Kashima Waterfront Industrial Zone, Tokyo Gas would
like to introduce an initiative implemented by the Kashima Plant of Kao Corporation.

Kashima Plant, Kao Corporation
Conversion to Natural Gas as Part of a BusinessContinuity Plan
On June 10, 2013, the fires were lit in boiler No. 2 at Kao’s Kashima
Plant. However, this process was different to that of the past 30 years.
This time, the fuel in the boiler was natural gas. Under the watchfuleyes of representatives from the plant and Tokyo Gas, boiler No. 2
successfully completed the switch from heavy fuel oil to natural gas,as had boiler No. 1 before it.
The Kashima Plant is a critical manufacturing site in Kao’s
domestic production system forintermediate materials for household products as well as for
raw-use products. Kao has beenproactively undertaking fuelconversion ventures both in Japanand overseas and, therefore, waswell-versed in the benefits ofnatural gas. As such, the company
Boiler No. 2, which was successfully
readily began considering thelit using natural gas

Anticipated Supply of Stable and Affordable Power
Kao has accumulated a wide range of technologies related to fuelconversion, which enabled the conversion to proceed smoothly, withboiler No. 1 completing fuel-conversion construction and running on
natural gas from September 2012.
It has been 10 months since then. The managers at the Kashima
Plant feel that the greatest benefit of the switch is the improvement in
operational efficiency. Deliveries of heavy fuel oil are subject to delays,
meaning that inventories must be stringently managed. Further, the oilmust be transferred from the ship to storage tanks upon delivery, andthe temperature of these tanks must be carefully controlled to prevent
fuel from hardening. The introduction of city gas eliminates the needfor all of these processes. Moreover, when boilers operate on city gas,pressure fluctuations are minimal and nitrogen oxide (NOx) emissions
remain incredibly low. Accordingly, managing operation is infinitely
easier. Also, post-combustion flue gas processing requirements havebeen greatly reduced at the plant, and it is no longer necessary toprocess absorber after desulfurization. The plant’s management has
removed an electrostatic precipitator, which was no longer needed,
and is utilizing the site to build a cogeneration system.
Troublesome day-to day maintenance processes have also been
greatly reduced. One reason behind this is the fact that, as the plant is
no longer using C-heavy fuel oil, there is no need to clean the strainersthat would be used to remove impurities from this oil. “We used to be
wrought with anxiety because we cleaned the strainers during

Kao’s Kashima Plant

possibility of fuel conversion at the Kashima Plant from the time it was
decided that Tokyo Gas would supply natural gas to the Kashima
Waterfront Industrial Zone.
The Great East Japan Earthquake, which devastated Japan in
March 2011, was a major factor behind Kao’s decision. “It is the
Kashima Plant’s duty to supply Kao’s domestic plant with raw materials for household products,” Kashima Plant Manager Hiroshi Nagumo
exclaimed. “If operations were to be halted, it would greatly impact ourability to supply detergent and shampoo throughout Japan.”
According to Plant Manager Nagumo, a stable supply of energy is the
key to continuing operations at the Kashima Plant. For this reason, theinstability of the electricity supply and the difficulty of stably procuring
heavy fuel oil are clear reasons for concern. To address these issues,
Kao decided to introduce a cogeneration system and conduct fuelconversion at this plant. This decision was then put into effect inaccordance with Kao’s business continuity plan. “The earthquake
damaged various types of infrastructure, but gas pipes were practicallyunaffected. I was quite impressed by this fact,” stated Kiyoshi Hirano,
manager in charge of safety and the environment, reflecting on theprocess leading up to the decision.
operations, so we had to be careful to avoid extinguishing the fire. But
the new system has freed us from this pressure,” claims Takao Iwade,plant leader in charge of operations. Further, the frequency at whichpressure atomizing burners and the boiler itself must be cleaned ismuch lower. Also, as natural gas contains only minimal traces of sulfur
oxide, a major culprit in the corrosion of equipment, the natural gas
system is expected to help lengthen the lifespan of equipment. And, ofcourse, the introduction of the new system has led to a reduction of
approximately 30% in CO2 emissions in comparison to the heavy fueloil system, just as had been expected.
After the scheduled introduction of a cogeneration system at the
Kashima Plant is completed in December 2013, the plant will havefinished all steps of its fuel conversion
venture. “The Kashima Plant’s main fuelsource is now natural gas, a resource forwhich Japan is suffering due to unfavorable procurement conditions. I expect thatTokyo Gas will change this situation andsecure a stable and affordable supply ofthis resource.” This was Plant Manager(From left) Hiroyuki Sada (Tokyo
Nagumo’s last request to Tokyo Gas as itGas), Plant Leader Takao
considers such undertakings as the
Iwade (Kao), Plant Manager
procurement of unconventional natural
Hiroshi Nagumo (Kao),Manager Kiyoshi Hirano (Kao),gas and the construction of the Hitachi–
and Shinzo Ienaka (Tokyo Gas)
Kashima Line.

Kao Group
The Kao Group provides cosmetics, health drinks, detergents, and other consumer products as well as a wide range of industrial-use products to users around theworld. Acting in accordance with the Kao Environmental Statement announced in 2009, the Kao Group is developing products with low environmental impacts,
reducing CO2 emissions from production processes, and implementing energy-saving initiatives in a forward-thinking manner. Almost all of its manufacturing bases inJapan and overseas that have access to natural gas infrastructure have converted to systems utilizing this resource.

26

Tokyo Gas

Annual Report 2013

Expanding Power Generation(Natural Gas-Fired Thermal Power Generation)

ActionAs one effort to expand generation capacity, we decided on

In 2000, a revision to the Electricity Business Act of Japanderegulated sales of electricity to large-volume users. In light ofthe construction of a third unit at the Ohgishima Power Station inthis change, Tokyo Gas entered the electric power business in

October 2012. Situated in Yokohama, Kanagawa Prefecture, thisJune 2001 when it established Tokyo Gas Baypower Co., Ltd.,

cutting-edge facility employs gas turbine combined cycle genera-

within the grounds of its Sodegaura LNG Terminal. Since then,tion, which is highly energy efficient, with maximum efficiency

the Company has progressively advanced the construction ofreaching 58%. The third unit will have a generation capacity ofthermal power plants employing gas turbine combined cycle

407 MW, and the total generation capacity of the Ohgishima

generation. Today, we have a total generating capacity ofPower Station will rise to 1,221 MW once this unit is operational.
Going forward, we will continue to develop our electric power

approximately 2,000 MW (of which, the Tokyo Gas Group’s
ownership share is 1,300 MW). Under the “Challenge 2020

business in a low-risk manner by carefully monitoring trends in

Vision,” we aim to expand this capacity to between 3,000 MW

Japan’s supply and demand situation for electricity as well as

and 5,000 MW.

revisions to electricity regulations to accurately evaluate theeconomic rationality of future ventures.

Natural Gas-Fired Thermal Power Plants in the Tokyo Metropolitan Area (Fiscal year ending March 31, 2016)

840 MW

Kawasaki Natural Gas Power
Generation Co., Ltd. 
Ohgishima Power Co., Ltd. 
Tokyo Gas Baypower Co., Ltd. 
Tokyo Gas Yokosuka Power Co., Ltd. 

Combined Cycle Generation

1,221 MW
100 MW
240 MW‌Scale of the Power Generation Business(Including other companies’ interests)

Generator

Steam turbine

1.5 – 2.5 times
the current level

MW
6,000

Start-up of operationof 3rd unit of
Ohgishima Power Station

4,000

Steam Turbine Generation

Steam

2,000

2,000 MW3,000~5,000 MW

2,400 MWExhaust heat collection boiler
Gas Turbine Generation

Generator

Exhaust heat

2012

2015
(Plan)

2020(Plan)FY

Gas turbine

F

A

Q

‌Amid electricity system reforms underway atQpresent, how will Tokyo Gas develop its electric
power business?

A0and helping reduce electricity rates. In this quest, we will leverage
all of our various strengths in the electric power business. These
strengths include our LNG procurement capabilities as well as
our terminals, pipelines, and other LNG infrastructure. Another‌Reforms to electricity systems are currently in progress.

strength is our breadth of experience and expertise regarding theRegardless of how systems may change, we will remain

construction and operation of in-house generation facilities, which

committed to contributing to society and invigorating the

we have refined through our operations at Ohgishima Power Co.,

electricity market by providing a stable supply of energyLtd., and Kawasaki Natural Gas Power Generation Co., Ltd., etc.
Tokyo Gas

Annual Report 201327

Enhancing the LNG Value Chain

Supplying LNG throughout Japan

ActionNot limiting its operations to the Kanto region, Tokyo Gas

tankers. Through this venture, the Ishikari LNG Terminal will be

provides the resources that it procures throughout Japan. We

supplied with between 300,000 tons and 400,000 tons of LNG

thereby meet the needs of gas companies throughout Japan,

per year during the 11-year period beginning fiscal 2012. Further,

supplying them with LNG via tank lorries, large ocean-going

we acquired a 20% stake in Hokkaido LNG Co., Ltd., a consoli-tankers, and smaller domestic vessels. Expanding our sales

dated subsidiary of Hokkaido Gas that is the direct owner of thechannels in this manner is yet another one of our efforts to

Ishikari LNG Terminal, to deepen our relationship as we work toenhance the LNG value chain.

advance the spread of LNG. We also signed an LNG sales
agreement with Saibu Gas Co., Ltd., for the supply of about

As one facet of these efforts, we commenced supply to the
Ishikari LNG Terminal of Hokkaido Gas Co., Ltd., in October

300,000 tons of LNG per year over the 16-year period beginning2012. This project is our first endeavor to provide a domestic gas

fiscal 2014.

company with gas procured by the Company via ocean-going
Supplying LNG via Domestic and Overseas Vessels

Supplying LNG via Domestic and Overseas Vessels

JX Nippon Oil &Energy Corporation
Ishikari LNG Terminal
Hokkaido Gas Co., Ltd.

Hakodate Minato
LNG Terminal

Saibu Gas Co., Ltd.

Hachinohe LNG
Terminal

Hachinohe LNG Terminal

Currently supplying

Hakodate Minato
LNG Terminal

Currently supplying

Ishikari LNG Terminal

Currently supplying

Hibiki LNG Terminal

From 2014

Hibiki LNG Terminal

LNG Tanker“Energy Frontier”

ActionPromoting the Proliferation and Expansion of Dispersed Energy Systems

Against the backdrop of increased demand for energy security

Benefits of Cogeneration Systems

and business continuity plans, we have been promoting sales ofcommercial and industrial cogeneration systems, and our cumu-

1. Reduced Energy Usage and Costs

lative stock of these systems has risen to 1,650 MW. We plan to

As cogeneration systems make effective use of waste heat or direct this heat for
use in air conditioning or water heating equipment, they contribute to reductions
in energy costs.

raise this cumulative stock by 220 MW in fiscal 2013 and then to
4,000 MW in fiscal 2020.

2. Environmental Preservation Benefits
City gas is a clean source of energy and its systems make effective use of waste
heat, thereby helping cut CO2 emissions by approximately one-third in comparison to conventional systems.

‌Cogeneration
System (Commercial, Industrial)
Stock Plan
MW

4,000 MW4,000

3. Improved Energy Security
Cogeneration systems enable the usage of several power sources, making iteasier to secure a supply of electricity during times of disaster.

3,000
2,000

1,530 MW1,650 MW

2011

2012

1,870 MW

1,000
0

28

Tokyo Gas

Annual Report 2013

2013
(Plan)

2020(Plan)FY

Focus

Accelerating the Proliferation of New “ENE-FARM” Systems

4

Simultaneously Realizing Reduced Costs and Improved Performance
Tokyo Gas is promoting the proliferation of dispersed energy
systems for which natural gas is a core element. As part of these
efforts, we have been expanding sales of “ENE-FARM” residential
fuel cell systems, and in fiscal 2012 “ENE-FARM” sales exceeded
targets, at approximately 7,600 units. In fiscal 2013, we will

costs and the world’s highest level of total efficiency, targetinga year-on-year increase of approximately 58% in “ENE-FARM”
sales, to 12,000 units.
Our plans call for a stock of 300,000 “ENE-FARM” units to beaccumulated by fiscal 2020.

promote sales of new “ENE-FARM” systems that boast reduced“ENE-FARM” (Residential) Stock PlanThousand units
400

300

300
200
100
0

9.6

17.2

29.2

2011

2012

2013
(Plan)

2020(Plan)

FY

Promoting Smart Energy Networks

ActionTokyo Gas advocates the creation of “smart energy networks.”

projects in cooperation with the government and our business

These networks are based on a concept of combining renewable

partners to complete various verification tests for these networks

energy with cogeneration systems and controlling these in an

and realize practical use. These projects include energy usage

optimal manner through information and communications tech-related ventures, such as a network designed to optimize energy

nology (ICT). This process enables electricity and heat to besupply and demand management in the area north of the east

managed comprehensively throughout the network to reduce

exit of Tamachi Station, in Tokyo, and a network utilizing untappedenergy usage and CO2 emissions. We are advancing a number ofrenewable energy in the Toyosu wharf area, also in Tokyo.

Smart Energy Network
Apartment Buildings

Hospitals

Photovoltaic Power Generation
Fuel Cell

Photovoltaic Power Generation
Gas Cogeneration
Energy Storage System

LNG Terminal

Biomass
Generation

Waste Disposal
CenterOffice Buildings
Photovoltaic Power Generation
Gas Cogeneration
Energy Storage System

Information andCommunications
Technology

Wind Turbine Generation

Power Plant

Detached House

Commercial Facilities

Photovoltaic Power Generation
Fuel Cell

Photovoltaic Power Generation
Gas Cogeneration
Energy Storage System

Tokyo Gas

Annual Report 201329

Capital Expenditures Plan
Capital Expenditures, Investment, and Financing Plan for “Challenge 2020 Vision”
The “Challenge 2020 Vision” calls for aggressive capital expendi-

business to procure gas resources. During the investment period,tures, investments, and financing, including through external

we expect operating cash flow (consolidated net income +funding, to achieve new growth by “enhancing the LNG value

depreciation) to be around ¥250 billion per year, approximately

chain.” Between fiscal 2012 and fiscal 2020, this plan calls for¥40 billion per year higher than during the FY09–13 Medium-

total capital expenditures, investments, and financing of ¥2.06

Term Plan.

trillion. As an annual average, the vision, compared with theUse of Capital Expenditures, Investment, and Financing

Group medium-term management plan for fiscal 2009–2013

Fiscal 2012–Fiscal 2020: Approx. ¥2,060 billion(Approx. ¥230 billion per year)(hereinafter, “FY09 –13 Medium-Term Plan”) targets an annual
increase in spending of around ¥50 billion, from approximately¥180 billion to around ¥230 billion. This proactive funding isInfrastructure¥730 billion
Overseas business¥320 billion
Demand development ¥600 billion
Business base¥270 billion
Other investments
in affiliates¥140 billion

7%
13%

aimed at optimizing and enhancing our infrastructure so that we

35%

can promote and expand the use of natural gas. Much of thisinvestment will go toward production and supply facilities
including the Hitachi LNG Terminal. We will also augment our

29%

trunk and service lines and electric power generation to develop(Reference) Capital expenditures, investments, and financing under the medium-term
management plan for fiscal 2009–2013:
Approximately ¥180 billion per year

16%

demand, and continue investing aggressively in overseas
Gas Sales Volume Plan and Facilities Development Plan (non-consolidated)
Billion m3

Koga-Moka Line

17.0
16.5
16.0

Shin-Negishi Line
Yokohama Line II

15.5
15.0
14.5

Kisarazu Rinkai Line II

Saito Line
Ibaraki–Tochigi Line
Tochigi Line extension

15.9 billion m3
15.5 billion m3

14.6 billion m

3

14.8 billion m3

Ohgishima Terminaltank expansion

14.0
0

2013

2014

16.4 billion m3

Ohgishima Terminal
vaporization equipment
expansion
Hitachi LNG Terminal
2015

Sodegaura LNG
Terminal vaporizationequipment expansion

2016

2017

Facility Investment Plans (non-consolidated)

Billions of yen

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

Fiscal 2017

Total for fiscal
2013–2017

28.1

32.2

29.4

8.4

7.7

105.7

LNG-related facilities

19.6

24.3

23.2

0.1

1.2

68.3

Other

8.5

7.9

6.2

8.3

6.5

37.5

Supply facilities

95.8

97.3

99.4

79.4

76.3

448.2

Trunk lines

21.0

23.3

28.8

10.7

5.7

89.6

Other

74.8

73.9

70.6

68.7

70.6

358.7

Business facilities

22.3

34.1

40.1

51.2

40.9

188.6

Subtotal for gas business facilities(reduction entry of land contribution for construction)

146.2

163.6

168.8

139.0

124.9

742.6

0.8

0.6

0.6

0.6

0.6

3.1

147.0

164.2

169.4

139.6

125.5

745.7

Production facilities

Incidental facilities
Total(reduction entry of land contribution for construction)

30

FY

Tokyo Gas

Annual Report 2013

Corporate
Governance32

Overview of Corporate Governance Systems

32

Internal Control System

33

Outside Directors

33

Audits by Audit & Supervisory Board Members

34

Officer Remuneration

35

Advisory Committee

35

Independent Auditors

35

Compliance

36

Risk Management System

37

Board of Directors and Audit & Supervisory Board Members

Tokyo Gas

Annual Report 201331

Corporate GovernanceTokyo Gas works to ensure continued development while consistently earning the trust of customers, shareholders, andsociety. Based on this philosophy, we aim to achieve a continuous increase in our corporate value through enhancing
corporate governance systems. We are endeavoring to develop systems with a commitment to management legality,
soundness, and transparency. Tokyo Gas continues to emphasize the importance of accurate and prompt decision making,efficient business operations, strengthening of auditing and monitoring functions, and clarification of management andexecutive responsibilities.

Overview of Corporate Governance Systems
Tokyo Gas takes a proactive stance in employing outside direc-

business execution in accordance with decisions of the Board oftors and outside audit & supervisory board members. The

Directors. Substantial authority has been delegated to executive

Company has created a system featuring multiple auditing andofficers in their designated areas of responsibility, while directors,

supervisory layers in its aim to achieve highly objective andas appropriate, receive reports on the status of execution fromtransparent governance.

executive officers and monitor the executive officers. In addition,
executive officers report to the Board of Directors as needed. (ToInvitation of Outside Directors

clarify management responsibility and executive responsibility, theIn 2002, we reduced the number of directors to raise the speed

terms of office of directors and executive officers have been fixedand effectiveness of management decision making. In addition,

at one year.)

we have invited outside directors to serve on the Board of
supervision of business execution. The Board of Directors has

Working to Promote Transparent Management
and Create a Flexible and Open Corporate Culture

11 members, including 3 outside directors.

In fiscal 2002, the Company established the Management Ethics

Directors in order to improve transparency and to reinforce theCommittee, chaired by the President. We also formed in-house

Audit & Supervisory Board Members

committees to address issues that are important from a manage-

In the past, the Company had invited 2 outside audit & supervisory

ment perspective, such as compliance, risk management,

board members, and in 2006 the number of outside audit &customer satisfaction, and safety. This structure facilitates thesupervisory board members was increased by one. The five audit

sharing of information within the Group, as well as deliberations,& supervisory board members, which now include three outside

adjustments, and decisions regarding the Group’s overall direction.

audit & supervisory board members, conduct strict audits.

Establishment of Advisory Committee
We have established the Advisory Committee, which is made upof three representatives from the outside directors and outside
audit & supervisory board members and two inside directors. In
accordance with inquiries from the Board of Directors, the Advisory Committee selects officer candidates in a fair and appropriatemanner and deliberates on officer remuneration in accordancewith the Company’s basic policy for officer remuneration.

Realizing Accurate, Rapid Decision Making
and Efficient Business Execution
The Corporate Executive Committee, which meets weekly as a
general rule, deliberates on provisions stemming from Board of
Directors’ resolutions and important management-related issues.
The Company has introduced an executive officer system for

Overview of Corporate Governance System

As of June 27, 2013

Number of directors
Average age of directors
Number of outside directors
Number of independent officers
Number of audit & supervisory board members
Number of outside audit & supervisory board members
Participation of outside directors / outside audit &supervisory board members in determination of remuneration
Participation of outside directors
in determination of director candidates
Number of meetings of Board of Directors*
Attendance rate of outside directors at meetings of Board of
Directors*
Term of office of directors
Results-linked remuneration
Share purchase system to reflect the perspective ofshareholders in management

11
65.5
3
6
5
3
Yes
Yes
11
94%
One yearYes
Yes* Total for the period from April 2012 to March 2013

Internal Control System

32

To secure management legality soundness and transparency andand Systems for Ensuring Appropriateness of Operations (Internal

to realize the management philosophy, the Company has formu-

Control System) for the Tokyo Gas Group,” and the Company

lated the “Basic Policy on Development of Corporate Structures

is applying this policy in an appropriate manner.

Tokyo Gas

Annual Report 2013

Outside Directors
In accordance with their individual experience and knowledge,

have conflicts of interest with general shareholders and they are

the outside directors strive to secure the soundness and appro-in a position that enables them to be objective and neutral, andpriateness of deliberations and decisions regarding businesson that basis we make a judgment on their independence. The

execution. From an independent viewpoint, the outside directors

Advisory Committee has confirmed that none of the outsidemonitor the performance of duties by the directors and exercise

officers has a material conflict of interest with the Company—

their authority at meetings of the Board of Directors. In this way,in regard to capital, transactions, or relationships—and has

the outside directors contribute to the improvement of the ratio-confirmed their independence in accordance with the above

nality and objectivity of the Company’s business execution and of

standards. The Committee’s decision has been reported to thethe deliberations and decisions of the Board of Directors.

Board of Directors, which has designated them as independent
officers and reported that designation to the stock exchanges on

In making judgments about matters related to the indepen-

which the Company is listed.

dence of outside officers, such as capital, transactions, andrelationships, we comprehensively verify that they are unlikely to
Name

Yukio Sato
RyuichiTomizawa
Yoshihiko
NakagakiCurrent position

Reason for appointment

Vice Chairman of The Japan
Institute of International Affairs
Senior Corporate Advisor of
Mitsubishi Chemical Holdings
Corporation

The Company’s management will benefit from Yukio Sato’s international way of thinking nurtured
through diplomacy, wide perspective and in-depth knowledge.
The Company’s management will benefit from Ryuichi Tomizawa’s international way of thinking
nurtured in the aggressive overseas penetration of the chemical industry, wide perspective, andin-depth knowledge.

Corporate Advisor of ElectricPower Development Co., Ltd.

The Company’s management will benefit from Yoshihiko Nakagaki’s management way of thinking
nurtured at Electric Power Development Co., Ltd., in a wide range of business development
activities, including electric power source development and electric power wholesale supply, andhis advanced capabilities in management, such as the implementation of reforms reflectingchanges in the operating environment.

Corporate Governance System
Customers

Local Community

Shareholders / Investors

General Shareholders’ Meeting
Appointment

Appointment

ReportReport submission

AnswerAdvisory Committee*2

Collaboration

Audit, etc.

Collaboration

General Shareholders’ Meeting
Stakeholders
Tokyo Gas Co., Ltd.
Business Operations

MonitorReport submission

Management Ethics Committee

President(Corporate Executive Committee*4)

ReportApproval

Deliberation
and report

Safety Committee
Customer Satisfaction Promotion Committee
Investment Evaluation Committee
Environmental Committee

Settlement andmonitorCollaboration

Audit

Board of Directors*1
Inquiry

Internal Audit Department

Independent Auditors

ReportAudit & Supervisory Board

Appointment

Report submission

Corporate Communications Promotion Committee
Risk Management Committee

Audit

Business Departments /Subsidiaries and Affiliates

Other In-House Committees
Add to agenda and report
Decision and monitoring*1	‌Board of Directors: 11 directors (3 outside directors and 8 internal directors), and 5 audit & supervisory board members (3 outside auditors and 2 internal auditors)*2 Advisory Committee: 3 representatives from outside directors and outside audit & supervisory board members, Chairman (1), and President (1)*3 Audit & Supervisory Board: 5 audit & supervisory board members (3 outside auditors and 2 internal auditors)*4	Corporate Executive Committee: President, 2 Executive Vice Presidents, and 11 Senior Executive Officers (3 of the representative directors also serve as President and Executive Vice Presidents)

Audits by Audit & Supervisory Board Members
The audit & supervisory board members meet once a month as a

In line with the Corporate Auditor’s Audit Standards, eachgeneral rule and otherwise as needed. The five members of theaudit & supervisory board member conducts effective audits

board, which include three outside audit & supervisory board

through the following principal initiatives.

members, conduct deliberations and make reports.

Tokyo Gas

Annual Report 201333

Corporate Governance• The audit & supervisory board members attend meetings ofthrough their statements at meetings of the Board of Directors. In

the Board of Directors, the Corporate Executive Committee,

addition, through their statements & the exercise of their majority

and other important meetings. They state their opinions

voting rights at meetings of the Audit & Supervisory Board, therelating to legality and other perspectives when necessary.

outside audit & supervisory board members contribute to assuring

• The
‌
audit & supervisory board members conduct researchand improving the legality, appropriateness, rationality, and objec-

into the state of operations at the head office, businesstivity of the audits by the audit & supervisory board members. In

offices, and subsidiaries and hold discussions with directors

addition, with the objective of assuring the effectiveness of audits

to exchange opinions, both on a regular basis and otherwise

by the audit & supervisory board members, the Company invites

as needed.

outside audit & supervisory board members who have a substan-

audit & supervisory board members cooperate closely• The‌
with the Internal Audit Department, which is the internal audit

tial degree of knowledge about finance and accounting.
In making judgments about matters related to the indepen-

organization, and with the independent auditors and strictly

dence of outside officers, such as capital, transactions, andaudit the execution of duties by the directors, targeting therelationships, we comprehensively verify that they are unlikely toestablishment of a high-quality corporate governance system.

have conflicts of interest with general shareholders and they are• In‌ regard to the internal control system for financial reporting,the audit & supervisory board members receive evaluationsof internal control and reports on the status of audits fromthe Board of Directors and KPMG AZSA LLC.

in a position that enables them to be objective and neutral, andon that basis we make a judgment on their independence. The
Advisory Committee has confirmed that none of the outside
officers has a material conflict of interest with the Company—in regard to capital, transactions, or relationships—and has

Outside Audit & Supervisory Board Members

confirmed their independence in accordance with the above

The outside audit & supervisory board members conduct audits /standards. The Committee’s decision has been reported to themonitoring from an independent viewpoint and contribute to

Board of Directors, which has designated them as independent

improving the rationality and objectivity of the Company’s businessofficers and reported that designation to the stock exchanges on

execution and of the deliberations of the Board of Directors

which the Company is listed.

Name

Current position

Yukio Masuda

Consultant of Mitsubishi Corporation
Outside Director of Showa Shell Sekiyu K.K.

Yoshihiko Morita

President of Japan Institute for Overseas
Investment
Outside Director of Kawasaki Heavy
Industries, Ltd.

Kojiro Otani—

Reason for selection

The Company’s auditing will benefit from Yukio Masuda’s excellent management
capability and experiences nurtured at a major trading company and high level ofknowledge about the energy business.
The Company’s auditing will benefit from Yoshihiko Morita’s expansive international
way of thinking and deep insight nurtured through work in the fields of international
finance and overseas economic cooperation.
The Company’s auditing will benefit from Kojiro Otani’s abundant experience oforganizational management acquired in local government as well as his deep insight.

Officer Remuneration
In 2005, the Company formulated the basic policy on officer

remuneration and bonus. Monthly remuneration shall comprise

remuneration, which outlines the method of remuneration for

fixed remuneration paid in accordance with the post of eachdirectors, etc. At a meeting of the Board of Directors in February

individual and performance-linked remuneration. The amount of

2012, the policy was revised as follows.

bonus to be paid shall be determined in accordance with the postof each inside director after performance evaluation.

1. Role of Officers and Remuneration(3) Remuneration of outside directors shall comprise monthly

The role demanded of officers is to seek to enhance short-,

remuneration and bonus. Monthly remuneration shall comprise

medium-, and long-term corporate value, and officer remuneration

only fixed remuneration, while bonus shall be the same as that ofshall serve as an effective incentive for them to perform that role.

inside directors.

2. Level of Remuneration

4. R emuneration of Audit & Supervisory Board Members
and Its Composition

The level of officer remuneration shall be suitable for the role,34

responsibility, and performance of the officer.

(1) Remuneration of audit & supervisory board members shall be

3. Remuneration of Directors and Its Composition

Shareholders’ Meeting determined through discussions among audit(1) Remuneration of directors shall be paid within the scope of the& supervisory board members.

remuneration limit approved at the Shareholders’ Meeting.

(2) Remuneration of audit & supervisory board members shall(2) Remuneration of inside directors shall comprise monthly

comprise only fixed monthly remuneration.

Tokyo Gas

Annual Report 2013

paid within the scope of the remuneration limit approved at the5. Assurance of Objectivity and Transparencyof Remuneration System

Advisory Committee comprising a number of outside directors,

The Company shall assure the objectivity and transparency of theto govern the system of personnel affairs and remuneration

system of officer remuneration by establishing and operating theof officers.

outside audit & supervisory board members and inside directors

Total remuneration for directors and audit & supervisory board members(Fiscal 2012)

Remuneration for directors(excluding outside directors)
Remuneration for audit & supervisory board members(excluding outside audit & supervisory board members)
Remuneration for outside officers(outside directors and outside audit & supervisory board members)

Millions of yen
TypeThousands of U.S.dollars*2
Type

Total value of
remuneration

Base

Bonuses

Base

Bonuses

1

9*

¥458

¥395

¥63

$4,158

$663

2*1

74

74

—

779

—

8*1

¥ 66

¥ 58

¥ 8

$  610$ 74*1	The number of officers included in the total value of remuneration for directors, audit & supervisory board members, and outside officers includes two directors (of which, one was an outside officer) and one
audit & supervisory board member (an outside officer) who retired upon the conclusion of the 212th Annual Shareholders’ Meeting.
*2	Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥95 per U.S. dollar, the prevailing exchange rate at the end of March 2013. These
conversions should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

Advisory Committee
In February 2005, we established the Advisory Committee, whichwith inquiries from the Board of Directors, the Advisory

has five members—three representatives from the outside direc-

Committee deliberates on officer candidates and officer remu-

tors and outside audit & supervisory board members as well as

neration in a fair and appropriate manner and makes reports to

the Chairman and the President. The committee works to assure

the Board of Directors. The committee also deliberates on theobjectiveness and transparency in management. In accordance

independence of outside officer candidates.

Independent Auditors
The Company has concluded an auditing contract with KPMG

being audited on that basis. The Company’s audits are handled

AZSA LLC for auditing services based on the Companies Act

by three certified public accountants—Teruhiko Tanaka, Koji

and auditing services based on the Financial Instruments andKakinuma, and Masaru Miura. For each of these auditors, theExchange Act, as well as internal control audits based on thenumber of consecutive years of auditing service is seven years or

Financial Instruments and Exchange Act, and the Company isless (as of June 27, 2013).

Compensation for independent auditors (Fiscal 2012)

Remuneration for auditing services
Remuneration for non-auditing services
Total

Millions of yen

Thousands of U.S.dollars*

¥259
30
¥289

$2,726316$3,042*E quivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥95 per U.S. dollar, the prevailing exchange rate at the end of March 2013. These
conversions should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

Compliance
The Company has identified the following three points as its basic

and thereafter. We have also established the Compliance Depart-

policy and is promoting compliance on that basis.

ment to lead compliance-related activities for each unit. These• Fostering of a compliance oriented mentality• ‌Compliance efforts by each workplace based on the Group policy• Establishment‌
of the compliance PDCA cycle

include development of compliance promotion systems, encouragement awareness and educational campaigns about the code of
conduct, compliance risk reduction measures, maintenance ofadvisory systems, and broad-based distribution of information within

Compliance Structure

and beyond the Tokyo Gas Group companies. To cultivate an

We have established the Management Ethics Committee, chaired byunderstanding of compliance, we promote a thorough awareness of

the President. This committee discusses at the management levelongoing activities related to our code of conduct that was revised inbasic compliance policies and all aspects of compliance initiatives by

2004. We are also moving forward with a compliance casebook

the Company, monitors the implementation of compliance-related

designed for applying the code of conduct to various problems inmeasures, and confirms activity programs from the following year

the workplace, so as to achieve the permeation of compliance.

Tokyo Gas

Annual Report 201335

Corporate GovernanceCompliance Risk Management

all employees. The results of these surveys are reflected in initia-

Through the effective operation of internal and external advisory

tives for the following years. The Compliance Audit Sect, thesystems, we are endeavoring to ensure that compliance-relatedInternal Audit Department conducts audits of the Company, its

problems are discovered and resolved quickly so that our corpo-

subsidiaries, and its affiliates from the viewpoint of strict compli-

rate self-regulatory processes will continue to function effectively.

ance with laws, corporate ethics, and social norms. WhenWe monitor the effectiveness of Group compliance promotion

concerns are identified, the Group conducts follow-up audits inactivities by conducting regular compliance awareness surveys ofthe following year to verify progress in tackling those concerns.

Risk Management System
Enterprise Risk Management System

Executive Committee and obtains the necessary approvals.

In fiscal 2003, the Company established an enterprise risk

Moreover, since the start of fiscal 2011, the risk management

management (ERM) system and drew up risk management

function has been the responsibility of the Corporate Planning

regulations, which include documented rules concerning major

Depertment, and there has been a framework in place for imple-

risks faced by the Group.

menting unified ERM together with operational management.

The Risk Management Committee was established in fiscal

Under the framework, around 130 Risk Management Promotion

2008 with the aim of identifying and evaluating progress

Officers are deployed in the business departments of Tokyo Gas

regarding the establishment and the operational status of theand its subsidiaries and affiliates in order to promote ERM. EachERM system, as well as improving the level of ERM. The

year, we assess risks and the implementation and improvement

committee periodically undertakes risk assessments and checks

status of countermeasures. This system facilitates the steadyon progress regarding the establishment and the operational

implementation of the ERM-PDCA (Plan-Do-Check-Act) cycle.

status of the ERM system. It also reports to the Corporate
Enterprise Risk Management (ERM) System
Corporate Executive Committee
Confirmation of major Group risks
Reflection of results ofrisk assessment

Report / proposal for plan for assessment of major Group risks /other essential matters

Securities Markets and Other Stakeholders

Risk Management Committee

Disclosure of risk information through Securities Report,
Financial results, Annual report, CSR report(Executive Office: Corporate Planning Dept.)
Identifying and confirming Group risk management

Clear statement of risk
management policies

Feedback of evaluation results /improvement proposals

Reports regarding results of risk assessment, status of
implementation of countermeasures, status of improvement, etc.

Clear statement of risk
management policies

Business Departments / Subsidiaries and Affiliates(1) Identifying and evaluating risks, formulating andimplementing risk countermeasures(2) Improvement of risk assessment, countermeasures

Crisis Management System

responses in the event of a major earthquake of the magnitude

Because the Company provides public services that compriseassumed by Japan’s Cabinet Office, a major accident disrupting

a lifeline, for many years it has also had a crisis management

power supply, an outbreak of influenza, etc. This plan is in placesystem that serves as a response system in case an accident or

to reinforce the Company’s risk management system.

other risk-related event actually occurs. Specifically, we haveformulated Emergency Response Organization Regulations. In
case of crises, including major natural disasters, such as earthquakes, or production or supply disruptions arising from major
accidents at pipelines or terminals, as well as influenza, terrorism,

Emergency Response Organization
Suggestion of establishment of Emergency Response Organization, etc.

President (Organization Leader)

Executive Office

failures in mission-critical IT systems, and compliance problems,
the Emergency Response Organization responds to the situation

Instructions /orders reports

ReportCollaboration

immediately in accordance with the Emergency Response Organization Regulations. Periodic training is conducted in relation to
major risk response measures. Moreover, the Company has also
formulated a Business Continuity Plan (BCP), outlining its

36

Tokyo Gas

Annual Report 2013

Business Departments

Corporate Planning Dept.
(Groupwide coordination)* The organizational unit in charge of the executive office is determined in advance in accordancewith the type of the emergency.

Board of Directors and Audit & Supervisory Board Members As of June 27, 2013
Directors

Director, Chairman

Representative Director, President

Mitsunori Torihara

Tsuyoshi Okamoto

April
June
April
April

1967
Joined the Company
2003 	‌Representative Director, Executive Vice President and, Division Manager ofStrategic Planning Div.
2006
President, Representative Director, and Executive President
2010
Director and Chairman of the Board

April
June
April

April

1970
Joined the Company
2004
Director, Senior Executive Officer, and Division Manager of Strategic Planning Div.
2007	Representative Director, Executive Vice President, and in charge of Personnel
Dept., Secretary Dept., General Administration Dept., Compliance Dept., andInternal Audit Dept.
2010
President, Representative Director, and Executive President

Representative Director

Representative Director

Shigeru MurakiMichiaki Hirose

July
April
June
April

1972
Joined the Company
2004
Senior Executive Officer and Division Manager of R&D Div.
2007	‌Director, Senior Executive Officer, and Division Manager of Energy Solutions Div.
and General Manager of Volume Sales Dept. of Energy Solution Div.
2010	‌Representative Director, Executive Vice President, Division Manager of Energy
Solutions Div., and General Manager of Volume Sales Dept. of Energy Solution Div.

April
1974 Joined the Company
2007	‌Senior Executive Officer and in charge of Corporate Planning Dept., Infrastructure
April		‌Project Dept., Finance & Managerial Accounting Dept., Accounting Dept., andAffiliated Companies Dept.
2009	‌Director, Senior Executive Officer, and in charge of Corporate Planning Dept.,
June
Corporate Communications Dept., and Affiliated Companies Dept.
January 2010	‌Director, Senior Executive Officer, and in charge of Corporate Planning Dept., ProjectManagement Dept., Corporate Communication Dept., and Affiliated Companies Dept.
2012	‌Representative Director, Executive Vice President, and Division Manager of
April
Living-Energy Div.
April
2013	‌Representative Director, Executive Vice President, and Division Manager of Residential
Sales and Service Div.

Director

Director

Kazuo Yoshino

Matsuhiko Hataba

April
April
April
June

1975
Joined the Company
2005	‌Executive Officer and General Manager of Finance & Managerial Accounting
Dept. of Strategic Planning Div.
2009	‌Senior Executive Officer and in charge of Investor Relations Dept., Finance &Managerial Accounting Dept., and Accounting Dept.
2011	‌Director, Senior Executive Officer and Division Manager of Information
Technology Div., and in charge of Finance & Managerial Accounting Dept. andAccounting Dept.

April
April
April
June
April

1976
Joined the Company
2006	‌Executive Officer and General Manager of Personnel Dept. of Business Support Div.
2009
Senior Executive Officer, and Division Manager of Living Energy Div.
2012	‌Director, Senior Executive Officer, and in charge of Corporate Planning Dept.,
TG-Group Reorganization Project Dept., and Affiliated Companies Dept.
2013	‌Director, Senior Executive Officer, and in charge of Corporate Planning Dept. and
Affiliated Companies Dept.

Director

Director

Yutaka Kunigo

Masahiro Mikami

April
April
April
June

1977	‌Joined the Company
2007	‌Executive Officer and General Manager of Gas Resources Dept. of Energy
Resources Div.
2010
Senior Executive Officer and Division Manager of Energy Resources Div.
2013	‌Director, Senior Executive Officer, and Division Manager of Energy Production Div.

April
April
April

June

1975	‌Joined the Company
2008
Executive Officer and General Manager of General Administration Dept.
2011	‌Senior Executive Officer and in charge of Purchasing Dept., Real EstateManagement Dept., Major Site Development Dept., and General
Administration Dept.
2013	‌Director, Senior Executive Officer and in charge of Secretary Dept., General
Administration Dept., Corporate Communications Dept., Environmental Affairs
Dept., and Compliance Dept.

Tokyo Gas

Annual Report 201337

Corporate GovernanceOutside Directors

Outside Director

Outside Director

Yukio Sato

Ryuichi Tomizawa

April
1961	‌Joined the Ministry of Foreign Affairs
September 1998	‌Permanent Representative of Japan to the United Nations (Ambassador ofJapan to the United Nations)February
2003
President of The Japan Institute of International Affairs
December 2004
Commissioner of National Public Safety Commission
February
2009
Vice Chairman of The Japan Institute of International Affairs (Current position)
June
2010
Outside Director of the Company

April1965	‌Joined Mitsubishi Kasei Industries Corporation (Current Mitsubishi Chemical
Corporation)2000	‌President of Mitsubishi-Tokyo Pharmaceuticals, Inc. (Current Mitsubishi Tanabe
Pharma Corporation)
June 	‌2002	‌Member of the Board, President, and Chief Executive Officer of Mitsubishi
Chemical Corporation
October 2005
Member of the Board, President of Mitsubishi Chemical Holdings Corporation
April
2007
Member of the Board, Chairman of Mitsubishi Chemical Holdings Corporation
June
2011
Outside Director of the Company
June2012	Senior Corporate Advisor of Mitsubishi Chemical Holdings Corporation(Current position)
April

Outside Director

Yoshihiko Nakagaki
April
June
June
June
June
June
June

1961	‌Joined Electric Power Development Co., Ltd. (J-POWER)
1996	‌Director and Department Director of Corporate Planning Dept. of Electric Power
Development Co., Ltd. (J-POWER)
1998	‌Managing Director of Electric Power Development Co., Ltd. (J-POWER)
2000	‌Vice President and Representative Director of Electric Power Development
Co., Ltd. (J-POWER)
2001	‌President and Representative Director of Electric Power Development Co., Ltd.
(J-POWER)
2009 	‌Corporate Advisor of Electric Power Development Co., Ltd. (J-POWER)(Current position)
2012
Outside Director of the Company

Audit & Supervisory
Board Members

Audit & Supervisory Board Member

Audit & Supervisory Board Member

Manabu Fukumoto

Tsutomu Oya

April
April
June
June

1975
Joined the Company
2006	‌Executive Officer and General Manager of General Administration Dept.
of Corporate Communication Div.
2009 	‌Senior Executive Officer and in charge of Purchasing Dept., Real EstateManagement Dept., Major Site Development Dept., and Internal Audit Dept.
2011
Audit & Supervisory Board Member of the Company

April
Apri

April
June
April
June

1975
Joined the Company
2004	‌Executive Officer, General Manager of Urban Energy Business Dept. of Energy
Sales and Service Div., and Acting General Manager of Volume Sales Dept. ofEnergy Sales and Service Div.
2006	‌Senior Executive Officer and Division Manager of Energy Resources Div.
2009	‌Director, Senior Executive Officer, and Division Manager of Energy Resources Div.
2012
Director, Senior Executive Officer, Division Manager of Energy Production Div.
2013
Audit & Supervisory Board Member of the Company

Outside Audit & Supervisory
Board Members

Outside Audit & Supervisory Board Member

Outside Audit & Supervisory Board Member

Yukio Masuda

Yoshihiko Morita

April
April

1964
Joined Mitsubishi Corporation
2002	‌Member of the Board, Senior Executive Vice President, Chief Executive Officerof Mitsubishi CorporationJune
2008	‌Consultant of Mitsubishi Corporation (Current position)
		Outside Audit & Supervisory Board Member of the Company
March 2009
Consultant of Showa Shell Sekiyu K.K. (Current position)

38

Tokyo Gas

Annual Report 2013

April
October1969
Joined Export-Import Bank of Japan
2004	‌Deputy Governor and Managing Director of Japan Bank for International
Cooperation
June
2012
President of Japan Institute for Overseas Investment (Current position)
		Outside Audit & Supervisory Board Member of the Company
June
2013
Outside Director of Kawasaki Heavy Industries, Ltd. (Current position)

New Outside Audit & Supervisory Board Member
the diversification of resource procurement is synonymous with thenational interest. I also believe that meeting those challenges in orderfor Tokyo Gas to fulfill its social mission as an energy company will at
the same time help to sustain and increase its corporate value and will
gain the understanding of all its shareholders and other stakeholders.
Outside Audit & Supervisory Board Member

On the other hand, the international operating environment

Kojiro Otani

surrounding natural gas is in a period of tumultuous change, and

March
April
April
July
June

1971
2003
2006
2008
2013

Tokyo Gas faces a variety of risks as it develops its business over-Joined Yokohama City Hall
Director General of General Affairs Bureau of Yokohama City Hall
Director General of Waterworks Bureau of Yokohama City Hall
Vice President of Kanagawa Water Supply Authority
Outside Audit & Supervisory Board Member of the Company

seas. Careful analysis of political and economic circumstances inforeign countries is essential. While acknowledging the great responsibility of being an outside auditor, I intend to focus on these issues.
Good management through efficient business operations, stablegas supply to customers, the prioritization of safety in addressing

My name is Kojiro Otani, and I was appointed as an outside audit &disasters, and reliability based on those foundations are some of thesupervisory board member with the approval of shareholders at the

expectations placed on Tokyo Gas as a public utility. Accordingly,

Company’s June 2013 Ordinary General Meeting of Shareholders.

compliance across the entire Tokyo Gas Group organization andWhile the Great East Japan Earthquake reminded us of the impor-transparent information disclosure to shareholders, customers, local

tance of gas, water, and electricity to the existence of society, it also

communities, and the global society are indispensable. In line with thisbrought home the necessity of diversifying the supply of energy andway of thinking, I will strive to contribute to the Company’s sustained

raw materials. I believe that the Company’s leading the way among

growth as an outside audit & supervisory board member.

Japanese gas companies, in accordance with the “Challenge 2020
Vision,” by targeting the stable supply of energy at low cost throughExecutive Officers
President

Tsuyoshi Okamoto

Executive
Vice Presidents

Shigeru MurakiMichiaki Hirose

Division Manager of Residential Sales and Service Div.

Senior Executive
Officers

Kazuo Yoshino

Division Manager of Information Technology Div., in charge of Finance Dept. and Accounting Dept.

Matsuhiko Hataba

In charge of Corporate Planning Dept. and Affiliated Companies Dept.

Executive Officers

Division Manager of Energy Solution Div., General Manager of Volume Sales Dept. of Energy Solution Div.

Yutaka Kunigo

Division Manager of Energy Production Div.

Masahiro Mikami

In charge of Secretary Dept., General Administration Dept., Corporate Communications Dept., Environmental Affairs Dept., and Compliance Dept.

Koichi Aonuma

Division Manager of Housing Development Dept., Residential Sales and Service Div.

Hideaki Obana

In charge of Personnel Dept., Purchasing Dept., Real Estate Planning Dept., and Internal Audit Dept.

Hiroaki Kobayashi

Division Manager of Technology Development Div., in charge of Smart Energy Network Promotion Dept.

Takashi Uchida

Division Manager of Energy Resources Div.

Satoru Yasuoka

Division Manager of Regional Development Marketing Div.

Fumio Murazeki

Head of Sales Marketing, Energy Solution Div.

Hideaki Arai

Division Manager of Pipeline Network Div.

Hidefumi Takahashi

General Manager of Sales Marketing 1 Dept., Residential Sales and Service Div.

Yoshihiro Tanabe

Dispatched to the Japan Gas Association

Masaru Takamatsu

General Manager of Corporate Planning Dept.

Michiharu Takahashi Coordinator of Energy Solution Div.
Fumihiko Hara

General Manager of LIFEVAL Project Management Dept., Residential Sales and Service Div.

Kiyotada Den

General Manager of Personnel Dept., Residential Sales and Service Div.

Takahiro Saito

General Manager of Facility Engineering Business Dept. Residential Sales and Service Div.

Isao Nakajima

General Manager of Residential Sales Planning Dept., Residential Sales and Service Div.

Kunio Nohata

General Manager of Gas Resources Dept., Energy Resources Div.

Shinichi Takagi

General Manager of Energy Production Dept., Energy Resources Div.

Tokyo Gas

Annual Report 201339

Management’s Discussion and Analysis

Summary
In fiscal 2012, ended March 31, 2013, gas sales volume rose

m3, due to the impacts of tolling arrangements (explained

200 million m year on year, or 1.3%, to 15,390 million m ,below). However, the slide time lag effect will result in improve-

following a rise in industrial demand centered on demand forments, leading to a year-on-year increase in net sales ofpower generation applications. Electricity sales volumes were¥200.4 billion, or 10.5%, to ¥2,116.0 billion. Likewise, ordinary

also up due to the favorable market conditions that haveincome will rise ¥7.6 billion, or 5.1%, to ¥155.0 billion. Regard-

continued since the Great East Japan Earthquake. As a result,less though, net income is projected to decrease ¥0.6 billion,

net sales increased ¥161.4 billion, or 9.2%, to ¥1,915.6 billion;

or 0.7%, to ¥101.0 billion.

3

3

ordinary income grew ¥71.8 billion, or 95.0%, to ¥147.4 billion;

With respect to appropriations to shareholders, theand net income was up ¥55.6 billion, or 120.7%, to ¥101.6 billion.

Company maintained its existing policy of a total payout ratio

In fiscal 2013, ending March 31, 2014, gas sales volume isof approximately 60% and raised dividend payments in fiscal

forecast to decline 609 million m3, or 4.0%, to 14,781 million

Performance in Fiscal 20122012 by ¥1 per share, to ¥10 per share.

In the industrial sector, the impacts of tolling arrangements(explained below) resulted in sales volume declines. Regardless,we worked to address demand in the Kashima area following theGas Sales Volume
In fiscal 2012, consolidated gas sales volume rose 200 million m3

start of operations on the Chiba–Kashima Line. At the same time,year on year, or 1.3%, to 15,390 million m . Sales volume by

we saw a rise in demand for gas for power generation purposes

sector is described below.

in other areas. As a result, sales volume in the industrial sector

3

Demand in the residential sector declined 3 million m3, or

was up 199 million m3, or 2.9%, which was a primary factor

0.1%. This decrease is partially due to the fact that the previous

behind the 200 million m3 increase in overall gas sales volume. In

year was a leap year and, thus, was one day longer. In addition,

the wholesale sector, lower demand from other gas utilities led

warm weather was experienced over a longer period than in fiscal

wholesale supplies to decrease 17 million m3, or 0.9%.

2011. Both of these factors resulted in lower sales volume.
However, a rise in the number of customer households helped us
limit this decline to 0.1%. The increase in customer households
can be attributed to the ongoing influx of people into the Tokyo
metropolitan area as well as a rise in the ratio of households
using gas due to the construction of new homes.
In the commercial sector, sales volume was impacted by theleap year and warm weather in a manner similar to the residential
sector. We are noticing some increases in sales volume as thesensitivity toward energy saving that appeared after the Great
East Japan Earthquake fades, but we cannot expect sales volume

Gas Sales Volume by Sector
Million m3, 45MJ/m3
16,00012,000
8,000
4,000
0

09
Residential

10
Commercial

11
Industrial

12

13

Years ended
March 31

Wholesaleto recover to the levels seen before the earthquake.

Impacts of Tolling Arrangements on Gas Sales Volumes
The electric power business previously employed a business
scheme in which Nijio Co., Ltd., would sell gas to power companies, and these companies would then use this gas to generate
electricity to be sold. However, we are shifting to a scheme
involving tolling arrangements through which Nijio subcontracts
generation to power companies, paying them commissions, andthen sells the electricity generated itself. Kawasaki Natural Gas
Power Generation Co., Ltd., switched to this tolling scheme infiscal 2012, and Ohgishima Power Co., Ltd., is scheduled toswitch in fiscal 2013.

40

Tokyo Gas

Annual Report 2013

The volume of gas used for power generation under thistolling scheme is deemed to have been used for in-house power
generation, and gas sales volume has declined on a consolidated
basis for this reason. In fiscal 2012, the introduction of thisscheme has resulted in declines in gas sales volumes totaling
380 million m3 from fiscal 2011’s levels. However, this decline waspurely due to the change in accounting methods following the
introduction of the tolling scheme. Calculated using prior methods,
gas sales volume in fiscal 2012 increased 698 million m3, or
4.6%, from fiscal 2011’s 15,288 million m3, to 15,986 million m3.

Analysis of Income and Expenses

facilities of pipelines for large-volume customers outside supply

In fiscal 2012, sales in the city gas business grew ¥95.7 billion

areas of ¥2.8 billion under extraordinary income. Under extraordi-

year on year due to the abovementioned increase in gas sales

nary income, gain on sales of overseas subsidiaries’ and affiliates’

volume as well as a rise in selling prices stemming from anstocks of ¥3.4 billion was recorded in association with sales ofincrease in material cost associated with the depreciation of thestock in GAS MALAYSIA SDN. BHD. These factors resulted in ayen. In the electric power business, sales rose ¥25.2 billion due¥55.6 billion, or 120.7%, increase in net income, to a record highto higher utilization ratios for power plants in conjunction with theof ¥101.6 billion.

tight supply and demand situation for electricity as well as an

Under-recovery due to the slide time lag effect from changes

increase in selling prices. Similarly, LNG sales increased ¥20.9

in material costs improved ¥37.9 billion from ¥48.4 billion in thebillion as a result of higher sales volumes. Accordingly, total net

previous fiscal year, to ¥10.5 billion in fiscal 2012. The burden ofsales were up ¥161.4 billion, or 9.2%, to ¥1,915.6 billion.

amortization of actuarial differences rose from ¥3.1 billion in the

Meanwhile, operating expenses rose ¥92.9 billion, or 5.5%,

previous fiscal year to ¥4.4 billion in fiscal 2012, decreasingto ¥1,770.0 billion, due to increases of ¥59.3 billion in city gas

operating income ¥1.3 billion from the previous fiscal year.

material costs, ¥19.6 billion in LNG sales expenses, and ¥14.0
billion in expenses associated with the electric power business.

Economic Frame Years ended March 31

Regardless of higher expenses, operating income increased

JCC ($/bbl)¥68.6 billion, or 88.9%, to ¥145.6 billion. Likewise, ordinary

Exchange rate(¥/$)

Averagetemperature (ºC)

income was up ¥71.8 billion, or 95.0%, to ¥147.4 billion, due to

2013

113.9

82.9

16.7

the recording of revenue from the construction of dedicated

2012

114.2

79.1

16.4

Ordinary Income for Fiscal 2012: Analysis of Factors (Year on Year)

Note: (+) & (–) refer to contributions to income

Gas gross margin increase: �������������������������������������������� +¥36.4 billion(Sales volume +¥5.4 billion, Tariff revision –¥10.3 billion, Slide time lag
effect +¥37.9 billion, etc.)

City Gas+¥43.9 billion(+45.1%)FY2012(Result)

147.4 billion

billion(+95.0%)Operatingincome+¥68.6 billion(+88.9%)

Electric power+¥11.2 billion(+140.7%)
Other energy+¥3.9 billion(+128.6%)
Overseas+¥3.7 billion(−)

FY2011(Result)¥	‌Material cost:	–¥59.3 billion(Sales volume –¥10.8 billion, Exchange –¥36.7 billion,
Crude oil –¥24.3 billion, Amount and composition +¥12.5 billion, etc. )Depreciation and amortization decrease: ������������������������ +¥6.5 billion(Decrease from FY2007 tax code revision, increase from Chiba–KashimaLine’s service for business use)

Gas appliances /Installation Work+¥1.3 billion(+41.3%)+¥ 71.8+¥95.7 billion

Personnel expenses decrease: ���������������������������������������� +¥0.7 billion¥

Change	‌Net sales:(Sales volume +¥16.2 billion, Slide +¥85.6 billion,
Tariff revision –¥10.3 billion, etc.)

Real estate / Others+¥4.9 billion(+ 41.8%)

75.6 billion
Non-operating
income+¥3.2 billion(−)

Adjustment, etc.
– ¥0.4 billion

Installation work: ��������������������������������������������������������������� +¥0.2 billion
No. of new houses increase (non-consolidated: +18 thousand, +9.7%:
189 thousand 207 thousand)Gas appliances sales: ������������������������������������������������������� +¥1.1 billion
GHP sales increase(non-consolidated: +1,574 units: 6,034 units 7,608 units)
Electric power: Sales volume increase (+20.2%, +¥1.6 billion),
Unit price increase (+¥9.5 billion) ������������������������������������� +¥11.2 billion
LNG sales: Sales volume increase (+¥0.2 billion),
Unit price increase (+¥1.1 billion) ��������������������������������������� +¥1.3 billion
Energy-service: Depreciation andamortization decrease, etc.����������������������������������������������� +¥2.2 billion
Investment abroad: Interest received from TG Bajio, Revenue
increase from start of production at Pluto, etc. ��������������� +¥3.7 billion
Real estate: Reduction in expenses from
FY2011 business restructuring, etc. ��������������������������������� +¥2.3 billion
Shipping: Income from higher freight revenue ������������������ +¥0.9 billion
Revenue from dedicated facilities of pipeline for large-volume
customers outside supply areas (¥1.0 billion ¥2.8 billion) ��� +¥2.7 billion
Dividend income ������������������������������������������������������������������� +¥0.7 billion

Tokyo Gas

Annual Report 201341

Management’s Discussion and Analysis

Income by Segment

Uses of Cash Flows

Operating income in the city gas segment increased ¥43.9 billion,

On a non-consolidated basis, capital expenditures by Tokyo Gas

or 45.1%, primarily due to the previously mentioned improvement

Co., Ltd., were ¥127.1 billion, whereas expenditures by consoli-of ¥37.9 billion that resulted from the slide time lag effect. This

dated subsidiaries amounted to ¥58.9 billion. As a result, totalrise offset a ¥10.3 billion decrease stemming from price reduc-capital expenditures in fiscal 2012 rose ¥37.3 billion year on year,

tions following tariff revisions for small-volume customers

or 25.5%, to ¥183.7 billion, after elimination or corporate. Expen-

instituted in March 2012.

ditures by Tokyo Gas included ¥87.5 billion for installing trunk

In the gas appliances and installation work segment, a rise inlines and other distribution facilities and ¥22.8 billion forsales of gas heat pump air conditioning systems resulted in aconstructing production facilities, such as the Hitachi LNG¥1.3 billion, or 41.3%, year-on-year increase in operating income.

Terminal. Roughly ¥27.2 billion of capital expenditures by subsid-

The electric power business of the other energy segment

iaries was directed toward upstream areas. At the same time, we

experienced a substantial 20.2% increase in electricity sales

conducted investments and financing in overseas businesses

volumes and sales prices rose due to the tight supply andtotaling ¥15.0 billion.

demand situation. Accordingly, operating income grew ¥11.2
billion, or 140.7%.

Capital expenditures exceeded those in fiscal 2011 as we
progressively invested in infrastructure development centered on

Excluding this rise in the electric power business, the otherthe northern Kanto region while conducting investments overseas

energy segment saw a ¥3.9 billion, or 128.6%, rise in operatingtargeting the enhancement of the LNG value chain. Both of theseincome.

areas represent goals defined in “The Tokyo Gas Group’s Vision

In the LNG sales business, operating income was up ¥1.3
billion, or 93.6%. This increase can be attributed to higher sales

for Energy and the Future~Challenge 2020 Vision~.”
These expenditures exceeded the scope of on-hand capital,

volumes and the benefits of the slide time lag effect, which also

and funds were procured to cover deficiencies. As a result,contributed to performance in the city gas business.

interest-bearing debt rose to ¥642.5 billion as of March 31, 2013,

The investment abroad business recorded a ¥3.7 billionup ¥16.7 billion from ¥625.8 billion a year earlier.

increase in operating income, following a rise in interest income
received from Tokyo Gas Bajio B.V. and income associated withthe start-up of production at the Pluto LNG Project.
Excluding the investment abroad business, operating incomein the real estate and other segment rose ¥4.9 billion, or 41.8%.

fiscal 2011’s 2.5%, rising to 5.3% in fiscal 2012. Return on equity(ROE) similarly improved greatly, from 5.4% in fiscal 2011 to
product of higher profit margins.

Sales¥ billion

City gas sales

Return on assets (ROA) showed a substantial improvement from

11.5% in fiscal 2012. These improvements were primarily theBusiness Results by Segment
Years ended March 31

Key Management Indicators

The weighted average cost of capital (WACC) was relatively

2012

2013

unchanged in fiscal 2012 at 3.2%, compared with 3.1% in fiscal

1,306.2

1,401.9

Gas appliances and installation work

2011. Meanwhile, Tokyo Gas Economic Profit (TEP: Net oper-

187.6

206.0

Other energies

302.5

336.6

ating profit after tax prior to interest payments minus the cost of

101.8

127.0

Real estate

29.6

30.2

Other

181.8

195.7

3.2

12.4

2,008.0

2,170.6

The debt-to-equity ratio (D/E ratio) decreased slightly from

(Electric power)(Investment abroad)Total

capital) jumped from ¥9.1 billion to ¥59.8 billion. This is because
increases in net operating profit after tax prior to interest
payments (NOPAT) significantly outweighed the slight rise ininvested capital.

Adjustments(253.7)(255.0)0.75 in fiscal 2011 to 0.69 in fiscal 2012. As such, it is once again

Consolidated

1,754.2

1,915.6

possible for the Company to increase investment amounts to acertain degree while still meeting the goal of 0.8 for this ratio

Sales figures for each segment include intersegment transactions.

described in the “Challenge 2020 Vision.”Contribution to Operating Income
Years ended March 31

2012

2013

Changebillion. When combined with the acquisition of ¥36.0 billion worth

City gas sales

80.0%

74.1%

–5.9 pts.

of treasury stock in fiscal 2013, this makes for total shareholder

Gas appliances andinstallation work

2.6%

2.3%

–0.3 pts.

returns of ¥61.7 billion. This represents 60.7% of the consoli-

Other energies

9.0%

13.6%

+4.6 pts.

6.5%

10.0%

+3.5 pts.

Real estate

2.7%

2.9%

+0.2 pts.

Other

5.7%

7.1%

+1.4 pts.

—%

1.3%

—

(Electric power)(Investment abroad)42

In fiscal 2012, total dividend payments amounted to ¥25.7

Tokyo Gas

Annual Report 2013

dated net income of ¥101.6 billion recorded in fiscal 2012,
allowing us to meet our goal of approximately 60% for the total
payout ratio, as we have previously.

ROA and ROE

Shareholder Returns%

In accordance with its financial policies, the Company targets a

12total payout ratio of approximately 60% each year up until fiscal
2020, which is to be accomplished by issuing shareholder returns

9through dividend payments and treasury stock acquisitions.

6

In fiscal 2012, one part of these efforts included raising3

dividend payments by ¥1 per share. This was done in consideration of income and expenditure trends as well as our desire to

0

09
ROA

10

11

12

13

Years ended
March 31

ROE

return the successes of management to our shareholders.
Going forward, we will refrain from lowering dividend payments

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)

while gradually increasing payments in line with income levels.

TEP¥ billion

Forecasts for Fiscal 2013

70.0
60.0
50.0

Gas Sales Volume

40.0
30.0

In fiscal 2013, consolidated gas sales volume is forecast to decline

20.0

609 million m3, or 4.0%, to 14,781 million m3. The primary factor

10.0

behind this decline will be a decrease in gas sales volume of 969

0

million m3 associated with the introduction of the tolling scheme at

–10.0

09

10

11

12

13

Years ended
March 31

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

Ohgishima Power. When the tolling portion is included, gas sales
volume is expected to total 16,273 million m3, representing an
increase of 287 million m3, or 1.8%, from fiscal 2012’s 15,986

Credit Ratings As of March 31, 2013

million m3. Sales volume forecasts by sector are described below.
In the residential sector, projected sales volume declines

Moody’s

Aa3

High creditworthiness and very low credit risk to meetlong-term obligations.

S&P

AA–

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

R&I

AA+

Very high creditworthiness supported by some
excellent factors.

JCR

AAA

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

include 32 million m3 resulting from temperature impacts and 37
million m3 stemming from lower usage volume per customer
household. However, an increase in the number of customer
households in line with the solid pace of new installations will
result in a 42 million m3 increase in sales volumes. Regardless,overall gas sales volume will decrease 25 million m3, or 0.7%.
We are forecasting a 37 million m3, or 1.3%, year-on-year
decline in the commercial sector, which will primarily result fromTotal Equity and Equity Ratio

temperature impacts.

¥ billion

%

1,000

50

800

40

casting a 309 million m3 increase due to efforts to cultivate new

600

30

demand in the Kashima area, making for an overall decrease of

400

20

619 million m3, or 8.8%.

200

10

0

0

09
Total equity (left)

10

11

12

13

At March 31

In the industrial sector, we are expecting a 969 million m3
decline accompanying the shift to tolling, but we are also fore-

Consolidated Gas Sales Volume Forecasts by Sector
Million m3, 45MJ/m3
18,000Equity ratio (right)

12,000Interest-Bearing Debt and D/E Ratio¥ billion

Times

800

0.8

600

0.6

400

0.4

200

0.2

6,000

0
Residential

0

14Years ended
March 31

Tokyo Gas

Annual Report 201313
Commercial

Industrial

Wholesale

0

09
Interest-bearing debt (left)

10

11

12

13

At March 31

D/E ratio (right)

43

Management’s Discussion and Analysis

Income and Expenses

However, net income will decrease ¥0.6 billion, or 0.7%, toOur economic frame for calculating our forecasts assumes a¥101.0 billion, due to the absence of extraordinary income ofcrude oil price of $110 per barrel and an exchange rate of ¥100

¥3.4 billion associated with sale of stock in GAS MALAYSIA

to US$1.

during fiscal 2012, etc.

Our full-year forecasts for fiscal 2013 project higher net sales
Economic Frame Years ended March 31

and ordinary income, which will be largely due to improvements
resulting from the slide time lag effect.
For net sales, we are forecasting a year-on-year increase of

JCC ($/bbl)

Exchange rate(¥/$)

Averagetemperature (ºC)¥200.4 billion, or 10.5%, to ¥2,116.0 billion. This includes an

2014

110.0

100.0

16.5

increase of ¥117.8 billion, or 8.4%, in city gas sales as a result of

2013

113.9

82.9

16.7

a rise in unit prices under the gas rate adjustment system stemming from higher crude oil prices. It also includes an increase of

Sensitivity to Price and Exchange Rate Fluctuations¥19.4 billion, or 20.0%, in LNG sales.
Operating expenses are expected to rise ¥185.0 billion, orAn increase of US$1 to the barrel in the Japan Customs-cleared

10.5%, to ¥1,955.0 billion, in conjunction with an increase in

Crude price (JCC) is estimated to result in a decrease of ¥0.7

material prices associated with yen depreciation.

billion in gross profit on gas. Similarly, the impact of depreciation

As a result, we project operating income will increase ¥15.4
billion, or 10.6%, to ¥161.0 billion, and ordinary income will growof ¥1 to US$1is estimated to be a ¥1.4 billion reduction ingross profit.

¥7.6 billion, or 5.1%, to ¥155.0 billion.

Ordinary Income for Fiscal 2013: Analysis of Factors (Year on Year)

Note: (+) & (–) refer to contributions to income

Gas gross margin increase: �������������������������������������������� +¥24.7 billion(Sales Volume –¥11.1 billion, Slide time lag effect +¥30.5 billion, etc.)

City Gas+¥17.6 billion(+12.4%)FY2013(Forecast)

Gas appliances /Installation– ¥0.9 billion(–20.8%)155.0 billion¥

Electric power+¥1.0 billion(+5.2%)
Change+¥7.6 billion(+5.1%)

Operatingincome+¥15.4 billion(+10.6%)

Other energy– ¥0.5 billion(–6.4%)

Overseas+¥2.7 billion(+112.5%)

FY2012(Result)¥

147.4 billion
Non-operating
income– ¥7.8 billion(−)

44

Tokyo Gas

Annual Report 2013

	‌Net sales:
+¥117.8 billion(Sales volume –¥33.8billion, Slide +¥144.7 billion, etc.)–¥93.1 billion
	‌Material cost:	(Sales volume +¥22.7 billion, Exchange –¥142.8 billion,
Crude oil +¥26.3 billion, etc. )Enterprise tax to increase following increasein Tokyo Gas (non-consolidated) sales ���������������������������� –¥7.1 billion

Gas appliances sales: GHP sales to decrease
Installation work: No. of new houses to increase

Electric power: Sales volume to decrease (–5.9%, –¥1.1 billion),
Unit price to increase (+¥2.1 billion) ����������������������������������� +¥1.0 billion

LNG sales: Sales volume to increase (+¥0.4 billion),
Unit price to increase (+¥1.9 billion) ����������������������������������� +¥2.3 billion
Energy-service: District heating and cooling cost
to increase from a rise in resource prices ������������������������ –¥2.7 billion

Investment abroad: Increased earnings from TG Pluto,
Barnett, etc. ����������������������������������������������������������������������� +¥2.7 billion

Real estate / Others– ¥4.4 billion(–26.2%)

Real estate: Property taxes on land, etc., to increase ���� – ¥1.0 billion

Adjustment, etc.
– ¥0.2 billion

Revenue from dedicated facilities: Earnings from constructionof dedicated facilities of pipelines for large-volume customers
outside supply areas (¥2.8 billion ¥0.0 billion), etc.������������� – ¥2.8 billion

Construction: Revenue from large-scaleconstruction (LNG terminal) decrease ����������������������������� – ¥3.7 billion

Dividend income ��������������������������������������������������������������� – ¥1.0 billion
Financial expenses to increase on growth ininterest-bearing debt �������������������������������������������������������� – ¥1.7 billion

Operating Income by Segment

Uses of Cash Flows

In the city gas segment, we are forecasting a ¥17.6 billion, orOn a non-consolidated basis, capital expenditures by Tokyo Gas

12.4%, rise in operating income. This increase will be the result ofCo., Ltd., will be ¥146.6 billion, whereas expenditures by consoli-

an improvement of ¥30.5 billion from the slide time lag effect,

dated subsidiaries will amount to ¥114.4 billion. As a result, total

which will offset decreases of ¥11.1 billion from lower sales

capital expenditures in fiscal 2013 will increase ¥74.3 billion year

volume and ¥7.1 billion from an increase in enterprise tax.

on year, or 40.4%, to ¥258.0 billion, after elimination or corpo-

While sales volume in the electric power business declined

rate. Expenditures by Tokyo Gas will include ¥96.6 billion for

5.9% in fiscal 2012, we expect that sales prices will be high ininstalling trunk lines and other distribution facilities and ¥28.1

fiscal 2013 due to the continuation of the tight supply andbillion for constructing production facilities, such as the Hitachi

demand situation for electricity. As a result, operating income is

LNG Terminal. Approximately ¥68.3 billion of capital expenditures

expected to increase ¥1.0 billion, or 5.2%.

by subsidiaries will be directed toward upstream areas. At theIn the investment abroad business, we are forecasting a ¥2.7
billion, or 112.5%, increase in operating income due to thesame time, we will conduct investments and financing in overseas businesses totaling ¥20.0 billion.

commencement of full-scale production at the Pluto LNG Projectand earnings contributions from the Barnett basin project.

Continuing from fiscal 2012, investment in fiscal 2013 will bedirected toward infrastructure development centered on thenorthern Kanto region as well as investments overseas targetingthe enhancement of the LNG value chain. Both of these repre-

Forecast by Segment
Sales¥ billion

Years ended March 31

2013

sent goals defined in the “Challenge 2020 Vision.”2014

As the amount of these aggressive investments is expected

1,401.9

1,519.7

to exceed the scope of on-hand capital, funds will be procured to

Gas appliances and installation work

206.0

209.0

cover deficiencies. As a result, interest-bearing debt is forecast to

Other energies

336.6

337.9

rise to ¥716.0 billion as of March 31, 2014, up ¥73.5 billion from

127.0

126.4

¥642.5 billion as of March 31, 2013.

Real estate

30.2

28.0

Other

195.7

188.8

City gas sales(Electric power)(Investment abroad)

12.4

22.6

Total

2,170.6

2,283.4

Key Management Indicators

Adjustments(255.0)(167.4)In fiscal 2013, ROA is expected to decline slightly, from fiscal

Consolidated

1,915.6

2,116.0

2012’s 5.3% to 4.9%. Likewise, ROE will show a slight decrease,from 11.5% to 10.7%. While financial leverage and the total asset

Sales figures for each segment include intersegment transactions.

turnover ratio will not change significantly between fiscal 2012
Contribution to Operating Income

and fiscal 2013, the ratio of net income to net sales will decline toYears ended March 31

2013

2014

Changea limited extent, resulting in declines in the abovementioned

City gas sales

74.1%

77.0%

+2.9 pts.

margins. The decline in the ratio of net income to net sales will beGas appliances andinstallation work

2.3%

1.7%

–0.6 pts.

the result of the absence of the temporary increase in non-oper-

Other energies

13.6%

12.9%

–0.7 pts.

10.0%

9.7%

–0.3 pts.

Real estate

2.9%

2.2%

– 0.7 pts.

Other

7.1%

6.2%

– 0.9 pts.

in fiscal 2012. The ratio of operating income to net sales,

1.3%

2.5%

+1.2 pts.

however, will be unchanged.

(Electric power)(Investment abroad)ating income (revenue from the construction of dedicated facilitiesof pipelines for large-volume customers outside supply areas) andextraordinary income (sales of stock in GAS MALAYSIA) recorded

The WACC in fiscal 2013 will be 3.2%, the same as in fiscal
2012, and TEP will show a small decline, from ¥59.8 billion to¥57.5 billion. This decline will be the result of an increase incapital costs associated with the rise in invested capital that will
be used for aggressive capital expenditures, effectively offsetting
the projected increase in NOPAT.
The D/E ratio is projected to increase marginally, from 0.69 in
fiscal 2012 to 0.74 in fiscal 2013. However, we will still meet thegoal of 0.8 for this ratio described in the “Challenge 2020 Vision,”giving us some leeway in investment amounts.
In regard to shareholder returns, we will continue to issue
stable dividend payments in fiscal 2013 while targeting a total
payout ratio of approximately 60%.

Tokyo Gas

Annual Report 201345

Consolidated Financial Statements
Consolidated Balance Sheets March 31, 2013 and 2012
Millions of yen

AssetsThousands of U.S. dollars

2012

2013

2013

		Production facilities¥  171,318¥  167,882$ 1,767,179

		Distribution facilities

475,262

466,227

4,907,653

		 Service and maintenance facilities

62,74064,125675,000

		Other facilities

304,245

321,751

3,386,853

Noncurrent assets
Property, plant and equipment

316

316

3,326

91,705

119,699

1,259,989

1,105,587

1,140,003

12,000,032

741

827

8,705

		Other

47,98764,055674,263

			Total intangible assets

48,72964,882682,968

		Investment securities

131,305

154,476

1,626,063

		 Long-term loans receivable

24,164

21,934

230,884

		 Deferred tax assets

35,06031,531331,905

		Other

28,92640,155

422,684

(750)

(618)

(6,505)

218,706

247,479

2,605,042

1,373,023

1,452,365

15,288,053

		Inactive facilities
		 Construction in progress			 Total property, plant and equipment

Intangible assets
		Goodwill

Investments and other assets

		 Allowance for doubtful accounts
			 Total investments and other assets
			Total noncurrent assets

Current assets
Cash and deposits

80,14980,669849,147

Notes and accounts receivable-trade211,969

222,649

2,343,674

Lease receivables and investment assets

27,751

27,486289,326

Short-term investment securities

44,00664,009673,779

Merchandise and finished goods

3,538

4,374

46,042Work in process

10,734

10,718112,821

Raw materials and supplies

42,70067,179707,147

Deferred tax assets

12,49912,412

130,653

Other

58,161

51,183538,768

(649)

(644)

(6,779)Allowance for doubtful accounts
			Total current assets
Total assets

490,861

540,038

5,684,611¥1,863,885¥1,992,403$20,972,663* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥95 per U.S. dollar, the prevailing exchange rate at the end of March 2013. These
conversions should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

46

Tokyo Gas

Annual Report 2013

Millions of yen

Thousands of U.S. dollars

2012

2013

2013

¥  331,493¥  321,494$ 3,384,147

Long-term loans payable

231,520

256,899

2,704,200

Deferred tax liabilities

12,22912,601

132,642

Provision for retirement benefits

85,578

86,100906,316

Provision for gas holder repairs

3,268

3,365

35,421

Provision for safety measures

2,217

2,384

25,095

Asset retirement obligations

4,679

6,009

63,253

Other

24,931

24,015

252,789

695,920712,871

7,503,905

Current portion of noncurrent liabilities

43,63146,752

492,126

Notes and accounts payable-trade

92,66092,154970,042

Short-term loans payable

16,59915,036

158,274

Income taxes payable

30,47944,433

467,716

Deferred tax liabilities

6

4

42

Liabilities and net assets

Noncurrent liabilities
Bonds payable		 Total noncurrent liabilities

Current liabilities

199

—

—

129,288

134,638

1,417,242

312,864

333,019

3,505,463

1,008,785

1,045,891

11,009,379

		 Capital stock *1

141,844

141,844

1,493,095

		Capital surplus

2,065

2,065

21,737

		Retained earnings

706,620

780,196

8,212,589

		 Treasury stock *(2,196)(2,348)(24,716)

848,333

921,757

9,702,705

		 Valuation difference on available-for-sale securities

14,853

21,218223,347

		 Deferred gains or losses on hedges(1,370)(1,670)(17,579)

		 Foreign currency translation adjustment(22,649)(13,671)(143,905)

		 Total valuation and translation adjustments(9,166)

5,877

61,863

15,933

18,877

198,705

Asset retirement obligations
Other
		 Total current liabilities
		Total liabilities

Net assets
Shareholders’ equity

2

		 Total shareholders’ equity

Valuation and translation adjustments

Minority interests

		 Total net assets
Total liabilities and net assets

855,100

946,511

9,963,274¥1,863,885¥1,992,403$20,972,663*1	Capital stock
Common stock
Authorized: 6,500,000,000 shares
Issued: 2,577,919,295 shares as of March 31, 2013 / 2,590,715,295 shares as of March 31, 2012
*2 Treasury stock: 6,123,070 shares as of March 31, 2013 / 6,005,359 shares as of March 31, 2012

Tokyo Gas

Annual Report 201347

Consolidated Financial Statements

Consolidated Statements of Income Years ended March 31, 2013 and 2012
Millions of yen

Thousands of U.S. dollars

2012

2013

2013

Net sales¥1,754,257¥1,915,639$20,164,621

Cost of sales

1,215,427

1,311,488

13,805,137

Gross profit

538,829604,150

6,359,474

Supply and sales expenses

393,689

389,787

4,103,021

General and administrative expenses

68,064

68,730723,474

		 Total selling, general and administrative expenses

461,754458,517

4,826,495

Operating income

77,075

145,633

1,532,979

Interest income

1,368

1,676

17,642

Dividends income

1,798

2,447

25,758Equity in earnings of affiliates

4,989

3,091

32,537

162

2,839

29,884

7,249

9,366

98,58915,56819,420204,421

Interest expenses

10,184

11,366

119,642

Adjustment of charges for constraction of distribution facilities

2,567

2,348

24,716

Miscellaneous expenses

4,272

3,886

40,905

		 Total non-operating expenses

17,023

17,601

185,274

Ordinary income

75,620147,453

1,552,137

3,010

—

—

—

1,020

10,737

Selling, general and administrative expenses

Non-operating income

Revenue from dedicated equipment
Miscellaneous income
			Total non-operating income
Non-operating expenses

Extraordinary income
Gain on sales of noncurrent assets
Gain on sales of investment securities

—

3,490

36,737

3,010

4,510

47,474

Impairment loss

1,143

1,518

15,979Loss on reduction of noncurrent assets

Gain on sales of subsidiaries and affiliates’ stocks
		 Total extraordinary income
Extraordinary loss

2,833

—

—

		 Total extraordinary losses

3,977

1,518

15,979

Income before income taxes

74,654150,445

1,583,632

Income taxes-current

22,704

44,392

467,284

Income taxes-deferred

4,620

2,122

22,337

		 Total income taxes

27,32446,514

489,621

Income before minority interests

47,329103,930

1,094,000

Minority interests in income
Net income

1,268

2,252

23,705¥   46,060¥  101,678$ 1,070,295

Yen

U.S. dollars

2012

2013

2013

¥17.70¥39.52

$0.42

9.00

10.00

0.11

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

* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥95 per U.S. dollar, the prevailing exchange rate at the end of March 2013. These
conversions should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

48

Tokyo Gas

Annual Report 2013

Consolidated Statements of Changes in Net Assets Years ended March 31, 2013 and 2012
Millions of yen

Shareholders’ equity
Capital stock		 Balance at the beginning of current period
		 Changes of items during the period
			 Total changes of items during the period
		 Balance at the end of current period
Capital surplus
		 Balance at the beginning of current period
		 Changes of items during the period
			 Total changes of items during the period
		 Balance at the end of current period
Retained earnings
		 Balance at the beginning of current period
		 Changes of items during the period
			Dividends from surplus
			Net income
			 Retirement of treasury stock				 Total changes of items during the period
		 Balance at the end of current period
Treasury stock		 Balance at the beginning of current 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 current period
Total shareholders’ equity
		 Balance at the beginning of current period
		 Changes of items during the period
			Dividends from surplus
			Net income
			 Purchase of treasury stock			 Disposal of treasury stock				 Total changes of items during the period
		 Balance at the end of current period
Valuation and translation adjustments
Valuation difference on available-for-sale securities
		 Balance at the beginning of current 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 current period
Deferred gains or losses on hedges
		 Balance at the beginning of current 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 current period
Foreign currency translation adjustment
		 Balance at the beginning of current 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 current period
Total valuation and translation adjustments
		 Balance at the beginning of current 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 current period
Minority interests
		 Balance at the beginning of current 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 current period
Total net assets
		 Balance at the beginning of current period
		 Changes of items during the period
			Dividends from surplus
			Net income
			 Purchase of treasury stock			 Disposal of treasury stock			 Net changes of items other than shareholders’ equity				 Total changes of items during the period
		 Balance at the end of current period

Thousands of U.S. dollars

2012

2013

2013

¥141,844¥141,844$1,493,095—
141,844—
141,844—
1,493,095

2,065

2,065

21,737

—
2,065

—
2,065

—
21,737

718,439

706,620

7,438,105(23,683)
46,060(34,196)(11,819)
706,620(23,204)
101,678(4,897)73,575780,196(244,253)
1,070,295(51,547)
774,474
8,212,589(2,355)(2,196)(23,116)(34,046)
8
34,196158(2,196)(5,053)
3
4,897
(151)
(2,348)(53,189)
32
51,547(1,589)(24,716)

859,994

848,333

8,929,821(23,683)
46,060(34,046)
8(11,661)
848,333(23,204)
101,678(5,053)
4
73,424
921,757(244,253)
1,070,295(53,189)42
772,884
9,702,705

14,78814,853

156,347

64
64
14,8536,365
6,365
21,21867,00067,000223,347

1,145(1,370)(14,421)(2,516)(2,516)(1,370)

(299)
(299)
(1,670)(3,147)(3,147)(17,579)(17,008)(22,649)(238,411)(5,640)(5,640)(22,649)

8,978
8,978
(13,671)

94,50594,505(143,905)(1,073)(9,166)(96,484)(8,092)(8,092)(9,166)

15,043
15,043
5,877

158,347
158,347
61,863

15,174

15,933

167,716759
759
15,933

2,943
2,943
18,87730,97930,979198,705

874,094

855,100

9,001,053(23,683)
46,060(34,046)
8(7,333)(18,994)¥855,100(23,204)
101,678(5,053)
4
17,987
91,411¥946,511(244,253)
1,070,295(53,189)42
189,337
962,221$9,963,274* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥95 per U.S. dollar, the prevailing exchange rate on the end of March 2013. These
conversions should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

Tokyo Gas

Annual Report 201349

Consolidated Financial Statements

Consolidated Statements of Cash Flows Years ended March 31, 2013 and 2012
Millions of yen

Thousands of U.S. dollars

2012

2013

2013

Income before income taxes¥ 74,654¥ 150,445$ 1,583,632

Depreciation and amortization

Net cash provided by (used in) operating activities

144,438

135,015

1,421,211

Impairment loss

1,143

1,518

15,979Amortization of long-term prepaid expenses

4,067

3,755

39,526

Loss on retirement of property, plant and equipment

2,917

2,079

21,884

Loss (gain) on sales of investment securities(25)(1,020)(10,737)

Loss (gain) on sales of stocks of subsidiaries and affiliates—(3,490)(36,737)

Decrease (increase) in prepaid pension costs(9)(11,395)(119,947)

Interest and dividends income(3,166)(4,124)(43,411)

Interest expenses

10,184

11,366

119,642

Equity in (earnings) losses of affiliates(4,989)(3,091)(32,537)

Decrease (increase) in notes and accounts receivable-trade(52,333)(11,305)(119,000)

Decrease (increase) in inventories(7,960)(25,238)(265,663)

Increase (decrease) in notes and accounts payable-trade

21,887(2,373)(24,979)

Increase (decrease) in accrued consumption taxes

1,111

4,424

46,568Other, net(12,157)

2,193

23,084

Subtotal

179,759

248,758

2,618,505

Interest and dividends income received

10,1407,815

82,263

Interest expenses paid

(10,217)(11,213)(118,032)

Income taxes paid

(29,864)(28,162)(296,442)

149,818

217,197

2,286,284

		 Net cash provided by (used in) operating activities
Net cash provided by (used in) investment activities(1,133)(8,287)(87,232)

Purchase of property, plant and equipment(124,063)(153,687)(1,617,758)

Purchase of intangible assets(16,323)(22,634)(238,253)

777

1,487

15,653(1,354)(2,323)(24,453)—

5,066

53,326

Payments of long-term loans receivable(7,053)(6,732)(70,863)

Collection of long-term loans receivable

1,710

9,736

102,484

Purchase of investment securities

Proceeds from sales of long-term investment securities
Purchase of long-term prepaid expenses
Proceeds from sales of stocks of subsidiaries and affiliates

Other, net
		 Net cash provided by (used in) investment activities

45,630(400)(4,211)(101,810)(177,775)(1,871,316)

Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable(1,225)(1,562)(16,442)

Proceeds from long-term loans payable

68,25833,019347,568

Repayment of long-term loans payable(19,555)(24,218)(254,926)

Proceeds from issuance of bonds

40,00020,000210,526

Redemption of bonds(30,000)(20,000)(210,526)

Purchase of treasury stock(34,046)(5,053)(53,189)

Cash dividends paid

(23,671)(23,204)(244,253)(509)(1,386)(14,589)(15,703)(805)(8,474)(16,454)(23,212)(244,337)

Cash dividends paid to minority shareholders
Other, net
		 Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents(1,518)

5,481

57,695

Net increase (decrease) in cash and cash equivalents

30,034

21,691

228,326

Cash and cash equivalents at beginning of period

92,048122,083

1,285,084

—

508

5,347

¥122,083¥ 144,283$ 1,518,768

Increase in cash and cash equivalents resulting from merger
Cash and cash equivalents at end of period* Equivalent U.S. dollar amounts are included for the convenience of readers outside Japan, and are converted at a rate of ¥95 per U.S. dollar, the prevailing exchange rate at the end of March 2013. These
conversions should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

50

Tokyo Gas

Annual Report 2013

Consolidated Subsidiaries and Equity-Method Affiliates As of March 31, 2013
Main Consolidated Subsidiaries

Company

Business

Capital(¥ million)

Equity owned
by Tokyo Gas(%)

FY2012 Net sales(¥ million)[% of outside sales]

Operating income(¥ million)

Tokyo Gas Urban Development
Co., Ltd.

Real estate leasing

11,867100.0

30,103[33.6]

4,503

Ohgishima Power Co., Ltd.

Generation and supply of electricity

5,350

75.0

61,868[25.1]

701

Nagano Toshi Gas Co., Ltd.

City gas business in Nagano Prefecture

3,800

89.2

14,177[100.0]855

Energy Advance Co., Ltd.

Energy service, district heating and cooling,cogeneration orders, and maintenance

3,000

100.0

73,486[94.9]

2,845

Gastar Co., Ltd.

Production, sales, and maintenance of gas
appliances

2,450

66.7

32,115[44.7]

2,084

Tokyo LNG Tanker Co., Ltd.

Sea transport of LNG and LNG carrier leasing

1,200

100.0

21,771[31.7]

4,112

Tokyo Gas Energy Co., Ltd.

Sales of liquefied petroleum gas (LPG)

1,000

66.6

36,836[79.5]

395

Capty Co., Ltd.

Installation of gas supply lines, water supply anddrainage lines, air conditioning systems, newconstruction, and construction of gas mains andservice lines

1,000

100.0

55,714[36.9]

809

Tokyo Gas Chemicals Co., Ltd.

Sales of gas for industry and chemicals anddevelopment of LNG cryogenic utilization technology

1,000

100.0

18,847[75.0]

528

Chiba Gas Co., Ltd.

Supply of city gas to Yachiyo City, Narita City,and surrounding cities

480

100.0

18,897[96.2]

1,037

TG Information Network Co., Ltd.

Information processing services, softwaredevelopment, and sales of computer equipment, etc.

400

100.0

20,810[3.1]

529

Tokyo Gas Engineering Co., Ltd.

Comprehensive engineering services with a particularfocus on energy-related work

100

100.0

62,074[74.2]

4,607

Nijio Co., Ltd.

Procurement and sales of natural gas and electricity

47

100.0

89,421

[0.0]

7,127

Number of consolidated subsidiaries: 66 (As of March 31, 2013)

Other Subsidiaries
TOKYO GAS AUSTRALIA PTY LTD, Tokyo Gas International Holdings B.V., Tokyo Gas Toyosu Development Co., Ltd., Tokyo Gas Bajio B.V.,
TOKYO GAS DARWIN LNG PTY LTD, Park Tower Hotel Co., Ltd., Tokyo Gas Shale Investment Ltd., Tokyo Gas Yokosuka Power Co., Ltd.,
Tachikawa Tosh-Center Co., Ltd., Tokyo Gas Lease Co., Ltd., Tokyo Gas Baypower Co., Ltd., Tokyo Gas-Mitsui & Co. Holdings Sdn. Bhd.,
Tokyo Gas Yamanashi Co., Ltd., Tokyo Oxygen and Nitrogen Co., Ltd., Tokyo Gas Lifeval Chiba Co., Ltd., Tsukuba Gakuen Gas Co., Ltd.,Tokyo Carbonic Co., Ltd., TOKYO GAS QCLNG PTY LTD, TOKYO GAS PLUTO PTY LTD, Tokyo Gas Lifeval Sagamihara Co., Ltd.,TOKYO GAS GORGON PTY LTD, TOKYO GAS ICHTHYS PTY LTD, Japan Super Freeze Co., Ltd., Miho Gas Co., Ltd.,Tokyo Gas Telemarketing Co., Ltd., Tokyo Gas LPG Terminal Co., Ltd., Shoei Gas Co., Ltd., Kawasaki Gas Pipeline Co., Ltd.,Tokyo Gas Chemicals Sales, Inc., Tokyo Gas Auto Service Co., Ltd., Living Design Center Co., Ltd., Tokyo Gas Remodeling Co., Ltd.,Tokyo Gas Lifeval Minami-Tama Co., Ltd., TOKYO GAS ICHTHYS F&E PTY LTD, Washinomiya Gas Co., Ltd., Urban Communications, Inc.,
Tochigi Gas Co., Ltd., Capty Tech Co., Ltd., Tokyo Gas Pipeline Co., Ltd., Tokyo Gas Facility Service Co., Ltd.,Tokyo Gas Lifeval Minami-Setagaya Co., Ltd., Tosetz Co., Ltd., Tokyo Kiko Co., Ltd., Enelife Carrier Co., Ltd., Tokyo Gas Lifeval Kazusa Co., Ltd.,Tokyo Auto Gas Co., Ltd., Showa Unyu Co., Ltd., Tokyo Rare Gases Co., Ltd., TGE (Shanghai) LNG Engineering CO., LTD.,
Capty-Livelic Co., Ltd., TG Europower B.V., Tokyo Gas America Ltd., TG PLUS Co., 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.
T-Power NV

Tokyo Gas

Annual Report 201351

For inquiries regarding planning and editing of this report:

Investor Relations Sect., Finance Dept.,
Tokyo Gas Co., Ltd.
1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, JapanTEL:+81-3-5400-3888
FAX:+81-3-5472-3849
E-mail: tgir@tokyo-gas.co.jp
Published on July 19, 2013This annual report is printed on Tokyo Gas Recycled Paper (made from recycled paper from Tokyo Gas offices, trimmings fromafforestation activities, and reused and unused wood materials) using vegetable oil ink that contains low levels of organic solvents.

Printed in Japan