Deregulation is reshaping our market. How are we responding?

High-rise buildings inShinjuku, one of Tokyo’s
liveliest commercial
areas, use gas DHCs.
This is the largest DHC
system in the world.

12

Creating New
Sources of Demand
Growth in Capacity of Gas
Cogeneration Systems

800

3,000

Growth in Capacity ofGas Heating and Cooling
Systems(Unit: MW)(Unit: Thousand Refrigeration Tons)
600
2,000
400
1,000
200

00Mar. 3195 96 97 98 99

TOKYO GAS Annual Report 1999

Mar. 3195 96 97 98 99

I. Using Deregulation to Boost Natural Gas Demand

Industrial and commercial users accounted for approximately 54% of our gas sales volume as of the end of March 1999, a26% increase over the last 5 years. In the next 5 years, we expect an over 50% rise. Moreover, deregulation and theJapanese government’s energy policy, supported by our gas-related technologies, promise to fuel this growth even more.

Opportunities Spawned by Deregulation
Deregulation has opened the door to the electric power industry. The first noticeable area of change is that independent power
producers (IPPs) are now free to operate. We see this as an incredible opportunity to supply gas for power generation to these
new large-volume customers. Presently, we have plans to supply three large-volume IPPs. One of these IPPs uses over 150
million m3 of gas a year. Deregulation now allows us to also supply electricity. We will monitor the electricity market closely andconsider entering this market when conditions justify the necessary investments.
The December 1995 amendments to the Electricity Utility Industry Law allowed Tokyo Gas to supply electricity in
specific areas such as redevelopment zones. With this field expected to expand, we are examining the feasibility of entry
into this business.
Supplying gas to large-volume users purchasing 2 million m3 or more of gas per year outside our service area is a new areaof potential growth for Tokyo Gas, and will be even more so when the user threshold is lowered to 1 million m3 in the autumnof 1999. In Saitama Prefecture, we have started supplying gas to a large-volume user that would be supplied by a gas company
operating in that service area.

Government Energy Policy Driving Demand for Natural Gas
Also working to our advantage is the government’s push for the use of certain energy sources as a means of reducing theenvironmental impact of energy consumption. Natural gas is widely recognized as an environmentally friendly fuel. This drive
has been hastened by the adoption of resolutions from COP3.

Technologies to Encourage a Switch to Gas
High hopes are held for gas cogeneration systems; demand is expected to increase approximately 40% by 2002 compared to1997. Gas-fired air conditioning, which was installed at approximately 56% of all new buildings with over 10,000 m2 of floor
space during fiscal 1998, is another illustration of how we give industrial and commercial users more reasons to choose gas
over electricity. Reduced running costs and other benefits make this technology extremely attractive.

LEFTThe Nihonbashi main store of Mitsukoshi, a famous Japanese
department store chain, introduced a gas cogeneration systemthat also functions as an emergency power supply.
RIGHT
Gas turbine cogeneration equipment located at the site of anindustrial customer.

Annual Report 1999 TOKYO GAS

13

Deregulation is reshaping our market. How are we responding?

Creating New Sourcesof Demand14

Residential customers represent one of Tokyo Gas’ most important areas of growth.

Percentage of New
Housing With Gas Floor
Heating Systems in theTokyo Gas Service Area

2015Tokyo Gas Fan Heater Sales

300,000(No. of units)
250,000(%)
200,000

10150,000
100,000

550,000
0Mar. 31096 97 98 99 00

Note: 2000 is a projected figure.
TOKYO GAS Annual Report 1999

Mar. 3195 96 97 98 99

II. Forging Stronger Relationships With Residential Customers

Residential customers are a stable and strategically important source of revenue; in fiscal 1998 they accounted for 36% oftotal gas sales volume. To increase the gas sales volume per customer, we are pursuing a two-fold strategy. First is tostrengthen marketing activities. For this we established the Residential Sales and Service Division in our headquarters inJune 1999. The second part of our strategy is to raise customer satisfaction, thereby cementing a loyal customer base.
Activities in this respect are overseen by the Customer Service Division, which was also established in June 1999.

Marketing Initiatives to Spur Residential Gas Consumption
We are already the preferred energy supplier for water heating and cooking in our service area with market shares of 92% and75%, respectively. Now we want to make it that way for space heating by promoting floor heating, demand for which isgrowing rapidly. Targeted mainly at new buildings and some renovations, floor heating is ideally suited to the Japanese
lifestyle—people often prefer to sit on the floor than on a chair or sofa. Floor heating is more than just a clean and comfortable
heating alternative. It also helps control house dust and mold that are blamed for allergies. By promoting these advantages, webelieve we can make floor heating the de facto standard in new homes. For customers living in houses or apartments whereinstalling floor heating is not an option, we have been promoting the use of gas fan heaters. Highly efficient, environmentallyfriendly and inexpensive, gas fan heaters are increasingly popular; sales rose 10.7% in fiscal 1998 on sales of 254,526 units.
Other marketing initiatives include showrooms to promote our products and services, and direct sales activities to building
sub-contractors to get them to install various gas systems in new construction and renovations.

A Customer-Centric Approach
Customer satisfaction is an important key to achieving growth in residential demand. That’s why we are stepping up ourefforts to offer better services from various angles. Improved safety, more attractive rates, low-maintenance appliances andlifestyle ideas are just some of the ways we are working to spur residential gas consumption—and build stronger bonds oftrust with our customers.
Playing a significant role here is our customer service network. Our 18 branches conduct inspections of appliances inhomes once every three years in addition to reading meters. To further deepen relationships with residential customers, weestablished call centers to handle inquiries from customers.
Augmenting our customer service network are roughly 400 Tokyo Gas franchise-based service outlets. Operating under
the names Enesta and Enefit, these outlets provide a broad range of services ranging from gas pipeline works to installation andrepair of gas appliances and household renovations.

LEFT
An Enesta branch outlet in Tokyo.
RIGHT
Gas floor heating is a clean andcomfortable heating alternative.

Annual Report 1999 TOKYO GAS

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