Frequently Asked Questions

1

Q:

What are the characteristics of the city gas business in Japan?

3

Q:

What are transportation service rates?

Japan has many mountainous regions, and there are few

Over 90% of the city gas sold in Japan is sourced fromTransportation service is a process whereby Tokyo Gas

gas is sent out and delivered to the customer’s site, while

concentrations of population and industrial activity where

natural gas. Most of the gas is imported in the form of LNG.

receives gas from another supplier (the transportation sup-under the linked agreement, it is sent out and sold to cus-city gas suppliers can achieve an advantage. For this rea-

It takes 10 to 40 days to transport LNG to Japan in carriers.

plier) into its pipelines and at the same time supplies antomers through other general gas companies or pipelineson, the availability of city gas is limited to just 5% of

In Japan, gas suppliers are responsible for ensuring safe

identical volume of gas via its pipelines in another location,operators. Before the revision of the Gas Utility Industry

Japan’s territory. Though there are around 210 city gas

use of gas at the customer’s site. Hence, gas rates also

while ensuring fair competitive conditions between exist-

Law in April 2004, implementation of transportation service

companies in Japan, the three biggest (Tokyo Gas, Osaka

include the cost of periodic inspections and accident pre-ing operators and new participants to expand customer

was limited to retail supply agreements, however, after

Gas and Toho Gas) together account for approximately 80%

vention measures. For this reason, prices tend to be higher

choice in a deregulated gas market. All companies thatthat date, transportation service was expanded to whole-of nationwide city gas sales in volume terms. In addition tothan in Europe or North America. Unlike Europe and Northown or operate gas supply pipelines are required to provide

sale supply. To ensure transparency and fairness, balancesthese city gas companies, there are around 1,700 communi-America, Japan has no nationwide pipeline networks. Eachtransportation services. In principle they are required toare published together with peak flow charts and trans-ty gas utilities and about 26,000 LPG suppliers. Most ofcity gas supplier supplies and sells city gas through aprepare, make notification and publish agreements. Thereportation capacities for trunk pipelines.

these companies are small- or medium-sized operators.

pipeline network developed for its own service area.

are two types: retail and linked. With retail, the transported.

2

Q:

4

How does Tokyo Gas structure its rates?

Q:

What is your relationship with Tokyo Electric Power
Company (TEPCO)?

Service Agreement

production and supply facilities. These agreements have toTokyo Gas and Tokyo Electric Power Company (TEPCO)

peting supplier of gas, especially for commercial and indus-In cases where Tokyo Gas supplies gas through thebe reported to the Minister and the selection of this option

source about 70% of the total volume of their LNG purchas-trial use. We have always competed with electric power inpipelines to meet general demand, the rate schedule “regu-is up to the customer.

es from joint LNG projects and are joint participants in proj-

the residential market, but in recent years this competition

lated” under the service agreement used to require anLarge-volume Supply

ects based on upstream interests. Joint purchasing

has intensified with the advent of all-electric systems. In fis-approval from the Minister of Economy, Trade and Industry.

Under the Gas Utility Industry Law, the conditions for gas

strengthens our bargaining power, since we can contract

cal 2006 we successfully implemented a range of strate-

Under the amendments to the Gas Utility Industry Law inrate setting and market entry for service providers in thefor large volumes.

gies, including market promotions for gas appliances, and1999, however, it became possible to change these rates

large-volume market are gradually deregulated. Effective

Two of our three LNG terminals, the Negishi andin-depth demand development focusing on major sub-simply by notifying the Minister, provided that thesefrom April 2004, customers who used 500,000 m3 or more

Sodegaura Terminals, are operated jointly with TEPCO. Thisusers. As a result of these initiatives, we are able to holdchanges do not adversely affect any customers.

qualified as large-volume customers. Moreover, from April

allows us to reduce capital investment and operating costs,

the percentage of newly built houses with all-electric sys-

Optional Agreement

2007, the designation point for large-volume customers

and we can also improve operating rates through load level-tems in our service area to 8.0%.

Tokyo Gas is permitted to offer rates and service terms

shifts to 100,000 m3 or more.

ing based on differences between peak demand patterns forTokyo Gas responds to various forms of competition byelectric power and gas. These advantages are reflected ingoing beyond the supply of individual energy products, such

lower production costs per unit of gas.

as gas and electric power. Our ultimate goal is to provide

other than those outlined in the above service agreement.

“Regulated” rates are calculated using a rate-base sys-

This enables the Company to make efficient use of its gas

tem. A simplified version of this calculation is shown below:

At the marketing level, however, we are competitors.
Operating cost, etc.
• Cost of gas resources• Personnel expenses• Overhead• Depreciation• Non-operating expenses• Income taxes+Fair return

Calculated using the rate-basesystem, which involves multiplying fixed-asset investments, etc. by the appropriate
ratio of fair return–Deductions, etc.

• Profit from gas appliancesales, etc.
• Profit from real estatebusiness, etc.

=Total fair cost

TEPCO has moved into the gas market and is now a com-our customers with optimal value by responding to theirreal needs, including their energy service needs.

Represents an appropriate
profit added to an appropriate cost under efficient management* Price fluctuations in the foreign exchange rates and/or crude oil prices are reflected in the meter rate gas unit price every three months in accordance with the gas resource
cost adjustment system. Consequently, the impact of such price fluctuations on revenue and expenditure is neutral in the medium or longer term.

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5

Q:

What is the definition of the “energy service business”?

7Q:

What processes are used by Tokyo Gas when making
investment decisions?

Energy service providers build facilities to provide one-stop

subsidiary, ENERGY ADVANCE Co., Ltd. The company

Since fiscal 2003, Tokyo Gas has based decisions on new

deliberations are reflected in decisions at management

sources of energy services, such as cogeneration systems

operates very efficiently by capitalizing on the LNG procure-investments, the continuation of investments and exits

meetings or meetings of the Board of Directors. Derivativethat produce both electricity and heat. This type of service

ment systems and advanced engineering capabilities of thefrom investments on Tokyo Gas Economic Profit (TEP),

transactions are subject to market risk management rules.

has major advantages for customers, including reduced

Tokyo Gas Group, making the most of the high added value

which is our version of Economic Value Added (EVA ®),Management meetings are held each week and areenergy costs and ease of implementation, as there is nothat can be achieved with cogeneration systems. It targets

together with Net Present Value (NPV) and Internal Rate ofattended by executives at the senior executive officer levelneed for a large initial investment. There are also significant

environmentally concerned customers, especially in theReturn (IRR). These three indicators are used as commonand above, as well as the two corporate auditors. Final deci-environmental benefits. Efficiency improvements have

Kanto region, where demand is high.

standards throughout the Tokyo Gas Group.

sions on important management issues are made after in-turned the energy service business into a high growth area
characterized by rapidly improving profitability.
In 2002, Tokyo Gas moved to expand its involvement in

By March 2007, it had signed a cumulative total of 175

The Investment Evaluation Committee assesses plans

depth discussion, including deliberations by the Investment

contracts for 274 MW, and it had received subsidies for 80

that involve investment, equity participation or debt guaran-Evaluation Committee in the case of investment decisions.

schemes totaling 185 MW.

tees on the basis of risks and returns. The results of these

the energy service business by establishing a wholly owned

6Q:

How has the Kyoto Protocol affected Tokyo Gas?

8

Q:

What is your policy on the utilization of real estate owned by
Tokyo Gas?

The targets set down in the Kyoto Protocol for the reduc-

The needs and expectations of gas customers and socie-

Our core business is the integrated energy business, anda priority, and our strategies in this area include joint devel-tion of Japanese greenhouse gas emissions will requirety in general toward natural gas are expected to expand still

we see the real estate business as a support segment for

opment with outside partners.

urgent action to strengthen energy conservation, which is afurther in the future. The natural gas business is the corethis. Earnings from the real estate business are used in core

The Tokyo Gas Group has numerous business sites in

key component of countermeasures against global warm-segment for the Tokyo Gas Group, and this trend is seen as

business activities. If there are opportunities to improve thethe Tokyo metropolitan area. We see effective real estateing. Natural gas is expected to play an increasingly impor-an opportunity to achieve further growth and development.

asset value of large sites, we undertake appropriate devel-management as an important way of strengthening theopment projects that allow us to maximize the potential andcompetitiveness of our integrated energy business byvalue of those sites while also minimizing risk.

improving efficiency and reducing costs. For this reason,tant role in this context. For example, the “Kyoto Protocol

Under the Keidanren Voluntary Action Plan, the gas

Target Achievement Plan” adopted by the government inindustry is expected to reduce its CO2 emissions per unit

April 2005 acknowledges that natural gas produces the low-and in terms of total outputs. Tokyo Gas has made steadyIn principle, development projects are funded from thewe are also actively targeting improvements in the efficien-

est CO2 emissions of any fossil fuel during combustion andprogress toward the achievement of these targets throughproceeds of land sales, and care is taken to avoid any

cy of our real estate activities and centralizing our facilities

identifies the increased use of highly efficient natural gas

measures that include a conversion to high-caloric gas andimpact on our integrated energy business. Risk limitation isto achieve an optimal distribution of sites.

equipment and systems as an important way to combat

the implementation of various energy-saving initiatives at its

global warming.

city gas production plants.

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