FAQQ1

How does Tokyo Gas structure its rates?

The Company’s gas rate system is divided into the following three categories.
Service agreement

In cases in which Tokyo Gas supplies gas through the pipelines to meet general demand,
the rate schedule is “regulated” under the service agreement used to require the approval of
the Minister of Economy, Trade and Industry (METI). Under the amendments to the Gas Utility
Industry Law in 1999, however, it became possible to change these rates simply by notifying
the Minister, provided that these changes do not adversely affect any customers.

Optional agreement

Tokyo Gas is permitted to offer rates and service terms other than those outlined in the above
service agreement. This enables the Company to make efficient use of its gas production andsupply facilities and to improve its management efficiency. These agreements must be reported to the Minister, and the selection of this option is up to the customer.

Large-volume supply

Under the Gas Utility Industry Law, the conditions for gas rate setting and market entry forservice providers in the large-volume market are being gradually deregulated. Effective fromApril 2004, customers who used 500,000 m3 or more qualified as large-volume customers.
Moreover, from April 2007, the designation point for large-volume customers shifted to
100,000 m3 or more.

“Regulated” rates are calculated using a total cost principle1. A simplified version of this calculation is given below.

Operating cost, etc. ＋2

Cost of gas resources
Depreciation
Personnel expenses
Non-operating expenses
Overhead
Income taxes

Fair return
Calculated using the ratebase system, which involves
multiplying fixed-asset
investments, etc., by theappropriate ratio of fair return–Deductions, etc.

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

Total fair cost
Represents an appropriate
profit added to an appropriate
cost under efficientmanagement

1 Total cost principle: For a specific period (1 to 3 years), a fair return is added to the necessary and appropriate costs for the relevant period and gas rates are set onthat basis (total cost). In this way, rates are calculated in accordance with METI rules.
2 Fluctuations in foreign exchange rates or crude oil prices are reflected in the meter rate gas unit price every month in accordance with the gas resource costadjustment system. (Please refer to “Characteristics of the City Gas Business in Japan” on the inside front cover.) Consequently, the impacts of such fluctuations onrevenue and expenditure will be neutral in the medium to long term.

Q2

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

Since fiscal 2003, Tokyo Gas has made decisions on new businesses, the continuation of businesses, and exits frombusinesses through Tokyo Gas Economic Profit (TEP), and decisions on investments through Net Present Value (NPV) andInternal Rate of Return (IRR). These three indicators are used as common standards throughout the Tokyo Gas Group.
TEP is an original evaluation method for ensuring that the amount of profit exceeds the cost of capital.
The Investment Evaluation Committee assesses plans that involve investment, equity participation, or debt guarantees on
the basis of risks and returns. The results of these deliberations are reflected in decisions at the Corporate Executive Committeeor the Board of Directors. Derivative transactions are subject to market risk management rules.
Corporate Executive Committee meetings are held each week and are attended by executives at the senior executive
officer level and above, as well as the two corporate auditors. Final decisions on important management issues are made after
in-depth discussion, including deliberations by the Investment Evaluation Committee in the case of investment decisions. To
follow the results and monitor projects in which investments have been made, Tokyo Gas evaluates the situation regularly in theInvestment Evaluation Committee and reports findings at the Corporate Executive Committee.

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Q:1
Q 3 What is your relationship with Tokyo Electric Power Company (TEPCO)?

Tokyo Gas and TEPCO source about 70% of the total volume of their LNG purchases from joint LNG projects and arejoint participants in projects based on upstream interests. Joint purchasing strengthens our bargaining power, since we
can contract for large volumes.
Two of our three LNG terminals, the Negishi and Sodegaura Terminals, are operated jointly with TEPCO. This allows us toreduce capital investment and operating costs. We can also improve operating rates through load leveling based on differences between peak demand patterns for electric power and gas. These advantages are reflected in lower production costs
per unit of gas.
At the marketing level, however, Tokyo Gas and TEPCO are competitors. In the commercial and industrial sectors, TEPCO
has moved into the gas market, and Tokyo Gas and TEPCO are engaged in the competition for gas demand. Also, in the residential sector, the competition with all-electric systems has intensified. As a result of in-depth development focusing on major
sub-users and initiatives to build close relationships with customers, centered on LIFEVAL, which we began to establish fromfiscal 2008, we are working to hold the percentage of newly built houses with all-electric systems in our service area to aminimum.
Tokyo Gas responds to various forms of competition by going beyond the supply of individual energy products, such as gas
and electric power. Our ultimate goal is to provide our customers with optimal value by responding to their real needs, including
their energy service needs.

Q4

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

In the energy service business, energy service providers build and own facilities such as cogeneration systems, andprovide one-stop energy services, such as electricity and heat. This type of service is drawing attention on account of its
major advantages for customers. These include ease of implementation stemming from lack of need for a large initialinvestment, a high level of environmental performance, and reduced energy costs. Also, this is a field with growing
appeal as a business due to improvements in system efficiency.
In 2002, Tokyo Gas moved to expand its involvement in the energy service business by establishing a wholly owned
subsidiary, ENERGY ADVANCE Co., Ltd. The company operates very efficiently by capitalizing on the LNG procurement systems
and advanced engineering capabilities of the Tokyo Gas Group, making the most of the high added value that can be achieved
with cogeneration systems. It targets environmentally concerned customers, especially in the Kanto region, where demand ishigh. This company’s energy services, which were introduced in 2003, have achieved the leading position in the industry, with297 contracts at the end of March 2009.

39Q5

What do you see as the role of the power generation
business within the integrated energy business?

Tokyo Gas has established its power generation business as a multi-energy supply measure to provide all forms ofenergy that customers require in a one-stop manner. We intend to achieve an optimal mix with facilities such as cogeneration systems.
Furthermore, we believe our power generation business has a number of strengths.
(1) It allows for competitive fuel procurement backed by our bargaining power.
(2) Power plants are located close to demand areas utilizing existing infrastructure such as LNG terminals.
(3) Synergy effects with the gas business are possible, such as improved terminal utilization rates and one-stop services.
Currently, we have four power plants in operation, under construction, or planned (refer to the table below), with ourshare of generating capacity of 1,300 MW.
Moreover, from a standpoint of developing renewable energy, we installed a wind farm with a capacity of 1,990 kW inside
our Sodegaura Terminal in October 2005. We are also constructing a wood chip biomass electric power plant with a capacity of
13,600 kW in Agatsuma-gun, Gunma Prefecture, with the objective of starting operations in fiscal 2010.

Tokyo Gas Baypower Co., Ltd.

100 MW

In operation since October 2003

Tokyo Gas Yokosuka Power Co., Ltd.

240 MW

In operation since June 2006

Kawasaki Natural Gas Power Generation Co., Ltd.

840 MW

In operation since April 2008

1,220 MW

Commencing in March 2010

Ohgishima Power Co., Ltd.

Q6

What is the view on M&As involving Tokyo Gas?

Tokyo Gas is already supplying wholesale gas to 36 other gas suppliers in its service area (including the companies towhich Tokyo Gas supplies by inland vessels and tanker trucks). We are aggressively developing the wholesale supply
business, which earns income with high capital efficiency, without focusing on M&As.
As for M&As, we might consider entering into a capital partnership after evaluating the corporate value of the company
in question, if a company were to approach us with such a proposal, or if a government-owned gas business were to become
privatized.
Last year, we carefully examined the privatization of the city gas business in Sendai. However, due to the increasing
uncertainty of the business outlook since last autumn, we opted not to participate in that endeavor. Recently, a variety ofgovernment-owned gas businesses are being privatized. Using the experience we have gained through our acquisitions of theNagano City, Konosu City, and Yotsukaido City gas businesses, we will consider participating in bidding if we are convinced,
after conducting thorough due diligence, that the business will enhance our corporate value and increase benefits to ourcustomers.

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