Tokyo Gas Co., Ltd. ANNUAL REPORT 2018

The Tokyo Gas Group aims to be a true power source forpeople’s lives, and for society.
Over 130 years, our work kept us in a kind of face-to-face relation
with our customers.
Based on the accumulated experience andtrust derived from that history,
we want to help create a bright, safe, and pleasant tomorrow.
We will continue to be very close to our customers andbe deliberate in taking action on their behalf.
Our efforts will be group-wide as will be our bold,
confident approach to the challenges ahead.

01

Introduction

Message

GPS202001
Corporate message

07
CEO’s message

15
GPS202003
LNG value chain for value creation

13
CFO’s message

05
Our history

Overall image after full deregulation

Business overview

Corporate governance

19
City Gas and Electric Power Businesses
after Full Deregulation

21
Gas business37
Corporate governance

25
Electric power business43
Board of directors

29
Service business

45
Audit & Supervisory Board Members

33
Overseas business46
Message from an Outside Audit &Supervisory Board Member

Invisible assets

Financial data

47
ESG initiatives

55
11-Year Consolidated Financial Highlights

49
Safe and stable energy supply
infrastructure

58
Consolidated Balance Sheet

49
Relationships of trust withbusiness partners
51
Relationships of trust with11 million customers

58
Consolidated Statement of Income/Consolidated Statement ofComprehensive Income
59
Consolidated Statements of Cash Flows

52
Digitalization and technology
development (innovation) capabilities
53
Human resources

Forward-Looking Statements This annual report includes various management goals and other forecasts relating to the “GPS 2020” announced in October 2017and other strategies. This information is based on forecasts, assumptions, and available information when preparing the “GPS 2020” and other strategies and does notguarantee the achievement of goals and forecasts or future business results. 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 2018 are based on the judgment of management and the information
available when the figures were published (April 27, 2018). The company will disclose the latest information to the Tokyo Stock Exchange in a timely manner and at thesame time publish it in the investor relations section of its website (www.tokyo-gas. co.jp/IR/english/index.html).

02

TOKYO GAS ANNUAL REPORT 2018

LNG Value Chain for Value Creation

LNG Value Chain for
Value Creation
The Tokyo Gas Group contributes to the sustainable development of society
by advancing its LNG Value Chain.
Procurement andtransportation
Material procurement(LNG)

Material transportation

Gas production and supply/
power generation

Sales and energy solutions

Production andsupply of city gas

Sale of city gas andelectric power

Power generation

Continual reduction in environmental burden during
material procurement, transportation, and production

Strengths
Invisible assets
Managerial assets torealize and support
strengths

03

Stable and affordable LNG
procurement capacity

Reliable solid infrastructure

Offering solutions

Increased use of natural gas to help
reduce customers’ environmental burden

Community-based
sales network
Capability to propose total energy
solutions that combine gas,
electricity, and services

Track record of almost half a century supplying LNG;
Natural gas technology and maintenance know-how;
Human resources; Business partners in Japan and overseas
Relationships of trust withover 11 million customers
LNG procurement volume
14.24 million tons (equal toapprox. 20% of Japan’s total)

Diversified resource
suppliers, contracts andnetwork

4 LNG terminals
Approx. 64,000 km gas pipelines
in total
4 highly-efficient power stations(approx. 1.6 million kW in equity stake)

Enhancing of overseas business (13 overseas bases)

Sales outlet network
Tokyo Gas Lifeval, Enesta, and Enefit(185 outlets; approx. 14,000 staff)

Introduction

CO2 emission reduction by fuel conversion
Comparison of CO2 Emissions (Coal=100)

Eco-friendly; No need for storage;
Improved operability (no cleanup);Labor saving; Stable supply

Natural gas

Oil

Coal

60

80

100

OUTCOME

Customers

GPS2020OUTPUT
Products and services

Benefits of fuel conversion

Message

Tokyo Gas and the advantages of natural gas
Tokyo Gas was the first company in Japan to adopt LNG.
For almost half a century since, we have built and operated
an integrated value chain encompassing all aspects of
LNG business; from procurement and transportation to
supply and retail. By developing this track record and ouraccumulated expertise to even higher levels of sophistication,
we are contributing to the sustainable development of society
through the efficient use of natural gas.

Economic value
FY2020 targets

Operating cash flow

Individual andcorporate customers¥280 billion
ROE

Gas

11

8

%

Total payout ratio

Households

Public facilities

StoresPlants

Offices

Power generations

60%

Social value outcome

1

Electricity

Gas operators(wholesale customers of Tokyo Gas)

Engineering solutions

City gas wholesalecustomers of Tokyo Gas(via pipeline connections)

9companies

LNG wholesalecustomers of Tokyo Gas(by use of ocean goingships, and trucks)

Environmental
contribution

3

People’s safe and reliable
lives and community
development

Financial data

19

companies

2

Invisible assets

Energy security
improvement

Corporate governancemillionBusiness overview

aroundOver

Overall image after
full deregulation

See “GPS2020” on page 15.

04

TOKYO GAS ANNUAL REPORT 2018

Our history
Gas usage
Gas lamp

Gas Kamado oven

Automatic gas
rice cooker

Gas heater

Raw materials

Coal

Oil

Natural Gas

Coal is heatedin the coke oven anddry distillated
to produce gas

Crude oil is thermal
cracked to generate gas

1972-1988
Operations to change
the calorific value of gas

Tokyo Gas
continues to grow as“Energy Frontier”
For over 130 years, the Tokyo Gas Group has provided a stable and reliable supply of gas for industries and households
to support economic development for all, and to ensure comfortable home environments and desirable lifestyles.
At the same time, we have succeeded in creating and raising the corporate value of our Group companies.
The electric power and gas retail markets have now been fully deregulated.
We regard this deregulation as an opportunity to propose and supply optimal energy systems as a set,
including both electric power and gas. By continuing to implement our process of non-linear reforms(business transformation unprecedented in its boldness and fundamental reform of our organizational structure),
and by advancing our unique “GPS×G” (Gas & Power + Service × Global) management plan for creating
new value by specifying concrete initiatives with regard to what we can do as a company,
we will continue working to ensure further advancements and breakthroughs

Tokyo Gas
begins importing
LNG to Japanfor the first time

for the Tokyo Gas Group into the 2020s.

* The numbers of gas customers and gas sales volumes are parent-based
up to fiscal 2002 and consolidated-based from fiscal 2003.

1955

1885
Tokyo Gas
established

1950
Number of customers

591 thousand*Gas sales volume0.15 billion m *

3 1

0 kWh

Electric powersales volume
Number of employees*2

Consolidated

Parent-based

LNG suppliers (projects)*1 Parent-based*2 Employees include full-time employees andexcludes seconded or temporary employees*3 Regular employees

05

Length ofpipeline network*1
Power stations(Tokyo Gas power generation
capacity)

1-

5,837*
03

10,756 km
0 kW

1960

1965

1969

The old Shinjuku District
Heating andCooling CenterFirst natural gas
cogeneration system

Gas built-in
cook stove

Residential fuel cell
“ENE-FARM”

Introduction

Kuramae Kokugikan
First gas heating andcooling system

Toyosu Smart Energy
CenterMessage

LNG 50th
Anniversary(2019)(billion m3)

16

GPS2020

12
Overall image after
full deregulation

Gas sales volume (billion m3)
Electricity Sales Volume (billion kWh)

8
Business overview

4

1985

1990

1995

2005

2000

4,004 thousand*

1

2010

2015

2018

(Planned)

FY2017

8,872 thousand*Actual1

11,678 thousand

9.08 billion m *15.57 billion m

0 kWh

0 kWh
16,307

14.66 billion kWh
17,138

10,258 *1

12,3397

7,862
1223,194 km
0 kW

47,908 km
0 kW

63,557 km
1.6 million kW

3 1

3

3 1

3

Financial data

1.66 billion m *Invisible assets

1970

1980

Corporate governance

0
1975

06

TOKYO GAS ANNUAL REPORT 2018

CEO’s message

07

achieve the goals of The Tokyo Gas GroupFY2018-2020 Management Plan (GPS2020)
ensure further advancement andbreakthroughs for the Tokyo Gas Group into
the 2020s.
By making innovations based primarily
around natural gas, which is superior interms of stability of supply, economic value
forward in improving our corporate value, by
evolving from the top city gas supplier in the
Greater Tokyo Area into a truly global“energy frontier” company.

Invisible assets
Financial data

Takashi Uchida

Corporate governance

Representative Director, President and CEO

Business overview

and environmental friendliness, we will move

I was appointed President and CEO of Tokyo Gas this April(2018). My appointment comes at a time when not only the city
gas industry but the energy industry as a whole is experiencing
major changes, and I feel tense to take on the role ofmanaging the Tokyo Gas Group. Since joining the company in
1979, I have experienced working in both field and management
positions in a wide range of areas, including gas transportation(pipelines), human resources, corporate planning, raw materials
procurement, overseas business operations and household(consumer-oriented) services. Going forward, I will seek tomake effective use of my past experiences in improving thecorporate value of the Tokyo Gas Group.
In November 2011, in the aftermath of the Great East Japan
Earthquake, we developed the Challenge 2020 Vision; aroadmap for achieving our vision of what kind of company
we want to become in the long-term. I was involved indeveloping the plan in my position as General Manager of
the Corporate Planning Department.
The vision outlines our corporate stance of contributing tosociety—specifically the energy industry, which is a key
element of basic infrastructure supporting the lives of the public
and all industrial activities—by advancing our LNG value chain.
Following on from our previous “Hop” (FY2012-2014) and“Step” (FY2015-2017) management plans implemented overthe past six years, the greatest role that has been entrusted
to me in taking up the management baton is to ensure thesure and steady implementation of the policies raised in our
GPS2020 medium-term management plan, which represents
the final three-year “Jump” stage of our Challenge 2020
Vision; and to solidify our foundation for futureadvancements and breakthroughs in the 2020s by achieving
the plan’s targets as far ahead of schedule as possible.
What we aspire to achieve is not only to be the top city gas
supplier in the Greater Tokyo Area, but to remain a company
that carves out new energy frontiers globally, as a total energy
corporation. Achieving the goals of GPS2020 represents
achieving the realization of our corporate philosophy of
becoming an “energy frontier” company. Now that the full

Overall image after
full deregulation

as far ahead of schedule as possible, and to

Achieving the goals of GPS2020 as far ahead ofschedule as possible

GPS2020of managing Tokyo Gas, it is my role to

Message

Having taken up the baton and responsibility

Introduction

Carving out
Energy Frontiers with
Innovation

08

TOKYO GAS ANNUAL REPORT 2018

CEO’s message
deregulation of the electric power and city gas retail markets
has begun, securing electric power supply agreements withas many customers as possible will also play a role inprotecting the foundations of our core gas business.
Promoting and expanding the use of natural city gas throughour electric power and gas operations will contribute toimproving convenience for customers and to achieving a
low-carbon society overall. I therefore want us to achievethese targets as far ahead of schedule as we possibly can.

We recorded an increase in sales and profits
for the previous fiscal year, and achieved
targets for securing electric power contracts
ahead of schedule
In fiscal 2017 (the year ended March 31, 2018), which was the
final year of the “Step” stage of our Challenge 2020 Vision, weposted operating profit of ¥116.3 billion. With this figure we
greatly exceeded the original planned figure of ¥82 billion, andachieved a 99.3% increase in comparison with the previous
year. We also achieved increases in profits for our city gas,
electric power and overseas business operations. Although
the alleviation of temporary factors that caused a decrease inprofits for the previous year (which included sliding time lag
effects and actuarial differences) contributed partly to theincrease in profits for the year, we recognize the fact that wewere able to achieve an increase in sales and profits despite
the loss of some major wholesale gas supply contracts as theresult of great efforts on the part of all our employees.
For fiscal 2018 (the year ending March 31, 2019), assuming an
exchange rate of ¥110 per U.S. dollar and an oil price of $65/
bbl, we plan to achieve operating profit of ¥93 billion (adecrease of 20% y-o-y). The main factors behind thisdecreased profit plan are time lags in the reflection of crude
oil prices and gas rates, and transient cost increases such as
those associated with data transfers due to the startup of newcore mission-critical systems. We ask that shareholders
understand that it does not indicate a decline in our basic
earning capacity. (Please refer to page 55.)
Naturally, this does not mean that we are satisfied with thisprofit level, and we will endeavor to enable the addition of
extra profits, and work to improve this profit level in themedium-term.
With regard to the retail sale of electric power, at the end of
March 2017 we set the target of receiving applications from
1 million customers during fiscal 2017. This target wasachieved ahead of schedule in October 2017, and as the endof March 2018 this figure had reached 1.25 million customers
and is still rising.
In our overseas business operation, too, we are steadily
making investments midstream and downstream business,such as power plants and city gas distribution businesses.

Evolving into a global total energy
corporation with our GPS2020 medium-term
management plan
Tokyo Gas Group currently stands at a turning point, an ageof change unlike any that is has experienced before during its
history of over 130 years. Although the city gas business was
originally a regulated industry, since the time of our founding
we have competed intensely with the electric power industry
in areas such as lighting, hot water, heating and kitchenutilities. With the progression of the full deregulation of theelectric power and gas retail markets, competition withelectric power companies has become more directly, and webelieve that market participation by other major energy
companies and competitors from other non-energy industries
is likely to increase in the future.
Tokyo Gas has summarized its awareness of the coming new
era in terms of the following three perspectives—which also
constitute prerequisites for the GPS2020 management plan—Gas Handling Volume (based on the Vision)

Electric Power Sales Volume(billion m3)(billion kWh)

25.0

30.0

31.0
Increase
16.3 billion
kWh

Increase
1.6 billion m3

20.7

20.0

22.5

19.1

15.0

15.3
15.0

14.7

10.0

7.5

8.3

5.0

0

0
2012.3
Launch of the Vision 202009

2018.32021.32012.3
Launch of the Vision 20202018.32021.3

Corporate governanceInvisible assets
Financial data

As we head towards the era of next-dimensional innovation, we
have established a Digital Innovation Division, for the two key
purposes of (1) improving operational efficiency and laborsaving and (2) creating new businesses.
Firstly, in terms of efficiency and labor saving, there are several
areas in which there is significant room for improving efficiency,saving labor and reducing costs through the effective use of
ICT. For example, these include improvements that will enable
regular maintenance patrol visits when customers are at home
(improving work rates for maintenance inspections withapproximately 1,000 personnel), improving work efficiency for
telephone-based contract-acquisitions (efficient operation withapproximately 1,000 operators), and improving capacity
utilization rates for thermal power stations.
We believe that this will also have major benefits in terms ofpassing on skills—which until now have depended on individual
experience and intuition—and improving work quality.
With regard to creating new business operations, we will work tolink new technologies on to achieving the realization of new
possibilities; such as by improving the performance of ENEFARM
residential fuel cells by leveraging the power of IoT, achieving
efficient operation of heating appliances by integration of floor
heating and air-conditioning systems, selling electricity generatedusing photovoltaic (solar) power generation to other households,
and payment settlement using blockchains.
Currently, we are investing in venture capital and engaging in
information gathering and open innovation through the activities

Business overview

Creating a Silicon Valley location and advancing
a program of digital innovation

Overall image after
full deregulation

The most significant background difference between the new
management plan and past medium-term management plans
is that we are now able to deliver not only gas but also electric
power to our customers in a set package, due to the fullderegulation of the electric power and city gas retail markets.
This allows us to propose optimal energy solutions to our 11
million customers to match their actual state of energy usage.
By 2020, we aim to deliver Tokyo Gas Group electric power to
2.2 million customers (equivalent to approximately 10% of theGreater Tokyo Area), and will be investing in power stations tomatch this target. Through these investments, we will aim to
expand our current power generation capacity of 1.6 million kW
to 3.0 million kW by fiscal 2020, and to a scale of around 5.0
million kW during the 2020s. With regard to renewable energy
sources, too, we will aim to develop 0.4 million kW during theearly half of the 2020s. In terms of promoting and expanding
widespread use of natural gas, we have completed our Ibaraki
Line for developing demand in the Northern Kanto area, andare strengthening our partnerships with nearby city gas and LP
gas suppliers, who are our wholesale customers. We will also
be building alliances with energy suppliers and other partners
across our entire LNG value chain, and engaging in activities
such as LNG financing and trading of raw materials with thesepartners, in order to create an optimal energy supply structure.
One service that we will be offering to residential customers, asa priority business, is the provision of support services forvarious problems faced around the home—including plumbing,house cleaning and other such services—in combination withgas and electric power.
For commercial customers, we will offer support with regard to
optimal supply of gas and electric power, such as in the installation

GPS2020

GPS×G: Strengthening our gas (G), electric
power (P) and services (S) operations globally (G)of commercial-use fuel cells aimed at convenience stores, familyoriented restaurant chains and other such customers.
For industrial customers, we will aim to supply not only gas andelectric power, but batch supply of all necessary utilities,
including heat and water for industrial use.
In North America and other such markets, where there is great
demand for energy, and where deregulation and energy market
transactions are progressing ahead of Japan, we will continue
to participate in upstream business operations, with a primary
focus on shale gas, and midstream and downstream
operations such as power stations; seeking to acquire andutilize expertise that will contribute to future operations both inJapan and overseas, while at the same time strengthening ourrevenue base. In the Southeast Asia region, where risingdemand for natural gas and growth of LNG imports are
expected as a result of rapid economic growth, we will seek
to contribute to the construction of LNG value chains in local
regions by building energy infrastructure and introducing
natural gas, while working in partnership with national
governments and local companies.

Messageas “The Era of Natural Gas,” “The Era of Single-Source
Providers of Electricity and Gas,” and “The Era of NextDimensional Innovation Fueled by the Rapid Digital Evolution.”
GPS2020 is a plan that aims to deliver gas (G), electric power(P), and services (S) to customers as a total package. We plan
to deploy this system not only in the Greater Tokyo Area, but
on a nationwide and—ultimately—global scale. What we areaiming for is to evolve from being “the Greater Tokyo city gas
company” or “Japan’s leading city gas company” to being “aglobal total energy corporation.” In terms of financial
aspects, in fiscal 2020 (the year ending March 31, 2021), we
aim to achieve a total of ¥130 billion in operating profit andequity income of subsidiaries , operating cash flow of ¥280
billion—an upward adjustment from the original figure of¥250 billion set in the Challenge 2020 Vision—and ROE ofapproximately 8%.

Introduction

In order to carve out energy frontiers with
innovation, we will create a Silicon Valley location, and advancea program of digital innovation

10

TOKYO GAS ANNUAL REPORT 2018

CEO’s message
of seven to eight overseas representatives based in Silicon
Valley. Through these activities, we seek to deepen the level ofcollaboration between our head office technical division andother business divisions, in areas such as the development of
IoT sensors.

Our strength is in our invisible assets
I believe that Tokyo Gas’s strength lies in the fact that we
possess a wide range of tangible and intangible assets, from
top-level upstream natural gas assets (i.e. gas fields) to thedownstream assets (installation and maintenance ofhousehold equipment). In particular, I think that our greatest
strength is the trust of our customers and business partners,
who believe that “if Tokyo Gas says so then it must be right.”
This trusting relationship was developed by our predecessors
over the course of our approximately over 130-year history,
through a track record of safe and stable supply. This
relationship, along with the human resources and technologies
that support it, are a major advantage for Tokyo Gas.
One thing that is important in order to prevent our GPS2020
strategy from ending as a “pie in the sky” vision is the powerof the workplace. For our business operations, whichconstitute a lifeline supporting people’s everyday lives andvital infrastructure for industrial activities, achieving a safe andstable supply is something that is taken for granted, but theday-to-day activities in the field that support this supply are
not visible to our end users.
With my experiences of gas transportation (pipelines), both in
the field and in management, I truly understand andappreciate the importance of on-site capabilities.
When I was involved with reconstruction and recovery work in
the aftermath of the 2004 Niigata Chuetsu Earthquake, I saw gas
providers come together and join forces to achieve the recoveryof city gas supplies in the region within the short space of around
one month. Seeing that made me feel and appreciate strongly

the importance of capabilities in the field. I am particularly struck
by, and proud of, the strength of Tokyo Gas’s on-site capabilities,
and our ability to come together when it is necessary.
This is the kind of strength that does not appear in our
financial statements. By continuing to refine this strength, wewill create a more robust foundation for sustainable growth,and utilize it in improving our corporate value.

ESG: We believe that developing energy
frontiers is a form of social contribution
In his book Rongo to Soroban (The Analects of Confucius
and the Abacus), the Meiji-period industrialist Eiichi
Shibusawa—who built the foundation of our business—
advocated the importance of achieving a balance between
both moral philosophy and profit. LNG is the cleanest sourceof energy amongst fossil fuels. Tokyo Gas is driving anenergy shift away from fuels such as petroleum and coal,and contributing to society through the stable supply ofclean energy that is essential to everyday life. At the sametime, we are achieving sustainable growth of our own profits.
This sentiment, which is instilled in all of our employees, isthe starting point for our ESG activities, and the source ofour corporate value. Moving forward, we will continue tocontribute to the creation of a low-carbon society throughour business operations, by not only supplying city gas, bututilizing LNG thermal power generation, heat-recycling
cogeneration systems, district heating and cooling, fuel cells
and renewable energy.
Working on the basis that active and energetic work by eachand every employee increases corporate value, we arepromoting diversity and advancing a program of workflow andworkstyle reforms leveraging the power of IT. In the past, ourgas business operations have involved extensive on-site
maintenance work, and our workforce has consisted primarilyof male employees. However, through revisions to our work

What we are aiming for is to evolve from being “the Greater
Tokyo city gas company” or “Japan’s leading city gas
company” to being “a global total energy corporation.”
What I want to tell you
We will aim to achieve the goals of our GPS2020 medium-term management plan as far
ahead of schedule as possible.
We are already achieving our targets for numbers of electric power contracts after
deregulation of the electric power retail market ahead of schedule.
GPS×G: We will strengthen our gas (G), electric power (P) and services (S) operations
globally (G) and evolve from being “the Greater Tokyo city gas company” or “Japan’s
leading city gas company” to being “a global total energy corporation.”
We will carve out energy frontiers with innovation. We will create a Silicon Valley
location, and advance a program of digital innovation.
Our strength lies in our invisible assets, such as the trust of our customers and business
partners, and the human resources and technologies that support it.
ESG: We believe that developing energy frontiers is a form of social contribution.

11

Introduction
Message
GPS2020
Overall image after
full deregulation
Invisible assets
Financial data

One historical figure that I am particularly drawn to is
Toshiakira Kawaji, kanjo-bugyo (the Commissioner ofCorporate governanceRiding out the waves of deregulation andaiming to achieve breakthroughs as a totalenergy corporation

Finance in the Edo period), who played an active role in thesigning of the Treaty of Commerce and Navigation between
Japan and Russia during the Bakumatsu period, whichmarked the final days of the Tokugawa Shogunate.
Despite being part of the historical organization that was the
Shogunate, and in the face of demands from foreign powers
for opening up Japan to foreign trade and the signing oftreaties with harsh terms and conditions, Kawaji made valid
and justifiable arguments from the perspective of ensuring
the survival of his country that earned him the respect of his
negotiation partners, and built new relationships by
diplomatic means. I think that there are many things that we
can learn from him.
For my part, even in the face of the massive surging waves
of deregulation, I want us to push through without losing
sight of our pride and mission as a public utility company,
developed over our 130+ year history, and to build afoundation for future development and advancement as a
total energy corporation.
Finally, I want to say that I regard the run-up to 2020 as aperiod for preparing for future breakthroughs in the coming
decade. We are still in the investment stage, but we will still
continue to generate solid profit and maintain a total payout
ratio of at least 60%. Through dialogues with our
stakeholders, we will aim to achieve further improvements in
our corporate value.
I ask that our stakeholders will continue to support the Tokyo
Gas Group, as we continue in our challenge to become atotal energy corporation.

Business overview

practices and our proactive promotion of female employees,
for two consecutive years we have been selected as aNadeshiko Brand—an enterprise that actively promotes andencourages the empowerment for women—in a joint scheme
run by Ministry of Economy Trade and Industry (METI) and theTokyo Stock Exchange (TSE).
With regard to corporate governance, we have modified thebalance between executive and monitoring functions byincreasing our ratio of outside to internal directors, with 5internal directors—one of whom does not have executive
authority— and three outside directors (compared witheight internal and three outside directors up until last year.)
Although Tokyo Gas is not a “Company with Committees”(as provided for under the Companies Act), we do have an
Advisory Committee which deliberates on personnel andremuneration for company officers. The Advisory
Committee consists of five members: two outside directors,
one outside Audit and Supervisory Board member, theChairman (executive director with no additional role) andmyself (executive director with additional role). In this way,
we maintain a balance by having the majority of members
as outsiders, and everyone besides myself as nonexecutive officers.

12

TOKYO GAS ANNUAL REPORT 2018

CFO’s message

Tokyo Gas is committed
to maintaining competitive
shareholder returns
and making necessary
investments required forsustainable growth, with theawareness of achieving an
8% ROE
Senior Managing Executive Officer, CFO

Isao Nakajima

Achieving a balanced operating cash flow
distribution based on our business strategy
As Senior Managing Executive Officer, I participate in theprocess of determining company-wide management strategy.
At the same time, as CFO, I am in charge of financial andcapital policy. Tokyo Gas’s basic policy for its financial
strategy is to achieve a balanced distribution of operating
cash flow between (1) full and stable shareholder payouts, (2)growth investments, and (3) maintaining sound financial
health. We will continue to review and adjust this balance asneeded, based on factors such as our medium to long-termbusiness strategy and capital market trends at the time.
With regard to shareholder returns, we have announced ourcommitment to maintaining a total payout ratio of 60% until
fiscal 2020. If you look at our track record over the past 12
years since fiscal 2006, when we set the target of a 60% total
payout ratio, you can see that we have consistently maintainedthat payout ratio by steadily increasing dividends in
combination with appropriate share repurchases. We areconfident that this 60% total payout level remains competitive,
not only amongst companies in the Japanese electric powerand gas sectors, but in capital markets overall.
In terms of growth investments for the future, we will continue
to focus our investments into the expansion of our natural gas

13

and LNG value chain, which will continue to play an importantrole into the 2020s, and in other areas that will contribute to
the advancement of the Greater Tokyo Area, which continues
to exhibit high growth potential.
In addition to expanding its electric power business bybuilding its own high-efficiency gas-fired thermal power
plants, Tokyo Gas will also continue to take a proactive
approach to challenges in new fields; for example, such as byincreasing added value by combining those conventional
power sources with renewable energy sources.
Meanwhile, with regard to financial health, which is our basis
for minimizing financing costs, ensuring stable management
and securing the trust and confidence of customers, we havealready secured a certain level.
Based on the assumption of consistent shareholder payouts
and proactive growth investments for the future, by fiscal 2020,
our D/E ratio is expected to rise from the current level of 0.64 toaround 0.9, which we consider to be within acceptable levels.

Seizing opportunities for growth throughappropriate investments
Adding a few words about growth investments, natural gas is
an excellent source of energy in terms of the global
environment and other such perspectives, and significant

20

15

150

10

75

5

0
1996.3

2000.32005.32010.32018.3Chiba-Kashima Line,
Hitachi LNG Terminal, IbarakiTochigi Line, etc.

Ohgishima LNG Terminal,
Keihin Line, etc.

*1 Non-consolidated basis up to fiscal 1998; consolidated-basis from fiscal 1999
*2 Gas sales volumes from fiscal 2011 are on a 2020 Vision basis.
(Including the gas volume used in-house under tolling arrangement and the LNG sales volume.)(¥ billion)

Share repurchases

80
63.4%

40

34.0

58.2

45.1

41.0

40.0
33.8

28.3

7.9

24.1

23.3

20.0

7.0

5.0

5.0

24.3

36.0

67.3

65.1

32.3

32.2

21.4

61.7

25.7

25.1

24.4

26.3

25.3

25.1

0
2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

Financial data

58.1

20

Total payout ratio

60.1% 60.9% 61.4% 60.7% 60.0% 60.8% 60.1% 60.7% 60.2%

60

26.4

Dividends paid

In addition to multi-faceted and comprehensive overall
debates, I believe that making our business strategies more
fruitful and rewarding will also demand logical judgement,
without denial of inconvenient facts. Achieving this will requirea mechanism for supervising and checking its appropriatenessof how our business is operated, and I believe that is exactly
what corporate governance represents.
I place particular importance on constructive dialogues (or“engagement”) with shareholders and investors. Shareholders
and investors each have their own various ways of thinking,and their own decision-making criteria, and are by no means
one unified group. But we endeavor to listen constantly andhumbly to their opinions. Together with the CEO and ourinvestor relations (IR) representative, I work to create numerous
opportunities for such engagement, totaling around 250 times
per year, covering main themes that include the backgroundand future outlook of our investment strategy, and the impactof the deregulation of the electric power and gas markets.
Tokyo Gas has been selected in three ESG assessment
indexes used by Japan’s GPIF (Government Pension
Investment Fund: the FTSE Blossom Japan Index, the MSCIJapan ESG Select Leaders Index, and the MSCI Japan
Empowering Women Index (WIN). I also regard our inclusion inthese indexes as an achievement of these initiatives.
Next year, it will be 50 years since Tokyo Gas became the firstcompany to import LNG to Japan. Moving forward, we willcontinue working to increase our corporate value by drawing
out the maximum value of natural gas. We ask for thecontinued understanding and support of our shareholders.

Invisible assets

Shareholder Returns

Paying thorough attention to corporate
governance in management

Corporate governance0

As CFO I act as chairman of the Investment Evaluation
Committee. We have set a hurdle rate (a standard for judging
profitability) that reflects a conscious awareness of our capitalcosts, and are striving to ensure disciplined investments, witha view to achieving our FY2020 ROE target of 8%. However,
we also believe that achieving sustainable growth amidst theuncertainty of the future business environment will require
strategic thinking from a medium to long-term perspective
and carefully-considered risk taking. For this reason, recently,
we are investing particular energies into identifying issues thatwill contribute to overall management decisions andfundamental debates.

Business overview

225

3

Maintain sound financial health, asa basis for stable management andsecuring the trust and confidenceof customers

Overall image after
full deregulation

300

2

Steadily implement growthinvestments, with consideration
given to investment efficiency andawareness of achieving an 8% ROE

GPS2020(billion m 3 )Capital expenditures (LH)
Gas sales volume (RH)(¥ billion)

1

Continue to maintain competitive
shareholder returns (total payout
ratio of 60%)

Message

Capital Expenditures and Gas Sales Volume

Basic Financial
Strategy Policy

Introduction

growth in demand is still expected to continue in the Greater
Tokyo Area, which is our main business area.
With the completion of the Hitachi LNG Terminal expansion
and the Ibaraki Line (currently under construction), we willachieve a complete loop in our Greater Tokyo high-pressure
pipeline network, thereby further increasing the stability of our
natural gas supply infrastructure. Based on this, we want tounleash the maximum potential of natural gas. As one
technology development initiative to help achieve this, we will
actively incorporate methods such as open innovation, with
our sights also set on the arrival of “Society 5.0.”
When making decisions with regard to significant investments,
in addition to making multi-faceted evaluations and analysesof the profitability and risks involved in the preliminary stagesof each project, we also hold Investment Evaluation Committee
meetings to verify the strategic significance of the investment.
After the decision has been made to proceed with aninvestment, the Committee periodically validates theperformance and future outlook of each project. In this way,
we are making efforts to ensure appropriate and timely
judgments with regard to the future of each investment project.

14

TOKYO GAS ANNUAL REPORT 2018

GPS2020

Tokyo Gas Group FY2018-2020
Medium-Term Management Plan

GPS2020
In November 2011, the Tokyo Gas Group released its Group Management Vision:“Challenge 2020 Vision - Initiatives by the Tokyo Gas Groupfor Energy and for the Future” .
In our previous management plans, “Hop” (FY2012-2014) and “Step” (FY2015-2017), ourgoals were to realize a total energy and global corporate group. In addition to widely
expanding our business domains and areas, and forming seven business domains, we
also built a new group formation.
During the “Jump” period, we will deploy the Tokyo Gas Group’s “GPSxG” system
to generate real new value in “the things we can do” while pressing forward withongoing a comprehensive vision of non-continuous reform (business transformation
unprecedented in its boldness and fundamental reform of our organizational structure).
The 2020s will be a period of solid growth and forward movement.

FY2015~FY2017

FY2012~FY2014

HOP

STEP

stage

Operating cash flow

Operating cash flow

¥240.3 billion

A step in
the right direction

Major advancements toward
the realization of our vision

stage¥237.6 billion

2011

Operating cash flow

¥194.5 billion
Formulation of
the Challenge 2020 Vision
The Great East Japan Earthquake andthe subsequent nuclear power plant
accident and the issue of demand andsupply of electricity forced the country to
examine the state of our energy, thefoundation of the lives of the public andindustrial activities.
Amid such an environment, we aim to
make contributions through theadvancement of the LNG value chain.

15

Significantly expand our business domains and areas, establish seven business domains andconstruct a new group formation, with the aim of becoming a global, total energy corporate group

Main initiatives

Main initiatives

Diversification of raw materials
Procurement and expansion of overseas
business

Evolving into a total energy businessAccelerating global businessdevelopment

Upgrading and expanding infrastructure
to contribute to safe and stable supply

Construct a new group formation

Proposing energy solutions aligned withcustomer needs

Drafting and releasing our corporate
message, “Supporting you Always andbettering every day”

In formulating our management plan, Tokyo Gas has summarized its awareness of the coming new
era in terms of three specific perspectives.
The three perspectives are: “The Era of Natural Gas,” “The Era of Single-Source Providers ofElectricity and Gas,” and “The Era of Next-Dimensional Innovation Fueledby the Rapid Digital Evolution.”

2

With its excellent stability, economics, andenvironmentally friendly characteristics,
natural gas is becoming an increasingly
important energy source, both in Japanand around the world.
Going forward, natural gas is expected to
become more widely used, in a greater
range of fields and areas, as it expands
dynamically on a global scale.

Until now, customers in Japan were only able
to buy electricity from electric powercompanies, and gas from gas companies. But
now, with the full deregulation of the electric
power and gas retail markets, consumers inJapan can now purchase both electricity andgas from a single supplier.
Moving forward, it will now be possible for us topropose and introduce optimal energy systems
combining both gas and electric power.

3

The Era of Next-Dimensional
Innovation Fueled by the Rapid
Digital Evolution
The rapid evolution of digital technologies
such as IoT and AI is having an enormous
impact on daily life and industry. These
technologies are expected to spur new
kinds of innovation that differ fromanything seen before.
We will pay close attention to suchchanges as we move forward.

Overall image after
full deregulation

FY2018~FY2020

Business overview

JUMP

GPS2020

The Era of Natural Gas

The Era of Single-Source
Providers of Electricity and Gas

Message

1

Introduction

Tokyo Gas’s Concept of the Coming Era

stage

Operating cash flow

¥ 280 billion
Transition from “Goals” to “Capabilities”
During the “Jump” period, we will deploy the Tokyo Gas Group’s “GPSxG” system to generate real new value in “the things we
can do” while pressing forward with ongoing a comprehensive vision of non-continuous reform (business transformation
unprecedented in its boldness and fundamental reform of our organizational structure). The 2020s will be a period of solid
growth and forward movement.

Provide optimal energy, featuring gas and electricity
as a packaged service.

We will provide energy services and engineering forour commercial and industrial customers to reduce
their energy usage and costs.

Establish offices in strategic areas and concentrate
management resources to engage in proposal
planning.
Contribute to building energy infrastructure incoordination with the governments and enterprisesin the fast-growing countries of Southeast Asia andother regions as the energy supply and demand
structure of these regions continues to evolve.
Build a firm foundation for profitability in North
America and other regions where deregulation andmarket trading of energy is advancing, while acquiringand using the know-how that will contribute to ourother businesses in Japan and overseas.

Financial data

Provide a one-stop offer for a full range of services
designed to meet life stages and needs of residential
customers.

GlobalInvisible assets

Total energy

Corporate governanceThrough a variety of means, we will deliver global gas and power along with services thatmeet our domestic and overseas customers’ needs

16

TOKYO GAS ANNUAL REPORT 2018

GPS2020

Initiatives
Proposing services to meet the needs of customers with GPS
Meeting customer
needs with various
service combinations

Gas and electricity
packages

Using various means

To reach a greaternumber of customers

Visits, stores

Residential customers

GPS

G&P

S

Gas & PowerServices

Work to achieve morewidespread use of city
gas and LPG

Optimal proposals,
implementation andmaintenance for energy
facility and equipment

Provide gas andelectricity services as a
set by proposing optimalenergy plans thatcombine gas andelectricity as only Tokyo
Gas canIncrease numbers ofcustomers(Lifeval, etc.)

Smart management utilizing
smart meters, IoT and AI
Lifestyle and businesssupportNew value-added
proposals to address
low-carbon, digitalizationand new technologies

FY2020 profit breakdown

Call center(Customer center)PCs,smartphones,
IoT

Commercial andIndustrial customers

Digitalmarketing
Energymanagement

Operating profit + equity income

Overseas

20%

Overseas¥130 billion¥107 billion

Services /
Other

Gas

50%

Services /
Other

20%
Gas /
Electric power

Electric power

10%
FY201717

FY2020FutureGas handing volume
Number of customers (with city gas meters)

11.90 million

Gas

11.50 million

Electric
Power

Tokyo Gas power sources (existing)Tokyo Gas power sources(replaced or new)Alliances or market procurement

2.20 million

Aim to reachapproximately 5.0 million kW

Message

Electric power sales volume
Number of customers(electric power contracts)

Introduction

GPS2020

Tokyo Gas Group FY2018-2020 Medium-Term Management Plan

10.85 million
31 billion kWh

1.00 million

15.2

billion m3

20.7

billion m

3.0 million kW3

15 billion kWhbillion m3

FY2017FY2011

FY2020In addition to gas and electric power as a
package, we will propose and deliver optimal
service combinations to match customers’
lifestyle and business needs.

GlobalFY2020FY2017

FY20202020s

Utilizing our experience in the LNG value
chain management, we will deepen andexpand our business operations according to
the regional characteristics of each area.
We will participate in upstream,
midstream and downstream business
operations to acquire know-how andenhance our revenue base.

North
AmericaThis area is expected to see

Southeast further growth. We will continue todrive initiatives in midstream andAsia

Engineering services

downstream business operations.

Regional development services(Real estate)

Australia

244

billion yen

280billion yen

Cash provided
by cash flows

1,180

billion yen(3-year total)

Cash out

1,180

billion yen

(ROE)

5.5%

Approx.

8%730

Consolidated
operatingcash flow

billion yen (62%)

billion yen (69%)

290

810

Investment andfinancing(Total payout
ratio)

60%

60%
External loans, etc.

370

billion yen (31%)

Stability(Debt-toequity ratio)

0.71

Approx.

(49%)

Shareholder
returns(dividends,
treasury stock)

includeing
Real estate
Overseas160

FY2018-2020*Equivalent to 60% of consolidated net profit
in FY2018 to FY2020(3%)

Services / Otherbillion yen (13%)*

0.9

30

Electric power

230
(23%)
100

260
(25%)

Financial data

billion yen (25%)

Shareholder
returns500

Gas(3-year total)
Capital investment

Profitability

Total amount of investment
over 3 years (¥ billion)

Business

Invisible assets

Consolidated
operatingcash flow

FY2020

Corporate governance

Investments for infrastructure development,
future advancements, and breakthroughs

Cash flow distribution method for FY2018-2020

FY2017

We will seek to maximize the value ofexisting projects, with a primary focus
on upstream interests.

Business overview

Lifestyle services including gas
devices and equipment

FY2017Overall image after
full deregulation

Service

1.6 million kW

8.27 billion kWh

FY2011

GPS2020

19.1

1,020
(Avg. 340 billion yen / year)*Figures for FY2017 are values forecast
at the time of plan formulation.

18

TOKYO GAS ANNUAL REPORT 2018

Electricity

Overall image after full deregulation

City Gas andElectric PowerBusinesses

Meaning and Objectives ofElectricity System Reforms

Securing a stable supply of electricity
Lowering electricity rates
Expanding choices for customers

After Full Deregulation

After the phased and subsequent full deregulation of

the electric power retail market in April 2016
and of the retail gas market in April 2017,

Deregulated

Power generation

Japan’s energy market has become fully deregulated.

Our strengths and achievements

Progress of deregulation
Deregulation has progressed in phases, shifting from large-lot
to small-lot sales.

Deregulation
progress

Electricity

City gas

26 %

1999

Deregulation begins

100 %

2016

Full deregulation of
the retail market

1995

Deregulation
progress

49 %The present

2017Tokyo Gas owns four high-efficiency LNGfueled power plants (1.6 million kW equivalent
power generation capacity).
Kobelco Power Moka Inc. is currently
constructing power station at Moka, in Tochigi
prefecture. Tokyo Gas plans to begin phased
acceptance of supply of electric power from theplant as of 2019, and expand the generation
capacity of its own power sources to around
3.0 million kW by 2020.

100 %Legal separation of power2020 transmission
and gas pipeline 2022

Electric power service area

Regulatedbusiness

Transmission and distribution

Electric power service
covers the whole of Japan

Responsibility for supply(power transmission and distribution operator)(Providing final guarantee service,
maintaining balance of supply and demand, etc.)

Our operation
Tokyo gas transmits and distributes electric
power using transmission and distribution grids
owned and operated by power transmission
and distribution operator.

60Hz

50Hz

All electric power grids across the whole of Japan, from
Hokkaido in the northeast to Kyushu in the southwest, areconnected by power distribution lines. This infrastructure
enables power exchange (lending) across the conventional
barriers between individual power companies, and supports
the stable supply of electricity and efficient operation of
power generation facilities.
Although in Japan electricity is distributed at frequencies of
either 50Hz (East Japan) or 60Hz (West Japan) dependingon the region, the installation of specialized transformer
equipment in Nagano and Shizuoka prefectures has enabled
the transformation and mutual exchange (lending) of certain
volumes of electric power even between east and west.

19

Deregulated

Retail
Our strengths and achievements
Utilizing our sales network, which is closely
linked to local communities, we supply
electric power as a retail service to 1.13 million
customers (as of march, 2018).
We also maintain alliances with other companies.

Meaning and Objectives of Gas
System Reforms

Gas retail operators, including new market entrants,
are obligated to perform gas appliance inspections andengage in risk prevention publicity. However, as theexisting gas operators have know-how regarding theseobligations, the market environment has been prepared tomake it easy for new entrants to outsource these duties toexisting operators.
Safetyregulations

City gas facilities

Gas appliances

Gas meter
Boundary ofproperty

Message

Securing a stable supply of city gas andincreasing its use
Lowering city gas rates andincreasing customer satisfaction
Expanding choices for customers andenhancing safety at customer sites

Division of safety responsibility

Introduction

City gasGas
valvesUser’s site

Deregulated

Our strengths and achievements

Gas pipeline operator

Gas retail operator

Inner-pipe leakage
testing

Gas applianceinspection, etc.

Safetyresponsibility

Emergency
maintenanceFull Deregulated Market of the Electricity and Gas
Number ofcompanies*

Electricity

City gas

10
Within TEPCO’s
domain203

Approximate
potential
customers (Million)

Approximate
market size(¥ trillion)

85
29
26

8.0
2.8
2.4

Regulatedbusiness

Expansion of city gas service area

SupplyObligations of fair operation andguarantee of final (last resort) supply to
all retail operators

Moving forward city gas service
will continue to expand the city
gas service area

Service area

We operate a safe and stable pipeline network.

Our strengths and achievements
Our sales organization is closely linked to local
communities.
We also have the capability to propose a varietyof energy solutions.

Financial data

RetailInvisible assets

Deregulated

Because city gas business developed through efficientpipeline network construction, utilizing economies of scale,the supply areas are centered primarily around urban areas,and city gas business do not currently operate in regions withlow population densities or low industrial concentrations.
In Japan, city gas business rely on LNG imports fromoverseas for the majority of our raw materials, and haveestablished a supply infrastructure, within the scope of
reason, by constructing LNG terminals in proximity to major
consumer areas. Because of this history, the development ofa nationwide gas pipeline network has not progressed in thesame way as the electric power business.
In the Japanese government’s gas system reforms, too,experts have pointed out the necessity for developing an
overall optimal pipeline network, and considerations are
currently underway with regard to this.

Corporate governanceOur achievements
Tokyo Gas’s pipeline network covers a total
distance of over 60,000 km in the Kanto region.
We are also expanding and enhancing our
network with new infrastructure to improve our
supply capabilities.

Business overview*Former general electric power operators, former general gas operators*From materials officially announced by the Ministry of Economy, Trade and Industry

Overall image after
full deregulation

Tokyo Gas owns four LNG terminals in the
Kanto region. Utilizing these four terminals(the Negishi, Ohgishima and Sodegaura LNG
terminals in Tokyo Bay, and Hitachi LNG
terminal in Ibaraki Prefecture), we are driving
stable and efficient terminal operations.

User

GPS2020

Production

Business
operator

Asset
separation

20

TOKYO GAS ANNUAL REPORT 2018

Business overview

Gas businessNet sales and Operating Profit(¥ billion)

2,000

Net sales (LH)(¥ billion)

Operating profit (RH)

200

1,500

150

1,000

100

500

50

0

0
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

Gas Sales Volume and Number of Customers(billion m3 )20

Sales volume (LH)

Number of customers (RH)

(million)

20

15

15

10

10

5

5

0

0
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

Factors affecting revenues and expenses

P59

Case Study (Materials Procurement)

Cove Point LNG ProjectCity Gas and LNG sales
OutlineApplications of gas from the Tokyo Gas Group span a wide
range, from household cooking, heating, and hot water, tocommercial air conditioning, industrial use, power generation,and other uses. The Tokyo Gas Group has also extended its
coverage from the Kanto region encompassing Tokyo and its
adjacent three prefectures (Kanagawa, Chiba, and Saitama) to
North Kanto (Ibaraki and Tochigi), by lengthening its pipeline
network to serve more customers and cater to more demand.
Number of customers

Gas sales volume

Segment profits

11,678 thousand

15.57 billion m¥116.6 billion

FY2017FY2017Equivalent to approximately
45% of total nationwide
gas sales volume in Japan

FY2017

3

Strengths
Customer base of over 11 million customers and the trust
relationship with customers who have close ties with local
communities
Delivery of safety and reliability to customers for many years
The Kanto region centered around Tokyo, with its highconcentration of production and consumption, as our primarysales area (the Kanto region accounts for around 40% ofJapan’s total GDP)
Safety-related know-how and energy solution technology
capabilities

Risks
Difficulties in raw materials procurement due to the impact ofgeopolitical risks, etc., with regard to raw materials imports
Supply issues due to damage to production and supply
facilities stemming from a large-scale disasterIntensified competition driven by market deregulation;
decline in demand caused by changing lifestyle

21

In May 2018, Tokyo Gas began receiving its first shipmentsof LNG in Negishi LNG Terminal from the Cove Point LNG
Project, our first project procuring LNG from a gas-rich shale
source in the United States.
Based on the memorandum of understanding on a strategic
alliance signed with Centrica (Centrica LNG Company Limited,a subsidiary of leading UK-based energy and services
company Centrica plc) — one of the UK’s leading energy
companies—in November 2016, Tokyo Gas will aim to create aframework to exchange its LNG with LNG procured by Centrica
in the Asia-Pacific region, and enable cost reductions byimproving efficiency in the transportation of LNG.
Project Benefits

1

Diversify resource suppliers

2

Diversify contract terms and conditions

3

Diversify our LNG network

The Cove Point project is our first project to procure LNG from agas-rich shale source in the United States
Linked to the U.S. natural gas prices, no restrictions on shipping
destinations
We are developing an LNG value chain linking Asia, North
America and Europe (aiming to achieve the concrete realization of
the memorandum of understanding on a strategic alliance signedwith Centrica (UK))

Introduction

Japan relies heavily on imports for procuring natural gas. LNG import prices are generally determined by a mechanism linked to the price of crude oil.
With the aim of achieving stable and affordable LNG procurement under these conditions, the Tokyo Gas Group is driving three types ofdiversification: diversification of resource suppliers (procurement sources), diversification of contract terms and conditions, and diversification of its
LNG network.
Diversification 1

Resource suppliers (procurement sources)
New LNG Project
Existing LNG Project

Sakhalin
Tokyo
■

Qatar

Brunei

GPS2020

Malaysia
Mozambique

Pluto
GorgonDarwin

2017

7

12

projects

projects

2018

Queensland Curtis

Ichthys14

projects

Diversification 2

Contract terms and conditions

ConventionallyIn the future

Diversification of price indexes
Diversified contract periods, destination free clauseStable prices

Diversification 3
FutureBy establishing an LNG network that connects the markets in
Asia, North America and Europe, we aim to improve LNG
transportation efficiency, reduce cost differentials in market
prices among regions, and increase our flexibility; which willcontribute to making supply and demand adjustments.

Mainly trade between Japan andits export-market countries

Network connecting Asian, North
American and European markets

MessageNobuyuki Fujimori

Initiatives Towards Achieving the Sustainable Development Goals (SDGs)

Further diversification of our LNG network beginning with the Cove Point Project
In May 2018, Tokyo Gas began receiving shipments of LNG produced at Cove Point, Maryland, United States.
During fiscal 2018, Tokyo Gas plans to begin procuring LNG from the Ichthys Project in Australia, and has also reached abasic agreement on joint procurements with Centrica (UK) in Mozambique, Africa. With the inclusion of these and various
other projects, Tokyo Gas is advancing the diversification of its procurement sources.
In addition, by driving three types of diversification in procurement, such as in its initiative to exchange LNG in cargo-unit
volumes based on the memorandum of understanding on a strategic alliance signed with Centrica, Tokyo Gas is accelerating
the construction of an LNG network connecting Japan to the rest of the world.

Financial data

Sustainable Development Goals

Invisible assets

Materials Department
Trading Group

With the full deregulation of the electric power and gas markets, uncertainty withregard to demand for city gas is increasing, and there is a growing need for more
flexible handling of demand fluctuations and more competitive LNG procurement.
In order to tackle issues such as these, Tokyo Gas is expanding the scale of its
LNG trading activities.
As a concrete example, we are engaged in initiatives to increase options for making
flexible adjustments to supply and demand, such as by aiming to reduce raw material
costs (such as by reducing shipping distances and Panama Canal transit tolls) byexchanging cargo-unit volumes of LNG procured by Tokyo Gas in the United Stateswith LNG procured by the Centrica Group (UK) in the Asia-Pacific Region.
Moving forward, we will aim to further improve our competitiveness and flexibility bycontinuing to increase trading with alliance partners both in Japan and overseas.

Corporate governance

Present

LNG Network

Business overview

By adding contracts linked to US natural gas prices and otherbenchmark indicators, in addition to conventional crude oil
price-linked contracts, we aim to stabilize our procurement
costs. We also plan to increase the number of contracts withno restrictions on shipping destinations and other matters,
and increase our ratio of short-term “spot” procurements, inorder to enhance our flexibility.

Linked to crude oil prices, long-term contract periods,
restrictions on shipping destinations

Overall image after
full deregulation

2002

Cove Point

Cameron

NWS
Number of LNG
procurement
projects

Message

In addition to its conventional procurement sources inSoutheast Asia, Australia, and Sakhalin (Russia), Tokyo Gas
has also begun receiving LNG from the Cove Point LNG
Project in the United States. Upon commencing receipt of
LNG from the Ichthys Project in Australia (scheduled tocommence during fiscal 2018), the Group will have increased
its number of LNG suppliers to 14 projects in 6 countries. We
have also reached a basic agreement on joint procurementswith Centrica (UK) in Mozambique, Africa.
Through efforts such as these, we are working continuously
to enhance the stability of our LNG supply, by considering
LNG procurement from a wide range of areas and regions.

22

TOKYO GAS ANNUAL REPORT 2018

Business overview

Expansion of Natural Gas Usage
through Infrastructure Development

Gas business

Plans to invest ¥500 billion in gas business over athree-year period (FY2018-2020)
Kanto 100-200km radius
3

Potential toincrease

Kanto 100km radius

9.0 billion m

2.0 billion m
7.0 billion m

Total

3

3

Kiyohara Industrial Park
Moka Power Station(Scheduled for FY2019 onwards)

Hitachi LNG
Terminal
Ibaraki–Tochigi Line
Ibaraki Line

Koga-Moka Line

(Scheduled for FY2020)

Significant potential demand in the Northern

Saito Line
Kashima
Waterfront
Industrial Zone

Kawasaki Natural Gas Power
Generation Co., Ltd.
Ohgishima Power Co., Ltd.
Ohgishima LNG Terminal

Kashima
Waterfront Line
Chiba-Kashima
Line

Negishi LNG Terminal
Tokyo Gas Yokosuka
Power Co., Ltd.

Under the GPS2020 management plan, Over a period of three
years (FY2018-2020), Tokyo Gas plans to invest ¥500 billion,
equivalent to approximately half of the total amount ofinvestments for the overall plan, to enable the safe and stabledelivery of city gas to customers.
In addition to investments for security, stable supply, andpromotion and expansion of city gas usage (maintenance andimprovement of pipeline facilities, etc.), we will also carry out
large-scale improvements to equipment and facilities,
including the completion of the Ibaraki Line, expansion of the
Hitachi LNG Terminal, and the construction of a customer
information management system.

Tokyo Gas Baypower Co., Ltd.
Sodegaura LNG Terminal

Promoting the widespread use and expansion of
distributed energy systems
Cogeneration systems supply electricity and heat by using
city gas as fuel. In addition to the installation of facilities atthe point of demand, cogeneration systems help enhanceenergy efficiency, reduce the amount of CO2 emissions, andimprove economic efficiency through the conservation ofenergy by effectively utilizing both electricity and waste heat.
Having identified cogeneration system as a strategic
product, Tokyo Gas is promoting adoption of the residential
fuel cell system ENE-FARM and, for commercial andindustrial customers, optimal cogeneration systems
matching their demand.

Kanto area
Tokyo Gas puts particular strategic emphasis on the Northern
Kanto area, which has strong potential demand for natural
gas owing to its numerous large-scale industrial districts. We
aim to expand gas sales volume from 19.1 billion m3 in fiscal
2017 (forecast at the time of formulation of GPS2020) to 20.7
billion m3 by promoting and expanding the widespread use ofnatural gas by extending the length of our pipeline networkand lorry supply; and providing energy solutions including
energy conservation, CO2 reductions and cost reductions via
the use of natural gas and gas appliances.

Installation Results (March 2018)
ENE-FARM

Cogeneration System

Reached 100,000 units incumulative sales of ENEFARM(equivalent to the capacity of about 2
nuclear power stations)2.07 million kW

Cogeneration System (Commercial, Industrial)Gas
LNG terminal

Pipeline

Cogeneration
Electricalenergy30-48%Heat energy(steam)30-55%

Waste heatthat isdifficult touse
15-30%
Total energy
efficiency

70-85%**Energy efficiency stated above is calculated based on
certain assumptions made by Tokyo Gas.

Wider Energy Supply Business

Area-wide Energy supply to Kiyohara Industrial ParkWe are proceeding with construction of an energy center, mainly
consisting of a 30 thousand kW-class cogeneration system, tosupply electricity and heat to multiple facilities (three companies
and seven facilities) in the Kiyohara Industrial Park in Utsunomiya
City, Tochigi Prefecture. The Tokyo Gas Group, to achieve maximum
efficiency in serving these customers,will monitor the fluctuatingload of each facility and engage in optimally balanced operation
to supply energy. This will be one of the largest area-wide energy
supply undertakings in an inland industrial park in Japan. We arepromoting widespread use and expansion of distributed energy
systems and tapping industrial demand.

23

Achievements of the Chiba-Kashima Line

Securing Potential Demand in the Kanto Area

Even in regions where gas pipelines have not been laid, Tokyo
Gas is enabling the use of natural gas by transporting LNG
using lorries. We have a track record of over 40 years
transporting LNG in this way since 1969, and have the largest
scale lorry-based supply business in Japan, with over 190
vehicles.

Lorry supply area map
GPS2020

200km

150km

100km

Overall image after
full deregulation

50km

Business overview

In October 2015, Tokyo Gas commenced operation of its
Saito Line (connecting Soka, Saitama and Koga, Ibaraki). Thiswas followed by the opening of our Hitachi LNG Terminal andthe Ibaraki-Tochigi Line (between Hitachi, Ibaraki and Moka,
Tochigi) in March 2016; and the Koga-Moka Line (between
Koga, Ibaraki and Moka, Tochigi Prefecture) in October 2017.
By linking our three LNG terminals in Tokyo Bay and ourexisting trunk line network, we have completed a loop of
high-pressure trunk lines in our primary supply area, andimproved the stability of our supply infrastructure.
Capitalizing on our infrastructure development efforts,
Kobelco Power Moka is constructing a natural gas-fueled
thermal power plant in Moka City, Tochigi Prefecture. In
addition to an expected increase in gas sales volume bysupplying gas to this power plant, we are also working tofurther develop potential demand.
Additionally, we are constructing a new Ibaraki Line that willconnect the cities of Hitachi and Kamisu in Ibaraki Prefecture,

Lorry-based LNG sales

Liquid gas business
OutlineNumber of customers
Direct sales

60 thousand
FY2017240 thousand
FY2017¥1.7billion
FY2017Structure of Tokyo Gas Liquid Holdings
Tokyo Gas Liquid Holdings

Tokyo Gas Energy

Tokyo Gas Chemical

Sales of LPG

Manufacturing and salesof industrial gas, utilizing
LNG cold energy

Utilizing LNG cold energy to manufacture andsupply industrial gases
We make effective use of LNG cold energy, to manufactureand supply affordable high-grade industrial gas. We are also
seeking to enhance our sales capabilities by offering onestop solutions to large-account customers by combining
LNG, engineering, and other Tokyo Gas services.

Established Gas Crew Co., Ltd.
logistics management company (July 2018)

Astomos Energy Corporation, ENEOS Globe Corporation
Comprehensive alliances

Astomos Energy Corporation (October 2016)
Saisan Co., Ltd. (February 2017)

Financial data

Examples of alliances with LPG business operators

Invisible assets

By forming alliances and collaborating with various LPG
industry players, Tokyo Gas will seek to achieve highlyefficient delivery and improve maintenance and customer
service levels, to achieve a business scale of around 1 million
customers by fiscal 2020.

Segment profits

Distributors

Corporate governanceTokyo Gas operates a liquid gas business, in which it sells
LPG to customers in locations outside its city gas supply
area and/or those who otherwise do not use Tokyo Gas
gas, and utilizes LNG cold energy to manufacture and sellindustrial gases.

Expanding business operations through allianceswith other LPG business operators, etc.

Message

The Chiba-Kashima Line commenced operation in March
2012, and has succeeded in dramatically increasing our gas
sales volume in Kashima waterfront industrial zone.
As a result, our gas sales volume in that area has grown tosuch an extent that it now accounts for approximately 10% of
our total consolidated gas sales volume.

aiming to commence operation in fiscal 2020. The completionof this line will enable even greater widespread promotion andexpansion of natural gas usage in the Kanto region.

Introduction

Promoting and expanding the widespread use ofgas in the Northern Kanto area

Test project to validate IoT-based remotemeter-reading/telemetry (June 2017)

Azbil Corporation, Azbil Kimmon Co., Ltd.

24

TOKYO GAS ANNUAL REPORT 2018

Business overview

Electric power businessNet sales and Operating Profit(¥ billion)

Net sales (LH)300(¥ billion)

Operating profit (RH)

30.0

225

22.5

150

15.0

75

7.5

0

0
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

Electricity Sales Volume and Number of Retail Costomers
Electricity sales volume (LH)
Number of retail customers (RH)

(billion kWh)20

(million)

2.0

15

1.5

10

1.0

5

0.5

0

0
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

The era of single-source providers ofelectricity and gas

OutlineSince 2000, when the Tokyo Gas Group began to generate andsupply electric power, it has engaged in a comprehensive rangeof business activities that extend from fuel procurement to power
generation and sales. Among the new entrants to the sector
following the start of deregulation, we own one of the largest power
stations in the Greater Tokyo region, and sell generated power towholesale and large-lot customers. With the full deregulation of
the electric power retail sector in April 2016, we also began sellingelectricity to residential and commercial customers.
By providing customers with value such as value for money, peaceof mind, simplicity and convenience, we will continue to expand
our electric power business operations and thereby increase ourcorporate value.
Number of RetailCustomers

Electricity Sales
VolumeSegment profits

1,130 thousand

14.66 billion kWh¥9.6 billion

FY2017FY2017FY2017

For many years, customers in Japan were only able to buy
electricity from electric power companies, and gas from gas
companies. With the full deregulation of the electric powerand gas retail markets, consumers in Japan can now
purchase both electricity and gas from a single supplier, justas in the EU and the US.
Based on this, the Tokyo Gas Group will aim to expand its
energy business through the proposal and deployment of
optimal energy systems.

Full Deregulated Market of the Electricity and gas

Risks
Decline in price competitiveness of LNG thermal power
generation, associated with changes in prices of raw materials
and fuels
Potential damage to power generation facilities and supply issues ofraw materials and fuels, stemming from a large-scale disaster25

Approximate
potential customers(Million)

Approximate
market size(¥ trillion)

10

85

8.0

WithinTEPCO’s domain

29

2.8

203

26

2.4

Electricity

Strengths
Some of the largest-scale, most highly-efficient power sourcesamong the new power suppliers in the Greater Tokyo region
Community-based sales network (operated by Tokyo Gas
Lifeval, Enesta, etc.) and over 11 million customers as a basePower source infrastructure, operational know-how andsystems aligned with both wholesale and retail sales

Number ofcompanies*

City gas*Former general electric power operators and former general city gas operators*From materials officially announced by the Ministry of Economy, Trade and Industry

Hitachi LNG
Terminal

Achievements over the past two years since
the full deregulation of the electric power retailmarketMoka Power Station(Kobelco Power Moka)(Scheduled for FY2019)

Kashima Waterfront Line

Ohgishima
LNG Terminal/
Ohgishima Power
Co., Ltd.

Chiba-Kashima Line

Sodegaura LNG Terminal
Negishi LNG Terminal

Electricity Sales Volume(billion kWh)40

Selling approximately 5% of electricity demand in
the Greater Tokyo Area

WholesaleNo. 1 amongst newmarket entrants

29.0%

20.7%

10

8.27 billion
kWh12.65 billion
kWh14.66 billion
kWh0

FY2011FY2016FY2017

FY2020(Planned)

Number of Retail Costomers(million)3

2.2 million
2

1.13 million

002016.3
FY20162017.32018.3

FY2017

Initiatives Towards Achieving the Sustainable Development Goals (SDGs)

Helping to prevent global warming through power generation
With its high-efficiency gas-fired thermal power stations, adopting the latest cutting-edge gas turbine combined cycle
technology, and wind power generation facilities, Tokyo Gas is contributing to the prevention of global warming.
We have also decided to accept supply of electric power from Moka Power Station, which is currently under construction by
Kobelco Power Moka Inc., and are driving the development of renewable energy power sources such as photovoltaic andwind power generation, such as through the signing of a capital partnership agreement with Shizen Energy Inc.

Financial data

Sustainable Development Goals

2021.3(Planned)

Invisible assets

0.667 million

1

Corporate governance

No. 1 amongst newmarket entrants

20

Business overview

The Tokyo Gas Group launched its electric power business inthe year 2000. Seizing the opportunity of the full deregulationof the electric power retail market in 2016, the Group
expanded its sales to residential and commercial customers,in addition to the existing wholesale segment, selling anelectricity volume of around 14.7 billion kWh in fiscal 2017.
This volume is equivalent to around 5% of total demand in the
Greater Tokyo Area. By 2020 we plan to expand this volume
to 31.0 billion kWh, equivalent to around 10% of total demandin the Greater Tokyo Area.
Market Share Amongst
New Electric Power
Market Entrants(Low-Voltage Market)

31.00 billion
kWhRetail30

Overall image after
full deregulation

Tokyo Gas Baypower Co., Ltd.
Tokyo Gas Yokosuka
Power Co., Ltd.

GPS2020

Kawasaki Natural Gas Power
Generation Co., Ltd.

Message

We have marketed and provided the “Always Plan,” a onestop package that delivers gas, electric power, and various
other services, to support our expansion into the electric
power retail market. As of March 31, 2018, we are now
supplying electric power to 1.13 million customers. In fiscal
2017, following on from 2016, we again secured the No. 1
market share position among new entrants in the low-voltage
market.
Moving forward, we will establish new payment rate plans anddevelop our range of services so that more customers may
continue to feel that they are receiving a service that
represents good value, with the aim of delivering Tokyo Gas
Group electric power services to 2.2 million customers by
fiscal 2020; and continue to increase the number ofcustomers to whom we provide gas, electricity and otherservices as a one-stop package.

Ibaraki Line

(Scheduled for FY2020)

Introduction

Kiyohara Industrial Park

*Scale of output from Tokyo Gas owned power sources: 1.6 million kW

26

TOKYO GAS ANNUAL REPORT 2018

Business overview

Electric power business

Expand power sources
Prompted by the full deregulation of the electric power retailmarket in 2016, Tokyo Gas began delivering electricity to
low-voltage residential and commercial customers, in addition
to serving the wholesale market.
To do so, and to match the growth of our sales stock with theaim of delivering electric power to 2.2 million retail customers
by fiscal 2020, we will continue to increase and expand our
network of Tokyo Gas owned power sources.
In line with our targets of achieving approximate total power
output of 3.0 million kW by fiscal 2020 and 5.0 million kW
during the coming decade, we are developing our own powersources while at the same time making effective use ofalliance power sources (electric power purchasing
agreements with power companies, etc.) and market sources.
In addition to the Tokyo Gas Group’s own power stations, it
has been agreed that electric power generated at Moka
Power Station, which is under construction by KOBELCO, one
of Japan’s largest Independent Power Producers (IPPs), will
be supplied to Tokyo Gas.

The Group’s Natural Gas-Fired Thermal Power Plants
Tokyo Gas Baypower Co., Ltd.
Generation
capacity

0.10 millon kW
0.1 million×1unit

Owned power

0.10 millon kW

Start of operations 2003 Tokyo Gas interest 100%
Tokyo Gas Yokosuka Power Co., Ltd.
Generation
capacity

0.24 millon kW
0.24 million×1unit

Owned power

0.18 million kW

Start of operations 2006 Tokyo Gas interest 75%
Kawasaki Natural Gas Power Generation
Co., Ltd.

Electric Power Expansion Plan
Own power sources (existing)
Own power sources (replacements, new)Alliance, market procurement

In addition to our competitive natural gas-fired thermal
power sources and base load supply sources, we will also
promote initiatives aimed at expanding renewable powersources, in order to address the issue of preventing climatechange.

Aiming for the scopeof 5 million kW

Generation
capacity

0.84 millon kW
0.42 million×2unit

Moka Power Station
Start-up of operations

Owned power

0.40 million kW

Start of operations 2008 Tokyo Gas interest 49%(1.2 million kW)

Ohgishima Power Co., Ltd.

3 million kW

Generation
capacity

1.6 million kW

1.221 millon kW
0.407 million×3unit

2017

2020

2020s

Procurement of Group-owned power sources
and alliance power sources
Construction of the Moka Power Station (gas-fired power
generation, approximately 1.2 million kW, all to be purchasedby the Tokyo Gas Group) is progressing smoothly towards
starting operations in fiscal 2019.
To further expand our range of power sources, we arecontinuing our evaluations for the Chiba-Sodegaura Energy(joint investment with Kyushu Electric Power and Idemitsu
Kosan), and a thermal power plant project in Ibaraki
Prefecture, among others.

Owned power

0.90 million kW

Start of operations 2010 Tokyo Gas interest 75%

Development of renewable energy sources
By developing renewable energy technologies (such as
photovoltaic and wind power generation) with a sense ofurgency, and utilizing alliances with relevant companies,
Tokyo Gas will seek to bolster its renewable energy source
initiatives.
We will also engage in proactive investment anddevelopment projects with the aim of achieving a power
generation capacity of 0.4 million kW from renewable energy
sources by the early 2020s.

Renewable Energy Projects
Feb. 2017 Formed a business alliance with Shizen Energy Inc., withthe objective of acquiring around 60 thousand kW ofphotovoltaic solar power generation sources
May 2018 Acquired a partial stake in SFK Power LLC., which has a total
power generation capacity of 9.7 thousand kW
Jun. 2018 Signed an agreement with Photon Japan LLC., with the aimof jointly developing photovoltaic power stations with a power
generation capacity of 30 thousand kW

27

Moka Power Station (image)Tokyo Gas Electricity– Electric Power Retail Division

Customer Satisfaction

No.1

Community-based sales network

Corporate name ENNET Corporation
Established
July 7, 2000

Shareholders

Electricity trading andelectricity generation
NTT Facilities 40%; Tokyo Gas 30%,
Osaka Gas 30%

Corporate name Synergia Power Co., Ltd.
Established
October 1, 2015
Main business
Shareholders

Electricity retail supply to high-voltage
and extra-high-voltage customers in the
Kanto region, mainly in its northern area
Tohoku Electric Power 50%; Tokyo
Gas 50%

Always Reliable Services
Gas Fixture Troubleshooting Support
Gas Fixture Special Support
Electricity Fixture Troubleshooting Support
Emergency Home Assist Service
Residential Monitoring Services

Always Home Support

Power (Electricity)
Always Electricity 1S
Always Electricity 1
Always Electricity 2
Always Electricity 3

Plumbing trouble response
Minor home improvements, repairs andrenovations
Home safety measures
House cleaning and delivery cleaning“my TOKYOGAS” (the service for Web members)
Tokyo Gas Triple Discount Plan for gas,
electricity and internet

Message
Living Service Division
Energy Proposal Promotion
Department

Hideo Horikoshi

The entire Tokyo Gas Group is currently working together as a team,engaging in various initiatives, with the goal of delivering Tokyo Gas
Group electric power to 2.2 million customers by fiscal 2020.
Specifically, we are securing new customers by proposing the
key values—value for money, peace of mind, simplicity andconvenience—offered by our electric power services, through a
combination of TV commercials, direct mail promotions and other PR
techniques, and individual home sales visits.
We also negotiate and form business partnerships (alliances) withreal estate management companies (which are responsible for the
management of high rise condominiums and apartment buildings,etc.), as well as various business partners and companies in otherbusiness sectors with which the Group has formed relationships.
Through these alliances, these companies introduce our electric
power services to their customers, in some cases leading to us
securing new electric power contracts with those customers.
One thing that I feel keenly in my day-to-day duties as a sales
representative is the power of the Tokyo Gas brand. We are trusted bycustomers as a company that has extensive experience and expertisein the field of energy, and I feel that this is a major advantage when it
comes to selling electricity.
Moving forward, I will continue striving to propose our services
and solutions to customers in a sincere, detailed and easilyunderstandable manner, so as not to betray that trust.

Financial data

Main business

General Tariff
Always Gas
Tariffs for the specificgas equipments(“Danran Plan”etc.)

Services

Invisible assets

Through the establishment of Ennet in 2000, as a joint
venture with NTT Facilities and Osaka Gas, we have worked
to expand our electricity sales.
In October 2015, we established Synergia Power Co., Ltd.,
as a joint venture with Tohoku Electric Power Co., Ltd.
As of April 2016, Synergia began selling electricity tohigh-voltage and extra-high-voltage customers in the Kanto
region, primarily in the Northern Kanto area.

Gas

Corporate governance

Expand electricity sales to high-voltage andextra-high-voltage customers

Always Plan

Provide value for money, peace of mind,
simplicity and convenience

Business overview

Tokyo Gas has formed business partnerships with a total of 48
companies (including wholesale customers such as gas business
operators and LPG vendors) regarding the sale of low-voltage
electric power. Through this network, we will continue to sellelectricity to customers in the Greater Tokyo Area.

(JCSI: Japanese Customer Satisfaction Index)
Companies surveyed: five new electric power
retail market entrants

Overall image after
full deregulation

Alliances with various industry partners

FY2017 JCSI Survey ofElectric Power Retail Divisions

GPS2020

The Tokyo Gas Group has established a community-based
sales network with around 200 outlets in the Kanto region(including Tokyo Gas Lifeval, Enesta and Enefit), enabling us to
tailor our services to fit the needs of individual customers.
Through its 10,000 employees, Lifeval has built strong
relationships of trust with over 11 million customers. As the“face” of Tokyo Gas Group, Lifeval employees interact directlywith customers and engage in a wide array of services ranging
from the sale and maintenance of gas appliances andopening/closing of gas fixtures when customers move house,to gas appliance safety checks and gas meter reading.
In retail sales of electricity, too, through push-type marketingmaking effective use of such opportunities for direct contact
with customers, we will continue to steadily accumulate more
contracts to enhance our customer base.

MessageThrough its city gas business, the Tokyo Gas Group has built
up an extensive network and customer base of 11 million
customers. Together with our key values of value for money,
peace of mind, simplicity and convenience, we supply optimalenergy services to match the the actual usage needs ofcustomers, in combination with a range of lifestyle services.

Expanding our services towards our goalof securing 2.2 million electric power retailcustomers

Introduction

Expand electricity sales to low-voltage
customers

28

TOKYO GAS ANNUAL REPORT 2018

Business overview

Service business

From Kanto to the whole of Japan,
and to the world
Tokyo Gas Engineering Solutions Corporation (TGES) wasestablished in April 2015, by integrating the Group’s
capabilities in engineering and energy solutions. In April 2017,
TGES opened new offices in Nagano and Fukuoka. Following
on from this, in April 2018 we also opened a new office in
Okinawa, while in Ehime Prefecture we established Niihama
LNG Co., Ltd., as a joint venture with four other companies,
including local companies, that will engage in engineering
service business operations together with TGES.
By partnering with energy suppliers in various regions and utilizing
its technological capabilities and know-how, TGES provides
engineering solutions to customers both in Japan and overseas.

Engineering Service

GMEA*2
Supplying electricity andsteam to Toray Group Malaysia

Okinawa Office

OutlineFor almost half a century, since introducing LNG to Japan for the
first time in 1969, Tokyo Gas has consistently handled processes
across the entire LNG value chain, including both upstream anddownstream processes, from procurement and transportation to
manufacturing and supply, sales and energy solutions.
Utilizing the technological capabilities and know-how developed
through these processes, Tokyo Gas provides one-stop solutions
to match the needs of customers both in Japan and overseas,
including LNG terminals, pipelines, district heating and cooling, andenergy services.
Net sales

Operating profit¥118.1 billion¥3.5 billion

FY2017*1 Niihama LNG Co., Ltd. (TGES: 50.1%, YONDEN Shikoku Electric Power Co., Inc.: 30.0%,
Sumitomo Chemical Co., Ltd.: 9.9%, Sumitomo Joint Electric Power Co., Ltd.: 5.0%,
Shikoku-Gas Co., Ltd.: 5.0%)*2 GAS MALAYSIA ENERGY ADVANCE Sdn. Bhd. (Gas Malaysia Co.:66%, TGES:34%)

FY2017

Diagram of Engineering Solution Supply

By bundling TGES’ various engineering solutions to cater tothe specific needs of customers, we provide an optimalengineering service.

Current model

Bundled service model

Providing case-by-caseengineering solutions

Engineering solutions are bundled
to provide optimal services
LNG
facilities
EnergyPipelines
service

Energyservice

Pipelines

District heating
and cooling service
Smart Energy

Energy use
facilities

Mapping,
Soil etc.

Energy use
facilities

District heating andcooling service Smart
EnergyMoreover,Mapping,
Investment

Soil etc.

TGES America
Supplying steam, etc. to Toray
Carbon Fiber America

Nagano Office
Kyushu Office (in Fukuoka)

Providing individual solutions as a bundle

LNG
facilities

Niihama LNG*1

LNG

PlantsMiddle-pressure
pipeline
High-pressure
pipeline

LNG
receivingterminal

Energy (utility)
service center
Middle-pressure
pipeline
Smart Energy
centerValve station
Governor station

Medical facilities
Gas network
Heat network
Electricity network
Hotels andUtility networkcommercial facilities
ICT network

Schools
Offices andhousingcomplexes

Niihama LNG Project

Bundling engineering and energy services
Niihama LNG Project: Constructing an LNG terminal in collaboration with
YONDEN (Shikoku Electric Power) and the Sumitomo GroupIn this joint project together with YONDEN Shikoku ElectricPower Co., Inc., Sumitomo Chemical Co., Ltd., Sumitomo
Joint Electric Power Co., Ltd. and Shikoku-Gas Co., Ltd., wewill construct a new LNG receiving terminal at the site of
Sumitomo Chemical’s Ehime Works, and supply gas both to
Ehime Works itself and to a new natural gas-fired thermal

29

power station that is to be constructed by Sumitomo Joint
Electric Power.
The LNG terminal, which will be the largest in the Shikoku
region, is scheduled to commence operation in FY2021, withTGES participating in its design and construction, as well as
LNG demand development.

Introduction

Providing engineering solutions leveraging technological capabilities
and know-how developed almost half a century

Engineering business

Thailand: LNG receiving terminal construction PMC(January 2018)

Utility services at Osaki Citizen Hospital(Osaki, Miyagi Prefecture)

TGES has constructed a multiplex energy system at Osaki Citizen
Hospital that combines a city gas fueled cogeneration system and boilers
with heavy fuel oil and pellet boilers.
In addition to enhancing the client’s energy-saving and BCP
characteristics, the system has also created an environment in which
the client can concentrate on hospital administration, by taking over therole of energy-related equipment management, which was a significant
burden to the client in the past.
The installation of this system is also contributing to an increase in gas
sales volume for Furukawa Gas Co., Ltd., which supplies city gas to theclient, making this project a triple win for the client, gas operator andservice provider.

Osaki Citizen Hospital

Energy services for Toray Group(Malaysia and United States)

PPT LNG Map Ta Phut Receiving Terminals

Case2

Bangladesh: LNG terminal feasibility study, etc.
(July 2017)

Message
Niihama LNG Co., Ltd.

Naoya Murata

Financial data

In the Niihama LNG Project, companies from industries with different backgrounds and different values are coming together to build andoperate a single LNG terminal. We consider this to be an ideal project format for creating new energy infrastructure, where companies
concentrate their various individual strengths and expertise to contribute to the advancement of the local economy and reducing
environmental impacts, in addition to furthering their own mutual interests.
In FY2016, I was responsible for sales to the Sumitomo Chemical Group, and since FY2017 I have handled discussions with eachpartner company regarding the conversion to joint business operations. Because the negotiations involved multiple companies withdifferent backgrounds and values, there were some difficult situations, but each of the companies brought their own strengths to thetable, and with our passionate enthusiasm we were able to overcome numerous hurdles and eventually achieve the establishment of
the joint venture company in April 2018.
Currently, all project members are running around Niihama City, working hard to get the blood of this newly born company pumping as it should.
Moving forward, too, I will continue to make my very best efforts, together with the assembled members from other firms who havecome together for this project, as we work towards beginning the construction this October, commencing operation in FY2021, andachieving the subsequent advancement of the entire local area and the reduction of our environmental impact.

Invisible assets

TGES was awarded a joint feasibility studies and engineering contract(together with Nippon Koei Co., Ltd.,) by Petrobangla (Bangladesh Oil,Gas and Mineral Corporation) regarding the feasibility of land-based LNG
receiving terminals. The project represents the first order to be received by
the Tokyo Gas Group in Bangladesh.
Although Bangladesh does produce natural gas itself, it currently faces asituation in which voracious demand is exceeding the country’s existing
supply capabilities, and the project aims to tackle this situation.

TGES has been commissioned to deliver energy services to overseas
plants owned by the Toray Group (a Japanese corporate group). The
services include the construction of energy plants with gas cogeneration
systems, boilers, and other equipment (such as for air-conditioning
and water treatment), and the efficient all-inclusive supply of electricity,
steam, water and other resources generated using those plants.
Through efficient plant design and maintenance based on our extensive
past construction and operational record, we will seek to achieve energysaving benefits and long-term cost reductions through the delivery of
optimal energy systems.

Corporate governance

Case2

Business overview

In 2014, TGES was awarded an order for assignment as a project
management contractor (PMC) for the capacity expansion construction
project at PPT LNG Map Ta Phut LNG Receiving Terminals, Thailand.
TGES was subsequently awarded another PMC contract by PTT LNG tomanage its Nong Fab LNG Receiving Terminal construction project, and iscurrently engaged in associated project management duties.
These projects involve the construction of new terminal facilities as part ofa plan to increase LNG receiving capacity, in order to cater to the growth inenergy demand in Thailand due to the nation’s economic development.

Case1

Overall image after
full deregulation

Case1

Through its energy service business, TGES supplies heat,electricity, water and air by building systems—which focus
primarily around gas cogeneration, but also incorporate renewable
and unharnessed energy sources—to meet customer needs that
include energy-saving, CO2-reducing, cost and labor saving, andBCP (Business Continuity Planning) solutions.
We also continue to evolve and adapt by engaging in new
initiatives such as smart energy networks and regional lending.

GPS2020

Based on accumulated user’s know-how, the Tokyo Gas Group
provides total, optimal engineering solutions, including those forafter facilities commence operation. Since the 1980s, the Grouphas built up a track record of achievements both in Japan andoverseas, and is involved in numerous projects in regions such as
Asia, where growth in demand is becoming increasingly evident.

Energy service businessMessage

The Tokyo Gas Group has handled processes across theentire LNG value chain for almost half a century, including
both upstream and downstream processes.
We offer the knowledge and expertise that we have accumulated
through actually using the LNG terminals, pipelines, district heating
and cooling centers and various other facilities and equipment that
we have designed and built during that time as engineering solutions
based on user’s know-how, to clients both in Japan and overseas.

30

TOKYO GAS ANNUAL REPORT 2018

Business overview

Service business

Office leasing business
msb Tamachi (musubu Tamachi)
At our property which connects directly to the East Exit of
Tamachi Station on the JR Yamanote Line, we are engaged in
the development of a smart energy network and enhanced
Business Continuity Planning (BCP) functionality (such as byinstalling dual-fuel emergency generators that can run on bothheavy fuel oil and city gas). Through this project, we aim tocontribute to the local community by creating an advanced andappealing urban development and real estate leasing business.
Phase I of the development (Tamachi Station Tower S and
Pullman Tokyo Tamachi) was completed in May 2018, and weare currently working with the aim of completing constructionof Phase II (Tamachi Station Tower N) in FY2020.
Note: Phase I: Land leasing business, Phase II: Office leasing business(based on Tokyo Gas capital investment)
JR Tamachi Station(Yamanote Line)

Urban Development Service (Real Estate)

Hotel

Tamachi
StationTower N

Pedestriandeck

Outline

Net sales

Operating profit¥42.3 billion¥7.9 billion

FY2017FY2017

Chiyoda-ku
Shibuya-ku

Shimbashi
StationMinato-ku Tamachi

Tokyo Station
Koto-kuChuo-kuToyosuSetagaya-ku
Meguro-ku
Shinagawa
StationShinagawa-ku

Ota-kumsb Tamachi (musubu Tamachi)

Sustainable Development Goals
Initiatives Towards Achieving the Sustainable Development Goals (SDGs)

Tamachi
StationTower SStoresOver the course of 130 years in business, the Tokyo Gas Group has
acquired large-scale and medium-scale properties (areas of land)with high utilization value, in high-profile areas such as Shinjuku,
Ginza, Tamachi and Toyosu. Utilizing sites which it owns but which
are no longer required for business purposes, and with a primary
focus on city center areas, the Group operates an office andresidential real estate leasing business, working around the basic
concept of securing stable revenues and improving asset value.

Urban Planning
Park(Shibaura Park)

msb Tamachi

Residential leasing businessWe are also engaged in proactive leasing business operations
on small to medium-sized properties (as of March 2018, 9
buildings w/ 204 residential units). As we head towards the2020s, we will aim to achieve further business growth andexpansion, as we acquire more real estate properties in orderto create good quality assets that are well-suited to leasing.
In May 2018, we commenced construction of a rental housing
complex (provisionally named Toyotama Rental Housing
Complex) in Nerima-ku, Tokyo.
Toyosu mixed land area property development
The Toyosu area is situated in a prime location, approximately 4km awayfrom Tokyo Station. With significant events ahead such as the opening of the
new Toyosu Fish Market in October 2018 and the hosting of the Olympic andParalympic Games in 2020, the area is now attracting even greater attention.
The Tokyo Gas Group aims to create a new mixed land area developmentin Toyosu that will include both residential and commercial properties, in adevelopment area covering approximately 17ha.

Intended location of the Tokyo 2020
Olympics and Paralympics Athletes’ Village
Toyosu-ohashi Bridge

Harumi-ohashi
BridgeTokyo Gas Groupsite

ToyosuMarketToyosuMarketFujimi Bridge

Shijoumae
StationToyosu Market

Shintoyosu
StationToyosu Smart Energy Center
Ariake North
BridgeKiyari Bridge

Ariake Tennis no Mori
StationIntended location of the Tokyo 2020 Olympics andParalympics Stadium

31

Aiiku
Hospital

Redevelopment area

Urban Development in Tamachi Station East Exit area (North Zone)
In the Tamachi Station district, Tokyo Gas is engaged in an attractive urban
development project, in which offices, public facilities, hotels, hospitals
and other buildings coexist with the surrounding environment. Through theimplementation of a smart energy network that utilizes gas cogeneration
systems, renewable energy and other smart energy features, we are helping
to improve the area’s energy-saving, environmental and disaster-readinesscharacteristics.

SocialServices
Facility

Minato Park
Shibaura

ToyosuStationYurikamome

Optimal proposals with

Electric PowerServices
Optimal proposals, implementation and maintenancefor energy facility and equipment
Smart management utilizing smart meters, IoT and AI
Lifestyle and business support
New value-added proposals to address low-carbon,
digitalization and new technologies

Residential Customers

Always Plan (total energy service plan)

Tokyo Gas's Always Plan

Electric PowerServices

Always Electricity+ Points linked toelectricity rates+ Gas and electricity
package discount

Always Reliable
Services
Simple, convenient web
services
Fiber-optic
communications
services

As working cupple we arebusy and want to shorten
the amount of time we
spend on housework.

Using our website or
Customers can call us right
myTOKYOGAS, customers
away at our customer call A nearby Lifeval or Enesta
can complete any
center with any questions representative will visit you necessary procedures ormake use of our services at
at your home.
about rates or appliances.
their convenience.

EnergyFacilities / equipment

Services

Gas
LPG
Electricity

Gas fixtures andappliances
Housing fixtures andappliances
Electrical fixtures andappliances
Remodeling

Trouble with waterequipment and facilities
Residential monitoring
Housework support
Maintenance
Energy conservation
consulting
New areas…

Gas and electricity
usage data

Condition of customer
equipment/appliances
Past visit history

Data for devices using IoT

The Tokyo Gas Group

Commercial and Industrial Customers

Smart Menu Development
With a view toward the low-carbon society of the future, we
are also working to develop a “smart menu” of services,which will introduce and utilize features such as demand
response, renewable energy and storage cells (accumulators).

Case
Study

Saku Central Hospital

What is Demand Response Service?

Demand response is a mechanism whereby electricity users adjust their volume ofdemand in order to match the balance of supply and demand of electric power. The
Tokyo Gas Group provides this demand response service as a response to open callsfrom general transmission and distribution operators for load adjustment capabilities.

Financial data

(Nagano Prefecture)

At Saku Central Hospital in Nagano, we areachieving energy conservation and cost
reductions through regional energy use
between multiple buildings. We are also utilizing
renewable energy, through the installation of awoodchip-fueled biomass boiler. From a BCP
perspective of ensuring operational continuity,
we introduced a cogeneration system that
restarts operation automatically in the eventof a power outage, and adopted mediumpressure gas supply pipes offering a high level ofresistance to seismic activity.

Supplementary
Information

Invisible assets

Energy Solutions Business
Through the promotion and expansion of widespread natural
gas usage by extending its pipeline network and increasing
lorry-based supply, and by providing a competitive supply ofelectric power to large-scale customers in cooperation withpartners such as ENNET and Synergia Power, Tokyo Gas isproviding energy solutions that achieve benefits such asenergy conservation, CO2 reductions and cost reductions
for customers.

Corporate governance

Combine services to support
daily life and deliver value
for money, peace of mind,
simplicity and convenience

I want to talk tosomeone about aplumbing problem.

Business overview

Gas
Always Gas+ Points linked to gas
rates

Provide optimal energy supplies that arealigned with customers’ actual energy use

CustomerCan I make my monthly
utility bill lower?

&
Tariffs for the specificgas equipments(“Danran Plan”, etc.)

Tokyo Gas has prepared an extensive menu of lifestyleservices to cater to the life stages and requests of individual
customers, and has developed a platform that will offer
one-stop services in combination with gas and electricity.

Overall image after
full deregulation

The Always Plan is a total energy service plan that combines
a gas and electricity packaged discount with various services,which customers can choose freely. Through the plan, Tokyo
Gas aims for customers to enjoy value for money, peace ofmind, simplicity and convenience.

When you have any troubles in your life,
think of Tokyo Gas

GPS2020Work to achieve more widespread use ofcity gas and LPG
Increase numbers of customers for whom we provide
gas and electricity services as a set by proposing
optimal energy plans that combine gas and electricity
as only Tokyo Gas can

Message&

Gas

Introduction

With GPS×G, Tokyo Gas is delivering not only gas, but gas and electricity as aset package to all customers.
In addition to proposing optimal gas and electricity plans, we will combine
them with other services that meet customers’ lifestyle and business needs,
and use various means to deliver them to a greater number of customers.

A biomass boiler and woodchips

32

TOKYO GAS ANNUAL REPORT 2018

Business overview

Overseas business

Net Sales and Number of Projects(¥ billion)

50

Net sales (LH)

Number of Projects (RH)

25

40

20

30

15

20

10

10

5

0

0
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

Oil Price and Foreign Exchange Rate($/bbl)120

Crude Oil Price (LH)

Foreign Exchange Rate (RH)

(¥/$)

200

90

150

60

100

30

50

0

0
2011.32013.32015.32019.32017.3(Planned)

Building an LNG value chain

Projects and business locations
OutlineWe have expanded and increased overseas bases and staff, andhave participated in LNG or natural gas related business projects
in Australia, North America, and Southeast Asia, all in order tomake overseas business another major source of growth for the
Tokyo Gas Group, as indicated in the Challenge 2020 Vision.
Looking ahead, in addition to conducting discussions with a view
to further business development, we will also work to ensure
efficient distribution of management resources as we advanceour overseas business operations.

Birdsboro
Cove Point LNG
East Texas

Barnett
Eagle Ford
Bajio

TGES America

Tokyo Gas America
Ltd.
MT Falcon

Message
Tokyo Gas America Ltd.

Nozomu Nagai

Strengths
Know-how in the midstream and downstream businesses
accumulated in Japan
Global network established through activities such as material
procurement and business participation

Risks
Business operations may be stalled, or the burden of expenses
may increase, as a result of country-specific laws, regulations
and/or business practices
Fluctuations in crude oil/gas prices and foreign exchange rates
may impact the revenues and expenditures of all overseas
business operations
Net sales

Segment profits¥41.5 billion¥7.7 billion

FY201733

Empire

Upstream Business
Midstream- and Downstream BusinessBusiness Location

FY2017

I came to work at Tokyo Gas America—which has its primary business location in
Houston, Texas—in 2015. Until recently I had been responsible for new investment
projects in the shale gas business, but as of 2017 I have been working on secondment
at Castleton Resources LLC. (“CR”), a shale gas business company in which Tokyo Gas
recently acquired shares, and have gained six months of field experience in shale gas
development.
Shale gas development demands high-difficulty technological capabilities, in achieving
the efficient excavation of 5,000-meter-long gas wells. This is an area in which TokyoGas had only limited expertise, and we are working amongst professionals with decadesof experience in the business. Despite this, I worked diligently and to the very best of
my abilities, and was able to identify the cause of digging difficulties occurring deep
underground—where we cannot physically see—by making effective use of data. As aresult, I was able to contribute to increasing our digging efficiency, which was a sourceof great joy and satisfaction.
I am currently working at CR headquarters, making assessments of the size ofunderground reserves and analyzing development costs. I am also learning about
American corporate culture, organizational structure, and cost-cutting initiatives.
In the future, I will continue contributing to the further advancement of our US business
operations and our overseas business operations overall, based on the experience gained
during my secondment.

our participation in five new projects has been decided. These
include projects in North America, which offers extensive
opportunities for market entry, and in Southeast Asia, where
there is growing use of natural gas.
North America

UpstreamBusiness

Operation andmanagement ofexisting projects
Exploration of new
projects

Gas-fired thermal
power generation
Exploration of new
projects

Operation andmanagement ofexisting projects

LNG terminal business
Gas-fired thermal
power generation
Gas supply
Energy service
Exploration of new
projects

Tokyo Gas America Ltd.

Tokyo Gas Asia Pte. Ltd.

Tokyo Gas Australia Pty Ltd.

Houston, Texas

Singapore

Perth & Brisbane

TGES America Ltd.

Bangkok Representative
OfficeSouth Carolina
Acario Ventures

Silicon Valley

Thailand

OthersJakarta Representative
OfficeParis Representative Office

Indonesia

FranceHo Chi Minh & Hanoi
Representative Offices

Overall image after
full deregulation

Business
Location

Australia

VietnamManila Representative
OfficePhilippines
Kuala Lumpur
Representative Office

Malaysia

Upstream Business
Monitoring commodity price trends and carefully
estimating the productivity and reserves of gas fields we areproceeding to form appropriate alliances with experienced operatorsand invest in prime assets. Tokyo Gas has so far participated in threegas development projects in the United States.

Investment
ratio

U.S.A. Barnett shale gas development

Mar. 2013

25%

U.S.A. Eagle Ford shale gas development

Jun. 2016

25%

U.S.A. East Texas gas development business

May 2017

30%

Start of
Participation

Investment
ratio

gas-fired thermal power plant business
Mexico Natural(Bajio Power Plant)

Oct. 2004

49%

gas-fired thermal power plant business
Mexico Natural(MT Falcon Power Plant)

Jun. 201030%

energy services business
U.S.A. Industry-oriented(TGES America)

Feb. 2015

100%

gas-fired thermal power plant business
U.S.A. Natural(Empire Power Plant)

Oct. 201625%

gas-fired thermal power plant business
U.S.A. Natural(Birdsboro Power Plant)

Apr. 201733.33%(Foundation)

Financial data

Birdsboro Power Plant (under construction)

Project Name

Invisible assets

When planning gas-fired power generation
we will continue to use well-defined criteria to select projects in which
to participate, giving due consideration to demand and supply ofelectricity, competition with other power sources, regulations andbusiness environments on a state-by-state basis. We have recently
participated in two gas power generation businesses in the East Coastregion, where there is large-scale demand.
Midstream- and Downstream BusinessCorporate governanceStart of
Participation

Project NameBusiness overview

North America
In North America, there is a substantial
demand for energy. Deregulation and market
trading of energy are advancing, and we can
expect to see long-term growth in the natural
gas market. In this market, we will continue
to participate in upstream, midstream anddownstream businesses. In the future, we will
aim to increase synergies between individual
business operations, and to acquire anduse knowhow that will contribute to ourother businesses both in Japan and abroad,while at the same time establishing a stablerevenue base.

GPS2020

Midstreamand
Downstream
Business

Southeast Asia

Message

We plan to expand the breadth and depth of our overseas
business operations, in accordance with the characteristics ofeach region we operate in, by leveraging the global LNG value
chain experience that we have developed both domesticallyand overseas. We will also strengthen our position in the LNG
market, as the company that people associate most with LNG(i.e. “Think LNG, think Tokyo Gas.”)Additionally, we will continue to invest in projects that
contribute to the construction of energy infrastructure, with a
primary focus on midstream to downstream businesses, forwhich we can expect to see low-volatility and stable returns.
We will aim to build a portfolio that is less influenced byfluctuations in energy prices, and continue working toincrease the added value of our existing projects.
We are also setting our sights on expansion into new fields ofbusiness which are expected to see a growth in demand in
the future, including floating storage and regasification unit
(FSRU) and renewable energy; and entry into new overseas
regions where we can expect to see market growth, andwhere we can leverage our strengths.
The Tokyo Gas Group’s overseas operations currently span
13 business locations in nine countries. Over the past year,

Introduction

Aiming to develop and advance our overseas
business operations
as a global total energy business operator

34

TOKYO GAS ANNUAL REPORT 2018

Business overview

Overseas business

Southeast Asia
Tokyo Gas Group’s Bases in Southeast Asia
Hanoi Representative Office

Manila Representative Office

Thailand Representative Office
Ho Chi Minh City Representative Office

Kuala Lumpur Representative Office

Amid rapid economic growth, Southeast Asia is
expected to see a rise in demand for natural gas andan increase in imports of LNG. Tokyo Gas aims to workwith the respective governments of and companies inthese countries in order to contribute to the building ofenergy infrastructure, and the introduction of natural
gas in these regions.
Specifically, we will be engaging in midstream anddownstream business operations including LNG
terminal, gas-fired thermal power generation, gas
supply and energy service businesses.
In addition to opening offices in Indonesia, Thailand, andVietnam in 2015, we established a representative officein the Philippines in April 2017. Our ultimate goal for the
future is to form an LNG value chain in Southeast Asia.

Tokyo Gas Asia Pte. Ltd. (Singapore)

Jakarta Representative Office
Midstream- and Downstream BusinessIn Asian countries, where LNG
imports and natural gas usage are expected to increase, theTokyo Gas Group will utilize its knowledge and experience
regarding the use of LNG and natural gas in order to provide
wide-ranging value to customers, from natural gas
engineering to operational know-how and energy-saving
services, with the aim of contributing to the development of
natural gas infrastructure.
Specifically, we will seek to contribute by participating not
only in tangible aspects (such as in the construction of LNG
terminals, power stations and other energy infrastructure thatwill occur in various countries in the near future), but also
intangible aspects such as demand creation, LNG terminal
operation and LNG procurement. In this way, we will seek toincrease our involvement and presence across the entire LNG
value chain.
In 2017, we invested in gas distribution businesses in Vietnam
and Indonesia, while in 2018 we have made the decision toinvest in the gas business company in Thailand.
In the field of engineering, in 2017 we were awarded an orderof feasibility studies and engineering work concerning theconstruction of LNG receiving terminals in Bangladesh, whilein 2018 we were awarded an order to provide project
management consultant (PMC) services for the constructionof LNG terminals in Thailand.

MessageBangkok Representative
OfficeManakan
Lertsamattiyakul

35

Jakarta Representative OfficeStart of
Participation

Project Name

Philippines

Submitted declaration of interest
regarding formation of an LNG value
chain

Oct. 2017

VietnamInvested/acquired a stake in a gas
supply business company and formed astrategic allianceJul. 2017

Thailand

Secured an order to provide PMC
services in the construction of the NongFab LNG receiving terminal

Jan. 2018

ThailandInvested/acquired a stake in a gas supply
business company

Jan. 2018

Indonesia

Invested/acquired a joint stake in a gas
supply business company

Oct. 2017an order for work relating to LNG
Bangladesh Secured
receiving terminals

Jul. 2017

The Thai government is currently advancing the deregulation and promotion of third-party entry to the natural gas market, andprivate-sector companies—including overseas-based corporations—are expected to enter the market.
In view of this, one of my roles is to gather energy-related information by holding meetings and conducting interviews withgovernment agencies and other private-sector companies on matters such as government policy, regulatory trends, and thestate of other companies’ activities; and to report that information to our Tokyo head office, and to Tokyo Gas Asia Pte. Ltd. in
Singapore (which is responsible for the management of the Asia region).
In January 2018, we participated in the gas supply business, which was a first for a private-sector company in Thailand. We
have received many inquiries from outside parties, indicating a high level of interest in the gas retail business.
In 2011, Thailand became the first country in Southeast Asia to introduce LNG. Due to the depletion of domestically-producedgas reserves, LNG imports are expected to continue growing further in the future. We are receiving numerous inquiries fordetails and requests to visit our LNG terminals, primarily from government personnel.
I myself have many years of experience in the field of power generation, but this was actually my first post in the world of LNG.
Through opportunities such as this, I want to learn more about a wide-range of topics concerning the LNG value chain, andto continue to act as a bridge between Thailand and Japan in the future.

Australia
Participating projects and business locations
Ichthys

We have invested in five projects in Australia,
which has grown as a major LNG supply base to the East
Asia. Four of these LNG projects are already in operation
today. We will continue to focus on the operation andmanagement of these projects, as well as the Ichthys Project(which is scheduled to commence operation in the near
future), with a view to maximizing their value as Group assets.
Upstream Business

DarwinPluto

GorgonGPS2020

Queensland Curtis

Tokyo Gas Australia Pty Ltd.
Perth Office

Tokyo Gas Australia Pty Ltd.
Brisbane Office

Overall image after
full deregulation

Tokyo Gas Australia Pty Ltd. (Perth)Start of
Participation

Tokyo Gas Interest

Start of Production(Operation)

Darwin

3.0

2003

3.07%

Jan. 2006

Pluto

4.7

2008

5.00%

Apr. 2012

Gorgon

15.6

2009

1.00%

Mar. 2016

Queensland Curtis

8.5

2011

1.25% (Gas Field) / 2.50% (No. 2 Liquefaction Plant)

Dec. 2014

Ichthys

8.9

2012

1.575%

2018 (Planned)

Corporate governance

LNG Production Capacity(Million tons / year)

Business overview

Gorgon LNG Project

Project Name

Message

Participating project
Business Location

Introduction

Investing our energies into the operation and management of existing projects

Invisible assets

Sustainable Development Goals

Initiatives Towards Achieving the Sustainable Development Goals (SDGs)

In 2017, we invested and acquired stakes in gas supply businesses in Vietnam (July) and Indonesia (October). In January
2018, we acquired a stake in a similar business in Thailand. In October 2017, we also submitted a declaration to thegovernment of the Philippines regarding our interest in constructing an LNG value chain.
By leveraging our Group’s technological capabilities and know-how to provide energy solutions and construct infrastructure,
we are seeking to promote the widespread adoption of clean, environmentally-friendly natural gas. We also hope that
contributing to the creation of jobs and economic development through our local business operations will lead to an increasein educational opportunities and help to eliminate disparities in wealth and living standards in those countries.

Financial data

Taking up the challenge of creating an LNG value chain in Southeast Asia

36

TOKYO GAS ANNUAL REPORT 2018

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

Board of Directors
In principle, the Board of Directors meets once a month todiscuss and decide important matters regarding business
operations. Directors must submit reports to the Board of
Directors regarding the status of execution of their duties
periodically and when deemed necessary, allowing theBoard to monitor the performance of directors.
The Board of Directors comprises 8 directors, 3 of whom
are outside directors. In addition, the term of directors is
set at one year with the goal of further clarifying managerial
responsibility.

of the company’s business execution and of the deliberations
and decisions of the Board of Directors.
In making judgments about matters related to the
independence of outside officers, such as capital,transactions, and relationships, we comprehensively verify
that they are unlikely to have conflicts of interest with generalshareholders and they are in a position that enables them tobe objective and neutral, and on that basis we make a
judgment on their independence. (The company discloses the
Independence Standards for Outside Directors on its website:
www.tokyo-gas.co.jp/IR/english/gvnnc/pdf/independence.
pdf) The Advisory Committee has confirmed that none of theoutside officers has a material conflict of interest with thecompany—in regard to capital, transactions,or
relationships—and has confirmed their independence inaccordance with the above standards. The committee’s
decision has been reported to the Board of Directors, which
has designated them as independent officers and reported
that designation to the stock exchanges on which thecompany is listed.

Outside Directors
In accordance with their individual experience andknowledge,the outside directors strive to secure thesoundness and appropriateness of deliberations anddecisions regarding business execution. From an independent
viewpoint, the outside directors monitor the performance of
duties by the directors and exercise their authority at meetingsof the Board of Directors. In this way, the outside directors
contribute to the improvement of the rationality and objectivity

Corporate Governance System

Tokyo Gas Co., Ltd.
General Shareholders’ Meeting
Appointment

Board of Directors*1

ReportAppointment

Collaboration

ReportAudit,
etc.

Internal Audit Department

Independent Auditors

ReportAudit & Supervisory Board*3

Supervise and approval
Appointment

Report and propose

Collaboration

Collaboration

Audit
Audit

Report and propose

President and CEO
Corporate Executive Committee*4

Committees to address
important management issues

Investment Evaluation Committee(ethics, safety, customer satisfaction, etc.)
ManageAudit

Advisory Committee*2

ReportManage andapproval

Report and submit
for deliberation

Business Departments
Manage and approval

Report and request approval

Subsidiaries*1 Board of Directors: 8 directors (3 outside directors and 5 inside directors), 5 Audit & Supervisory Board members (3 outside auditors and 2 inside auditors)*2 Advisory Committee: 2 outside directors, 1 outside Audit & Supervisory Board member, Chairman(1), President and Representative Director and CEO(1)*3 Audit & Supervisory Board: 5 Audit & Supervisory Board members (3 outside auditors and 2 inside auditors)*4 Corporate Executive Committee: President and CEO(1), 2 Executive Vice Presidents, 2 Senior Managing Executive Officer, and 6 Senior Executive Officers (3 ofthe representative directors also serve as President and CEO and Executive Vice Presidents)

37

Introduction

Progress in Governance Composition of the Board of Directors

2002
Directors

OutsideDirectors

Directors

3

2

9

3
InsideDirectors

5

Audit &
Supervisory
Board members

OutsideDirectors

3

2

Message2

2018

Audit &
Supervisory
Board members

InsideDirectors

Business overview

FY2017 Analysis and Evaluation of Effectiveness of theBoard of Directors
To maintain and enhance effectiveness of the Board of
Directors, the Board analyzed and evaluated its effectivenessOverall image after
full deregulationby having each of its directors complete a questionnairebased self-evaluation. The Board then held discussions andexchanged opinions based on the outcome of those selfevaluations.
The results of the questionnaire and subsequent discussions
were as follows. It was found that that Board’s decisionmaking and supervisory functions are being sufficiently
guaranteed. In particular, it was recognized by all that theBoard’s effectiveness had improved significantly as a result of
improvements made in terms of operational aspects, owing to
the April 2017 revision of the Board of Directors Regulations.
At the same time, it was also agreed that ceaseless efforts are
required in order to further increase the Board’s effectivenessin the future, such as by seeking to improve and enhance
discussions by reviewing the times at which Board meetings
are held, and to enhance the Board’s relationship withexecutive officers (for example, by expanding the list of
attendees at Board meetings to include executive officers,
and increasing supervisory patrols by directors to inspect thestate of execution of duties.)

GPS2020

Realizing Accurate and Rapid Decision Making, andEfficient Business Execution
The Corporate Executive Committee, which meets weekly asa general rule, deliberates on provisions stemming from Boardof Directors’ resolutions and important management-related
issues. The company has introduced an executive officer
system for business execution in accordance with decisionsof the Board of Directors. Substantial authority has beendelegated to executive officers in their designated areas of
responsibility, while directors, as appropriate, receive reportson the status of execution from executive officers and monitor
the executive officers. In addition, executive officers report to
the Board of Directors as needed. (To clarify management
responsibility and executive responsibility, the terms of office of
directors and executive officers have been fixed at one year.)

Overview of Corporate Governance System (As of June 28, 2018)

Average age of directors

62.5

Participation of outside directors and outside
audit & supervisory board members in selecting
director candidates

Yes

Number of meetings of Board of Directors*

13

3

Attendance rate of outside directors at
meetings of Board of Directors*

Number of Audit & Supervisory Board members

5

Term of office of directors

Number of outside Audit & Supervisory Board
members3

Performance-linked remuneration

Yes

Number of independent officers

6

Share purchase system to reflect theperspective of shareholders in management

Yes

One year* Total for the period from April 2017 to March 2018

Working to Promote Transparent Management and Create a Flexible and Open Corporate Culture
We have established in-house committees—such as theManagement Ethics Committee, chaired by the President
and CEO—to address issues that are important from amanagement perspective, such as compliance, safety,

customer satisfaction, and risk management. This
structure facilitates the sharing of information within thegroup, as well as deliberations and adjustments regarding
the group’s overall direction.

Financial data

Participation of outside directors / outside Audit & Supervisory Yes
Board members in determination of remuneration

97.4%

Invisible assets

Number of outside directors

Corporate governance

8

Number of directors

38

TOKYO GAS ANNUAL REPORT 2018

Corporate Governance

Audit & Supervisory Board Members

Officer Remuneration

The Audit & Supervisory Board members meet once a month
as a general rule and otherwise as needed. The 5 members of
the board, which include 3 outside Audit & Supervisory Board
members, conduct deliberations and make reports.
In line with the Corporate Auditor’s Audit Standards, each
Audit & Supervisory Board member conducts effective
audits through the following principal initiatives.

In 2005, the company formulated the basic policy on officer
remuneration, which outlines the method of remuneration for
directors, etc. At a meeting of the Board of Directors in
February 2012, the policy was revised as follows.

The Audit & Supervisory Board members attend meetings ofthe Board of Directors, the Corporate Executive Committee,
and other important meetings. They state their opinions
relating to legality and other perspectives when necessary.

The Audit & Supervisory Board members conduct research
into the state of operations at the head office, businessoffices, and subsidiaries and hold discussions withrepresentative directors to exchange opinions, both on aregular basis and otherwise as needed.

In regard to the internal control system for financial reporting,
the Audit & Supervisory Board members receive evaluations ofinternal control and reports on the status of audits from theBoard of Directors, etc., and KPMG AZSA LLC.

Outside Audit & Supervisory Board Members
The outside Audit & Supervisory Board members conduct audits
monitoring from an independent viewpoint and contribute toimproving the rationality and objectivity of the company’sbusiness execution and of the deliberations of the Board of
Directors through their statements at meetings of the Board of
Directors. In addition, through their statements and the exerciseof their majority voting rights at meetings of the Audit &Supervisory Board, the outside Audit & Supervisory Board
members contribute to assuring and improving the legality,
appropriateness, rationality, and objectivity of the audits by the
Audit & Supervisory Board members. In addition, with theobjective of assuring the effectiveness of audits by the Audit &Supervisory Board members, the company invites outside Audit& Supervisory Board members who have a substantial degree ofknowledge about finance and accounting.
In making judgments about matters related to the independenceof outside officers, such as capital, transactions, and relationships,
we comprehensively verify that they are unlikely to have conflictsof interest with general shareholders and they are in a position thatenables them to be objective and neutral, and on that basis we
make a judgment on their independence. The Advisory Committee
has confirmed that none of the outside officers has a materialinterest with the company—in regard to capital, transactions,or
relationships—and has confirmed their independence inaccordance with the above standards. The committee’s decision
has been reported to the Board of Directors, which has designatedthem as independent officers and reported that designation to thestock exchanges on which the company is listed.

39

1 Role of Officers and Remuneration
The role demanded of officers is to seek to enhance short-,
medium-, and long-term corporate value, and officer remuneration
shall serve as an effective incentive for them to perform that role.
2 Level of Remuneration
The level of officer remuneration shall be suitable for the role,
responsibility, and performance of the officer.
3 Composition and Other Details of Remuneration Paid
to Directors(1) Remuneration of directors shall be paid within the scopeof the remuneration limit approved at the General
Shareholders’ Meeting.
(2) Remuneration of inside directors shall comprise monthly
remuneration and bonus. Monthly remuneration shallcomprise fixed remuneration paid in accordance with thepost of each individual and performance-linked
remuneration.
A portion of fixed remuneration shall be allocated to thepurchase of shares based on a share-purchase guideline
and from the standpoints of reflecting the perspectives ofshareholders on management and improving shareholder
value over the long term. The amount of performance-linked
remuneration shall be determined after evaluatingcompanywide performance and performance of operating
units from the standpoints of motivating inside directors to
execute management strategies and reflecting theirperformance clearly in their remuneration. The amount ofbonus to be paid shall be determined in accordance with thepost of each inside director after performance evaluation.
(3) Remuneration of outside directors shall comprise monthly
remuneration and bonus. Monthly remuneration shallcomprise only fixed remuneration, while bonus shall be thesame as that of inside directors.
4 Composition and Other Details of Remuneration Paid to
Audit & Supervisory Board Members(1) Remuneration of Audit & Supervisory Board members
shall be paid within the scope of the remuneration limit
approved at the General Shareholders’ Meeting anddetermined through discussions among Audit & Supervisory
Board members.
(2) Remuneration of Audit & Supervisory Board members
shall comprise only fixed monthly remuneration.

Introduction
Message
GPS2020
Overall image after
full deregulation
Business overview

Remuneration for directors(excluding outside directors)

Remuneration for Audit & Supervisory
Board members
Performance-linked
remuneration* Monthly remuneration of outside
directors are fixed remuneration
only.

Number of
officers*1

Total value of
remuneration

Base

Bonuses

10¥464 million¥386 million¥78 million

3¥74 million¥74 million

7¥66 million¥58 million(excluding outside Audit & Supervisory Board members)

Remuneration for outside officers(outside directors and outside Audit & Supervisory Board
members)

Financial data

Fixed
remuneration

Total Remuneration for Directors and Audit & Supervisory Board Members (Fiscal 2017)

Invisible assets

Composition of
Remuneration for Directors

Corporate governance

5 Assurance of Objectivity and Transparency of theRemuneration System
The company shall assure the objectivity and transparency ofthe system of officer remuneration by establishing andoperating the Advisory Committee comprising a number ofoutside directors, outside Audit & Supervisory Board
members, and inside directors to govern the system of
personnel affairs and remuneration of officers.

¥8 million*The number of officers included in the total value of remuneration for directors, Audit & Supervisory Board members, and outside officers includes two
directors and two Audit & Supervisory Board members (of whom one was an outside auditor) who retired upon the conclusion of the 217th Annual
Shareholders’ Meeting.

40

TOKYO GAS ANNUAL REPORT 2018

Corporate Governance
Advisory Committee

Compliance

In February 2005, we established the Advisory Committee toassure objectiveness and transparency in management. The
committee has up to five members, consisting of the
Chairman, the President and CEO, and up to three directors
selected by the Board of Directors; with over half of its
membership consisting of outside directors, and thecommittee chairman also being an outside director.

Compliance Structure
The company has identified the following three points as its
basic policy and is promoting compliance on that basis.

Advisory Committee Membership (as of June 28, 2018)
Committee
chairmanCommittee
members

Compliance efforts through coordination among
divisions based on the fundamental policy
Promotion of the compliance PDCA cycle

Akihiko Ide (Outside Director)
Yoshinori Katori (Outside Director)
Yoshihiko Morita (Outside Audit & Supervisory Board Member)Michiaki Hirose (Director, Chairman)
Takashi Uchida (Representative Director, President and CEO)In accordance with inquiries from the Board of Directors,
the Advisory Committee deliberates on officer candidates
and officer remuneration in a fair and appropriate mannerand makes reports to the Board of Directors. The
committee also deliberates on the independence of outside
officer candidates.

Internal Control System
To secure management soundness and transparency, and torealize its management philosophy, the company has
formulated the “Basic Policy on Development of Corporate
Structures and Systems for Internal Control System,” and isapplying this policy in an appropriate manner.
Specifically, the company has established systems to ensurethat directors and their assistants perform their duties in amanner that is compliant to relevant laws and regulations, thearticles of incorporation, and other rules. In addition, crisis
management provisions have been formulated to limit losses
from risks related to investments and natural disasters. The
company also defines guidelines for ensuring theindependence of Audit & Supervisory Board members andguaranteeing the effectiveness of the Audit & Supervisory Board.

Independent Auditors
The company has concluded an auditing contract with KPMG
AZSA LLC for auditing services based on the Companies Act
and auditing services based on the Financial Instruments andExchange Act, as well as internal control audits based on the
Financial Instruments and Exchange Act, and the company isbeing audited on that basis. The company’s audits arehandled by 3 certified public accountants: Yoshihide Takehisa,
Toshiyuki Tamura and Yoshihiro Uehara. For each of theseauditors, the number of consecutive years of auditing service
is seven years or less (as of June 28, 2018).
Compensation for Independent Auditors (Fiscal 2017)
Compensation for auditing services
Compensation for non-auditing services
Total

41

Fostering of a compliance oriented mentality¥262 million¥14 million¥276 million

We have established the Management Ethics Committee,
chaired by the President and CEO. This committee
discusses at the executive level basic compliance policies
and all aspects of compliance initiatives by the company,
monitors the implementation of compliance-related
measures, and confirms activity programs from the following
year and thereafter. The Compliance Department operates
counseling service counters, distributes information within
and beyond the Tokyo Gas Group companies, and promotes
a thorough awareness of ongoing activities related to our
Code of Conduct, which represents a compliance standardof the Tokyo Gas Group and was revised in April 2017, so as
to further meet the expectations of society. The ComplianceDepartment also supports a wide range of compliancerelated activities for each department. These include
development of compliance promotion systems,
encouragement awareness and educational campaigns
about the Code of Conduct, and compliance risk reduction
measures.
Compliance Risk Management
Through the effective operation of internal and external
advisory systems, we are endeavoring to ensure thatcompliance-related problems are discovered and resolved
quickly so that our corporate self-regulatory processes willcontinue to function effectively. We monitor the effectivenessof Group compliance promotion activities by conducting
regular compliance awareness surveys of all employees. The
results of these surveys are reflected in initiatives for thefollowing years. The Compliance Audit Sect. of the Internal
Audit Dept. conducts audits of the company and its
subsidiaries focusing on the probability that risks willmaterialize and their degree of importance from theviewpoint of strict compliance with laws, corporate ethics,
and social norms. When concerns are identified, the groupconducts follow-up audits in the following year to verify
progress in tackling those concerns.

Introduction

Risk Management System

Securities Markets and Other Stakeholders
Disclosure of risk information through Securities
Report, Financial results, CSR report

Reflection of results of risk assessment

Corporate Executive Committee
Confirmation of major risks, etc.

GPS2020

Clear statement of risk
management policies

Reporting and proposal of plans forassessment of major risks and othernecessary matters

Risk Management Committee(Executive Office: Corporate Planning Dept.)
Identifying and confirming Group risk management
improvement proposals
Clear statement of risk
management policies

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

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

Business overview

Emergency Response Organization

Overall image after
full deregulation

President and CEO(Organization Leader)

Instructions /ordersReportCollaboration

Corporate
Planning Dept.

Invisible assets

Business
Departments

Corporate governanceCrisis Management System
Because the company provides public services thatcomprise a lifeline, for many years it has also had a crisis
management system that serves as a response system incase an accident or other risk-related event actuallyoccurs. Specifically, we have formulated Emergency
Response Organization Regulations. In case of major
crises, including major natural disasters, such as
earthquakes, or production or supply disruptions arisingfrom major accidents at pipelines or LNG terminals, aswell as new strains of influenza, terrorism, failures in
mission-critical IT systems, and compliance problems, theEmergency Response Organization is established torespond to the situation 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 responses in the eventof a major earthquake of the magnitude assumed by
Japan’s Cabinet Office, a major accident disrupting gas
supply, a widespread blackout, an outbreak of a newstrain of influenza, etc. This plan is in place to reinforce
the company’s risk management system.

Enterprise Risk Management (ERM) System
MessageEnterprise Risk Management System
The company has established an enterprise risk
management (ERM) system, and drawn up risk
management regulations that include documented rules
concerning major risks faced by the group.
The Risk Management Committee was established withthe aim of improving the management level of the ERM
system. The Committee checks progress regarding theestablishment and operational status of the ERM system,
including periodic risk assessments. It also reports to the
Corporate Executive Committee and obtains thenecessary approvals.
Under the framework, around 150 Risk Management
Promotion Officers are deployed in the business departmentsof Tokyo Gas and its subsidiaries in order to promote ERM.
Each year, we assess risks and the implementation andimprovement status of countermeasures. This systemfacilitates the steady implementation of the ERM-PDCA(Plan-Do-Check-Act) cycle.

Collaboration

Financial data

(Group-wide coordination)

42

TOKYO GAS ANNUAL REPORT 2018

Corporate Governance
Board of Directors (As of June 28, 2018)

Director, Chairman

Representative Director,
President and CEO

Michiaki Hirose

Takashi Uchida

1974 Joined the Company
2004 Executive Officer and Assistant to Chief Executive of Corporate
Communication Div.
April
2006 Executive Officer and General Manager of Corporate Planning Dept. of
Strategic Planning Div.
April
2007 Senior Executive Officer and in charge of Corporate Planning Dept.,
Infrastructure Project Dept., Finance Dept., Accounting Dept. and AffiliatedCompanies Dept.
April
2008 Senior Executive Officer and in charge of Corporate Planning Dept., Investor
Relations Dept., Finance Dept., Accounting Dept., Affiliated Companies Dept.
and Gas Industry Privatization Research Project Dept.
April
2009 Senior Executive Officer and in charge of Corporate Planning Dept. and
Affiliated Companies Dept.
June2009 Director, Senior Executive Officer and in charge of Corporate Planning Dept.,
Corporate Communications Dept. and Affiliated Companies Dept.
January 2010 Director, Senior Executive Officer and in charge of Corporate Planning Dept.,
Project Management Dept., Corporate Communications Dept. and AffiliatedCompanies Dept.
April
2012 Representative Director, Executive Vice President and Chief Executive of
Living Energy Div.
April
2013 Representative Director, Executive Vice President and Chief Executive ofResidential Sales and Service Div.
April
2014 Representative Director, President
April2018 Director and Chairman of the Board
April
April

April
June

1979 Joined the Company
2006 General Manager of Pipeline Planning Dept. of Pipeline Network Div.

April
April
April

2009 General Manager of Corporate Planning Dept.
2010 Executive Officer and General Manager of Corporate Planning Dept.
2012 Senior Executive Officer and in charge of Personnel Dept., Secretary Dept.,
Compliance Dept. and Internal Audit Dept.
2013 Senior Executive Officer and Chief Executive of Energy Resourcesbusiness Div.
2015 Director, Senior Executive Officer and Chief Executive of Energy
Resources Div.
2016 Representative Director, Executive Vice President and Chief Executive ofResidential Sales and Service Div.
2017 Representative Director, Executive Vice President and Chief Executive ofResidential Service Div.
2018 Representative Director, President and CEO

April
June
April
April
April

Reason for appointment
Over the course of his career, Michiaki Hirose has engaged mainly in planningand living-related work duties. For four years, from April 2014 until March 2018, heserved as President. Since April 2018, as Director and Chairman, he has served aschairman of the Board of Directors. He is highly knowledgeable, and has extensive
work experience with the company.

In his career, Takashi Uchida has engaged mainly in pipeline, resources andoverseas business-related work duties. Since April 2018, he has served as
President and CEO, with ultimate responsibility for the execution of duties within
the company. He is highly knowledgeable, and has extensive work experience withthe company.

Director

Outside Director

Kunio Nohata

Akihiko Ide

April1984 Joined the Company
November 2006 General Manager of Infrastructure Project Dept.
April
April
April
April
April
April
June
April

2008 Acting General Manager of Energy Sales & Service Planning Dept. ofEnergy Solution Div.
2009 General Manager of Total Energy Business Dept. of Energy Solution Div.
2011 General Manager of Gas Resources Dept. of Energy Resources BusinessDiv.
2013 Executive Officer and General Manager of Gas Resources Dept. of Energy
Resources Business Div.
2015 Senior Executive Officer, President, Representative Director of Tokyo Gas
Engineering Solutions Corporation2017 Senior Executive Officer of the Company, Chief Executive of PowerBusiness Div., In charge of Environmental Affairs Dept.
2017 Director, Senior Executive Officer of the Company, Chief Executive ofPower Business Div., In charge of Environmental Affairs Dept.
2018 Director, Senior Managing Executive Officer, Chief Executive of Global
Business Div.

April
June
June
June
June
June
June
April
June
June

1965 Joined Mitsubishi Metal Mining Company Ltd.(Current Mitsubishi Materials
Corporation)
1994 General Manager of General Affairs & Administration Dept. at Mitsubishi
Materials Corporation
1997 Director of Mitsubishi Materials Corporation
2000 Managing Director of Mitsubishi Materials Corporation
2002 Executive Vice President of Mitsubishi Materials Corporation
2004 President of Mitsubishi Materials Corporation2010 Chairman of Mitsubishi Materials Corporation Director of Sakai Chemical
Industry Co., Ltd.
2015 Senior Advisor of Mitsubishi Materials Corporation
2015 Advisor of Mitsubishi Materials Corporation
Outside Director of the Company
2017 Retired as Advisor of Mitsubishi Materials Corporation

Reason for appointment
Over the course of his career, Kunio Nohata has engaged mainly in energy sales,
resources and overseas business-related work duties. He currently serves as
Senior Managing Executive Officer, and is responsible for the company’s Global
Business Division. He is highly knowledgeable, and has extensive work experience
with the company.

43

Akihiko Ide has an international outlook, developed through his experiences in overseas business
operations, primarily in the general materials industry in Asia. He is also highly knowledgeable,and possesses management capabilities and a broad-minded perspective, acquired throughhis involvement in a wide range of business operations, including the resources (commodities)business. We hope that he will make use of these qualities in helping to manage Tokyo Gas.

Introduction
Message

Representative Director

Representative Director

Masaru Takamatsu

Takashi Anamizu

1980 Joined the Company
2005 General Manager of Home Service Planning Dept. of Home Service Div.

April
1985 Joined the Company
January 2010 General Manager of Project Management Dept.

April

2006 General Manager of Business Partnership Support Dept. of Home
Service Div.
2010 General Manager of LIFEVAL Project Management Dept. of Living
Energy Div.
2011 Executive Officer and General Manager of LIFEVAL Project Management
Dept. of Living Energy Div.
2012 Executive Officer and General Manager of Corporate Planning Dept.
2014 Senior Executive Officer and in charge of Corporate Planning Dept. and
Affiliated Companies Dept.
2015 Senior Executive Officer and in charge of Corporate Planning Dept.,
Personnel Dept., Chiba-Ibaraki Project Dept., Group Management Project
Dept., and Group Personnel System Project Dept.
2016 Senior Executive Officer and in charge of Personnel Dept., Secretary Dept.,
General Administration Dept., Compliance Dept., and Internal Audit Dept.
2016 Director, Senior Executive Officer and in charge of Personnel Dept.,
Secretary Dept., General Administration Dept., Compliance Dept., andInternal Audit Dept.
2017 Director, Senior Executive Officer and in charge of Purchasing Dept.,
Secretary Dept., General Administration Dept., Compliance Dept., andInternal Audit Dept.
2018 Representative Director, Executive Vice President and Chief Executive ofResidential Sales and Service Div.

April

April
April
April
April
April

June
April
April

April
June
April

2012 General Manager of Residential Fuel Cell Business Development Dept. of
Living Energy Div.
2015 Executive Officer and General Manager of Sales Innovation Planning Dept.
2016 Senior Executive Officer, Chief Executive of Energy Resources & Global
Business Division.
2017 Senior Executive Officer, Chief Executive of Global Business Div.
2017 Director, Senior Executive Officer, Chief Executive of Global Business Div.
2018 Representative Director, Executive Vice President and Chief Executive ofEnergy Solution Div. and Power Business Div.

Overall image after
full deregulation

April

April
April

Outside Director

Yoshinori Katori

Chika Igarashi

April
1973 Joined Ministry of Foreign Affairs
August 2004 Director-General of Consular Affairs Bureau

April
April

1997 Registered as an attorney at law
1997 Joined a law firm in Tokyo Metropolitan area

August 2005 Press Secretary/Director-General for Press and Public Diplomacy of

July
June
June

2006 Joined Asahi Law Office (Currently Nishimura & Asahi Law Office)2007 Registered as an attorney at law in New York State, USA
2016 Outside Director of the Company

Minister’s Secretariat

Ministry of Foreign Affairs
2010 Director-General of Foreign Service Training Institute, Ministry of Foreign
Affairs
March 2011 Ambassador Extraordinary and Plenipotentiary to the State of Indonesia
October 2014 Retired from Ministry of Foreign AffairsJune2015 Outside Director of the Company
April

Invisible assets

Outside Director

Corporate governanceIn his career, Takashi Anamizu has engaged mainly in living, resources andoverseas business-related work duties. He currently serves as Executive Vice
President. He is highly knowledgeable, and has extensive work experience withthe company.

Business overview

During his career, Masaru Takamatsu has engaged mainly in living and planningrelated work duties. He currently serves as Executive Vice President. He is highly
knowledgeable, and has extensive work experience with the company.

August 2006 Ambassador Extraordinary and Plenipotentiary to the State of Israel
October 2008 Ambassador for ASEAN, and Science and Technology Cooperation,

GPS2020

April
April

Financial data

Yoshinori Katori is highly knowledgeable, and has an international outlook andbroad-minded perspective developed through his many years in international
diplomacy. We hope that he will make use of these qualities in helping to manage
Tokyo Gas.

Chika Igarashi is highly knowledgeable, and possesses high-level legal expertiseand a broad-minded perspective, developed through her many years of
involvement in corporate legal affairs. We hope that she will make use of thesequalities in helping to manage Tokyo Gas.

44

TOKYO GAS ANNUAL REPORT 2018

Corporate Governance
Audit & Supervisory Board Members (As of June 28, 2018)

Audit & Supervisory
Board Member

Audit & Supervisory
Board Member

Hideaki Obana

Hideaki Arai

1978 Joined the Company
2003 General Manager of Marketing Dept., Living
Planning Div.
April
2004 General Manager of Home Service Planning
Dept., Home Service Div.
April
2005 General Manager of Kanagawa Branch,
Corporate Communication Div.
April
2007 General Manager of Corporate
Communications Dept.
April
2009 Executive Officer and General Manager ofCorporate Communications Dept.
April
2012 Senior Executive Officer and in charge ofPurchasing Dept., Real Estate Management
Dept., and Major Site Development Dept.
April
2013 Senior Executive Officer and in charge ofPurchasing Dept., Real Estate Management
Dept., Personnel Dept., and Internal Audit Dept.
March 2015 Retired as Senior Executive Officer
June2015 Audit & Supervisory Board Member of theCompany

April
April

April
July

1979 Joined the Company
2007 General Manager of Pipeline Network Div.

2010 Executive Officer, General Manager of Pipeline
Dept., Pipeline Network Div.
April
2013 Senior Executive Officer, Chief Executive ofPipeline Network Div.
April
2015 Senior Executive Officer, Chief Executive ofRegional Development Marketing Div.
April
2016 Senior Executive Officer, Chief Executive ofRegion Div.
March 2017 Retired as Senior Executive Officer
June2017 Audit & Supervisory Board Member of theCompany
April

Reason for appointment
Hideaki Obana is highly knowledgeable, and has
extensive work experience with the company. He has
engaged mainly in living and PR-related work duties,
and has also served as a Senior Executive Officer.

Hideaki Arai is highly knowledgeable, and has
extensive work experience with the company. He
has engaged mainly in pipeline and wide-area salesrelated work duties, and has also served as a Senior
Executive Officer.

Outside Audit &Supervisory Board
MemberOutside Audit &Supervisory Board
MemberOutside Audit &Supervisory Board
MemberYoshihiko Morita

Masato Nobutoki

Sawako Nohara

1969 Joined Export-Import Bank of Japan
1999 Full-time Auditor of Japan Bank forInternational Cooperation
October 2000 Director of Japan Bank for International
Cooperation
October 2004 Vice Governor of Japan Bank forInternational Cooperation
October 2008 Representative Director andSenior Managing Executive Officer of Japan
Finance Corporation Deputy CEO of Japan
Bank for International CooperationJune
2011 Retired as Deputy CEO of Japan Bank forInternational Cooperation
December 2011 Advisor of Sumitomo Mitsui Banking
CorporationJune
2012 President (Chief Executive Officer) of Japan
Institute for Overseas Investment
Outside Audit & Supervisory Board Memberof the Company
June2013 Outside Director of Kawasaki Heavy
Industries, Ltd.
Retired as Advisor of Sumitomo Mitsui
Banking Corporation
December 2014 Retired as President (Chief Executive Officer)of Japan Institute for Overseas Investment
June2018 Retired as Outside Director of Kawasaki
Heavy Industries, Ltd.

April
1981 Joined Mitsubishi Corporation
September 2002 Head of the secretariat of Government

December 1988 Joined LIFE SCIENCE LABORATORIES, LTD.
May
1995 Retired from LIFE SCIENCE

April
October

April

2004

April

2007

April

2009

May

2011

April

2012

April

2016

June

2017

Exhibition Projects for EXPO 2005 Aichi,
Japan, Producer Associates Co. Ltd.
General Manager of Planning & Event
Office of Government Exhibition Projects
Dept., Japan Association for the 2005
World Exposition
Joined City of Yokohama
Director General of City Growth Strategy
Promotion Department, Economic Affairs
Bureau, City of Yokohama
General Manager of Climate Change Policy
Project, City of Yokohama
General Manager of Climate Change Policy
Headquarters, City of Yokohama
Executive Director of Future City
Promotion, Climate Change Policy
Headquarters, City of Yokohama
Consultant of Future City Promotion,
Climate Change Policy Headquarters, Cityof Yokohama
Outside Audit & Supervisory Board
Member of the Company
Retired as Advisor to the city of Yokohama

LABORATORIES, LTD.

July
1995 Joined InfoCom Research, Inc.
December 2000 Retired from InfoCom Research, Inc.

Director of IPSe Marketing. Inc.

December 2001 President and Representative Director of

IPSe Marketing. Inc.

June
2006 Outside Director of NEC Corporation
November 2009 Project Professor, Graduate School of
June

June

June

June

Media and Governance of Keio University
2012 Retired from Outside Director of NEC
Corporation, Outside Audit & Supervisory
Board Member of Sompo Japan InsuranceInc.
2013 Retired from Outside Audit & Supervisory
Board Member of Sompo Japan InsuranceInc.
Outside Director of NKSJ Holdings, Inc.
(Current Sompo Holdings, Inc.)
2014 Outside Director of JAPAN POST BANK
Co., Ltd.
Independent Outside Director of the Boardof Nissha Printing Co., Ltd. (Current Nissha
Co., Ltd.)2018 Outside Audit & Supervisory Board Memberof the Company

Reason for appointment
Yoshihiko Morita is highly knowledgeable and has abroad international outlook, developed through his
experience in fields such as international finance andoverseas economic cooperation. We hope that he will
make use of these qualities in his role as an Audit &Supervisory Board member for Tokyo Gas.

45

Masato Nobutoki is highly knowledgeable and has
extensive experience, both as a company employee andas a member of staff at regional public bodies. We hopethat he will make use of these qualities in his role as an
Audit & Supervisory Board member for Tokyo Gas.

Sawako Nohara is highly knowledgeable, andpossesses corporate management experience andhigh-level IT-related expertise. We hope that she will
make use of these qualities in her role as an Audit &Supervisory Board member for Tokyo Gas.
Significant joint responsibilities
President and Representative Director of IPSe Marketing. Inc.
Outside Director of Sompo Holdings, Inc.
Outside Director of JAPAN POST BANK Co., Ltd.
Outside Director of Nissha Co., Ltd.

Introduction

Message from an Outside Audit & Supervisory Board Member

Message

I aim to utilize my experiences incorporate management and theworld of IT while contributing toincreasing the corporate valueof Tokyo Gas, from a consumer
viewpoint.

GPS2020

Outside Audit &Supervisory Board Member

Sawako Nohara

Managing
Tadashi Komiyama
Executive Officer

Chief Executive of Pipeline Network Div.

Koki Hayakawa

Chief Executive of Region Div.

Takashi Anamizu

Chief Executive of Energy Solution
Div. and Power Business Div.

Kentaro Kimoto

Chief Executive of Gas Resources & Energy
Production Div.

Kunio Nohata

Chief Executive of Global Business
Div.

Hiroshi Kishino

Isao Nakajima

CFO, in charge of Finance Dept.,
Accounting Dept., Personnel Dept.
and Purchasing Dept.

In charge of Secretary Dept., General
Administration Dept., Corporate Communications
Dept., Environmental Affairs Dept., ComplianceDept. and Internal Audit Dept.

Shinichi Sasayama

Satoru Sawada

The Japan Gas Association

Chief Executive of Digital Innovation Div. In chargeof Corporate Planning Dept.

Ayumi Shigitani

President, Representative Director of TOKYOGAS i NET CORP. and General Manager of CIRIUS
Project Dept. of Digital Innovation Div.

Executive
Officers

Shinichi Takagi
Yohei Nitta
Yoshiharu Kikuyama
Isao Hosoya
Masayuki Kado

Toshiyasu Ishii
Tomoyuki Yoshioka
Akihiko Matsuda
Hiroshi Hanada
Satoshi Tanazawa

Financial data

Senior Managing
Executive Officer

Masaru Takamatsu Chief Executive of Residential Sales
and Service Div.

Invisible assets

Executive Vice
Presidents

Corporate governance

Executive Officers
President and CEO Takashi UchidaBusiness overview

Over the past few years, the number of companies investing
efforts into corporate governance is increasing. As one suchcompany, Tokyo Gas is currently making effective andproactive use of excellent and highly-experienced humanresources, such as be ensuring that outside personnel
account for nearly half of its directors and Audit &Supervisory Board members.
However, the important thing is not the number or ratio ofoutside personnel, but the question of whether or not thecompany’s senior management are listening seriously to thefruitful discussions being held amongst the directors, andworking to adequately reflect those opinions in the actual
workplace. I believe that it is this management stance that is
the true essence of corporate governance. Outside Audit &Supervisory Board members must have broad perspectivethat enables them to take a step away and survey the entire
company overall, from an elevated position.
There will surely be some things that are taken for granted
internally, but which seem strange when viewed through theeyes of an outsider. Although small in size, the company that
I myself started has now marked the 18th anniversary of its
founding. I would like to utilize my experiences thus far, as an
IT specialist, as a business manager, and as a consumer, andto engage in the lively exchange of honest and unrestrained
opinions, in order to help further increase the corporate valueof Tokyo Gas.

Overall image after
full deregulation

After stretches working in the research laboratory of a major
chemical manufacturer, and at a think-tank that investigatesconsumer behavior, I became involved in Internet businessrelated investigative research at the NTT Group’s general
research center on information and telecommunications(InfoCom Research, Inc.)At that time, the Internet was still in its early days, andWindows95 hadn’t even been released yet. Even so, I felt that
there were huge possibilities for the future of the Internet,
and completely immersed and dedicated myself to my work.
That experience gained me recognition, and I currently serveas an external director for several companies, while at thesame time offering my opinions on industrial policies and at
IT-related strategy meetings organized by the government
and various ministries and agencies, and working to help
develop the next generation of human resources, as a project
professor at Keio University.
As a social infrastructure company providing a stable supplyof energy, Tokyo Gas is a company that is crucial to society.
However, with the deregulation of electric power, followed by
the deregulation of the city gas market in 2017, the entire
energy industry is beginning to change dramatically. Being
appointed as an outside director during this period oftransformation makes me feel a good sense of tension, astrong sense of purpose, and even greater feelings ofexcitement and anticipation.

Nobuhisa Kobayashi
Minoru Sanari
Takashi Higo
Akihiro Saito
Shinsuke Ogawa

46

TOKYO GAS ANNUAL REPORT 2018

Invisible assets

Tokyo Gas
Group’s
Invisible Assets
Achieving sustainable growth by refining theinvisible assets that underpin our GPS×G(Gas & Power + Service × Global) strategy

ESG Initiatives(Environmental, Social, Governance)
Initiatives for achieving the realization ofa low-carbon society

Safe and stable energy
supply infrastructure

Relationships of trust withbusiness partners

The Tokyo Gas Group contributes to the creation of a low-carbon society bothin Japan and around the world by promoting and expanding the widespreaduse of natural gas, which is the cleanest of all fossil fuels.
As the Paris Treaty and other factors drive environmental policy, we will continue
to enhance our low-carbon initiatives, such as by increasing investments inrenewable energy-based power generation and future technologies.

Reduce CO2
emissions on
the customerside

Promote introduction of natural gas and/or change of fueltype for customers in areas without access to city gas
Develop and promote widespread use of high-efficiency
equipment (ENE-FARM fuel cell and cogeneration systems, etc.),
and provide solutions that make use of them
Expand the way of use for natural gas (LNG bunkering: fuelsupplies for ships)

Promote“smart” energy

demand response utilizing distributed power sources and storage
cells, etc.)

Relationships of trust with11 million customers

Digitalization and technology
development (innovation)
capabilities

Promote optimization of energy supply and demand (gas,electricity, heat etc.) using regional energy networks
Contribute to furthering the development of a low-carbon
society by creating smart energy networks (including

Developmentof renewableenergy sources

Approach renewable energy sources (such as photovoltaic
and wind power generation) with a sense of urgency, including
alliances with relevant companies
Aim to achieve a power generation capacity of 0.4 million
kW from renewable energy sources by the early 2020s
Operate a business model that also includes the use ofrenewable energy sources

Globalexpansion

Expand natural gas infrastructure and utilization
technologies cultivated in Japan to overseas markets, tocontribute to low-carbon society and sustainable growth
on a global scale

Promote development of technologies using hydrogen (ultra-

Futuretechnologies(hydrogen, etc.)

Human resources

47

efficient fuel cells with power generation efficiency of 65%, etc.)

Promote the introduction and use of technologies usinghydrogen (e.g. introduce fuel cell vehicles (FCV) for corporate fleets)
Consider hydrogen production and transportation-related
technologies

Introduction

CSR priority issues (materialities) and contributing to the achievement of Sustainable
Development Goals (SDGs)
whom reside in the Greater Tokyo Area. We also apply ourdomestic and global experience and know-how to efforts
such as constructing energy infrastructure in Southeast Asia.
Through our business activities, we aim to contribute to theachievement of the Sustainable Development Goals (SDGs).

Message

The Tokyo Gas Group conducts a full range of businessactivities in the LNG value chain (from procurement,
transportation, city gas production and supply, to power
generation and energy solutions) to ensure the safe andstable supply of energy to our customers; the majority ofPriority issues (materialities) according to their importance to stakeholders and the businessPriority issue (materiality)

Stable supply of energy
both in Japan andoverseas

Robust energy platform

Conversion of society
overall to a low-carbon
society through the
supply of energy

Stable supply of gas and electricity
Stable procurement of raw materials
Construction of energy infrastructure indeveloping countries
Safety and disaster prevention/
readiness

Overall image after
full deregulation

Strategy

Relationship with SDGs

GPS2020

Priority area

Sustainable urban development andcomfortable lifestyles
Measures against global warming
Promoting recycling of resources
Promoting conservation of biodiversity

Business overview

Creating an organization full of energy
and vitality
Infrastructure

Building good relationships withstakeholders
Fulfilling our public duty as an energy
company

FY 2017

FY 2018

Inside Directors

Outside Directors

Inside Directors

Outside Directors

10

6

7

6

Perspectives for considering governance

P37

Board of Directors
Audit
Audit &
Supervisory
Board
members

Supervise

Executives

Involvement indecision-making
and appropriatemonitoring

Financial data

Corporate governance

Changes to the makeup of our Board of Directors
and Audit & Supervisory Board

Invisible assets

To ensure sustainable growth, our Board of Directors
involves itself in the decision-making processes forbusiness strategies under GPS×G in order to promote theindependent growth and development of each business,
and also conducts appropriate monitoring.
In fiscal 2018, we reduced the number of inside members
in our Board of Directors and Audit & Supervisory Boardby three in comparison with the previous year (from 10 to7), and made changes to further increase the proportion ofoutside members.
Moving forward, we will continue to implement reforms withthe aim of building a better, more appropriate governancesystem, based on external trends and other factors.

Corporate governance

Governance

Subsidiaries

48

TOKYO GAS ANNUAL REPORT 2018

Invisible assets

Safe and stable energy
supply infrastructure
Contributing to theachievement of Sustainable
Development Goals (SDGs)

Diversifying LNG procurement and achieving efficient and stable transportation of LNG
Natural gas reserves are abundant in various parts of the world. The Tokyo Gas
Group was among the first to notice the potential of natural gas, and in 1969 webecame the first in Japan to import LNG from Alaska.
To achieve stable procurement of LNG, by seeking to diversify our procurement
sources (resource suppliers), we are working to ensure that interferences to LNG
procurement do not arise, even in cases where there are evident geopoliticalrisks such as disasters or human conflicts. We also operate stable transportationof LNG through the efficient deployment of ships (including ships owned andmanaged by Tokyo Gas).

Diversifying procurement sources
We procure LNG from 14 projects in 6
countries, including the United States aswell as Southeast Asia and Australia
Ensuring stable transportation of LNG
We utilize our own fleet of 11 ships, owned
and managed by Tokyo Gas

Safe and secure production and supply facilities
We import LNG by tankers and store it in tanks at LNG terminals. It is thenreconverted into gas and adjusted in calorific value to produce city gas, and supplied
to 11 million customers via our pipeline network. We endeavor to operate our LNG
terminals safely, based on almost half a century of experience and knowledge
accumulated since we introduced LNG to Japan for the first time in 1969.
Our LNG terminals and pipeline network are a crystallization of our latest knowledge
and technologies, and have a high level of resistance to earthquakes. Since city
gas is made by conversion from LNG to natural gas at an LNG terminal and thendistributed via pipeline, there is no energy conversion loss or transport loss to thepoint of consumption.

Relationshipsof trust withbusiness
partners
In this period of transformation of the energy industry, namely, the full deregulation of
the electricity and gas retail markets, we are exchanging information broadly with not
only electricity and gas companies but also players in various industries. Moreover,
we are promoting cooperation in areas where we foresee mutual synergies such as
gas resource procurement and the electricity business (power plant construction andelectricity sales).

49

Four LNG terminals(Three in Tokyo Bay, one in Northern Kanto)
Pipeline network with total
length of over 60,000km
High and medium-pressure gas
pipelines with a high level of resistanceto seismic activity, even in the case ofmajor earthquakes such as the Great
Hanshin-Awaji (Kobe) Earthquake, or theGreat East Japan Earthquake

LNG Value Chain
Using technology and know-how concerning
the total energy business, we provide energy
solutions to customers who are expanding
business in Southeast Asia and North America,
and contribute to infrastructure-building.
PetroVietnam Gas
Signing of a Memorandum of Understanding toconduct a feasibility study on energy solution
businesses

PT Pertamina
Signing of a Memorandum of Understanding with
Pertamina towards Forming a Strategic Alliance-Cooperation for Development of LNG Value Chain inIndonesia-

Petronas LNG Ltd.
Signing of a Memorandum of Collaboration

PT Miura Indonesia
Signing of a Memorandum of Understanding on
Mutual Cooperation in Indonesia

Introduction

Safety know-how and measures to prevent earthquake disasters
130 years of accumulated safety know-how
Supply area monitoring using around 4,000
seismometers (Si sensors)
Subdivision of units for supply stoppage in the event of anearthquake or other disasters (25 large blocks, further
subdivided into 290 smaller blocks)

Low-pressure pipeline network
block (290 blocks or more)

Blocks formed by remote operation

Permanently established blocks

GPS2020

Medium-pressure pipeline
network block (25 blocks)

MessageIn order to constantly deliver natural gas safely and steadily to 11
million customers, we are continually developing human resources
involved in safety.
It is indispensable to have human resources that are equipped withadvanced specialized skills in facility design, construction, andmaintenance, as well as decision-making capabilities that enable thereliable execution of gas supply and safety responsibilities even intimes of emergency. The trust of customers that has been earned as aresult of safety-related expertise developed over the course of our long
history, and its continuation, is one of our greatest strengths.
We have also developed a disaster-readiness system, which protects
entire local areas by automatically cutting off the supply of gas when
it detects an earthquake that poses the possibility of affecting ourpipeline network and/or other structures. In order to minimize theimpact of supply stoppages, we subdivide our supply areas, enabling
us to stop the supply of gas remotely, in block units, depending on theextent of the damage.

Facilitating safe use of gas
related equipment and facilities for all customers, as frequently as required by law.
We visit customers to conduct inspections for gas leaks on customer premises (as ageneral gas pipeline operator), and to examine gas appliances and supply and exhaustequipment (as a gas retailer).

24-hour emergency dispatch to respondto gas leaks and other incidents
49 bases manned by approximately 600
professional gas leak responders

Overall image after
full deregulation

Periodic Safety inspections We conduct periodic safety inspections of gas-

Safety Command Center When we receive a report of a gas leak from a customer,
Business overview

it is immediately forwarded to our dedicated Safety Command Center. The centerasks questions to confirm the details of the situation, provides safety advice to thecustomer, and requests Gaslight 24 dispatch in response. The center is also able tocontact the fire service, police and other emergency services via a hotline.

Gaslight 24 Gaslight 24 are emergency dispatch bases for responding to gas leaks

Ensure flexibility and realize costcompetitive LNG procurement by enhancing
and expanding alliance with LNG players inJapan and overseas.

Kansai Electric PowerPower Generation
Expand competitive power sources.

Tohoku Electric Power (Synergia Power)
NTT Facilities (Ennet)
Osaka Gas (Ennet)

Showa Shell Sekiyua(Ohgishima Power)

Expanding electricity sales to low-voltage customers

Korea Gas Corporation

Business alliances with 21 companies
including gas operators which are our city gas
wholesale customers(approx. 630,000 city gas customers)

Business alliances with 27 LP gas sales companies
Idemitsu Kosan and Kyushu Electric Power(Chiba-Sodegaura Energy)
Shizen Energy(Development of photovoltaic power
generation)(approx. 310,000 LP gas customers)

Financial data

Kobe Steel (KOBELCO)(Moka Power Station)

Centrica, U.K.

Expanding electricity sales to high-voltage andextra-high-voltage customers

JXTG Energy(Kawasaki Natural Gas Power Station)

Kyushu Electric PowerCPC Corporation, Taiwan

Electricity Sales

Invisible assets

Raw materials procurement

Corporate governanceand other incidents in our gas pipeline network and customer gas equipment.
When a report is received, Gaslight 24 personnel respond swiftly with an emergency
dispatch, even on holidays or at night.
Our emergency vehicles are also equipped with mapping systems that can instantly
display the necessary sections of our massive pipeline diagrams, enabling them torespond swiftly and effectively to any incident.

Making progress with talks regarding thepossibility of sales through partnerships withcompanies in housing, construction, equipment,
telecommunications, information services andother industries.

50

TOKYO GAS ANNUAL REPORT 2018

Invisible assets

Relationship of trust with11 million customers
Our bonds and relationships of trust with our 11 million customers, developed
over the course of the past 130 years, are our greatest strength. Tokyo Gas Lifeval,
Enesta, and Enefit have 185 outlets and over 10,000 employees who act as “theface of Tokyo Gas” in each local region, providing one-stop services and support toensure comfortable daily lifestyles for customers in local communities.

Contributing to the achievement of
Sustainable Development Goals (SDGs)

The face of Tokyo Gas, across the entire Kanto area

Gunma
Prefecture

EnestaTochigi
Prefecture

8 outlets

Enesta1 outletIbarakiPrefecture

SaitamaPrefecture

LifevalEnestaEnefit9 outlets

5 outlets

7 outlets

Tokyo

Kanagawa
Prefecture

LifevalEnefit52 outlets

37 outlets

LifevalEnefit41 outlets

9 outlets

We believe strong relationships of trust withcustomers based on this community-based salesorganization is the driving force that has enabled
us to maintain our position as No. 1 new electric
power market entrant in 2017, the second year
after entry. In the retail gas business, too, whichmarks its second year since full deregulation, weare determined to augment and strengthen our
relationships of trust with customers.

EnestaEnefit5 outlets

3 outlets

Chiba
Prefecture
LifevalEnestaEnefit4 outlets

2 outlets

2 outlets

Interface with the community
Outlets

185

51

Employees

14,000

Customers

Lifeval / Enesta / Enefit
Help in gas and electricity planning
Gas tap opening and shutoff at the timeof moving
Meter reading
Safety inspection and repair of gas
appliances and equipment
Sales and installation of gas appliancesand housing appliances
Gas plumbing
Design and installation of plumbing
equipment and air conditioners
Home improvement etc.

Introduction

2017: Launched new technology development initiatives
Future innovation

Tokyo Gas history of innovation
1885

1969
First LNG Cargocame to Japan

1981

2001

2009

First natural gas
cogeneration
systemintroduced toJapan

Commenced
operation of
SUPREMEearthquake disasterprevention system

Launched salesof world’s firstresidential fuel cellsystemElectric
power

AI

Blockchains| Low-carbon society || Hydrogen-oriented society | Smart society || Earthquake disaster prevention and stable supply || Comfortable, convenient and secure living |Production, Generation & Distribusion

Sales & Services

Predict and detect failures at LNG
terminals and power generation plants,
and increase efficiency of operation andmaintenance work

Provide optimal services for ourcustomers based on the results of digitalmarketing
Increase the sophistication of ourenergy management system (to achieve
automatic optimized operation of energy
equipment by remote control)

1Improve quality of service and achievelabor-saving benefits for operators by
the introduction of voice-recognition
systems, etc., in our call centers

In December 2017, we established Acario Ventures in Silicon Valley,
and launched a program of activities to assimilate innovativetechnologies and business models from around the world.

Helionet Advance
Remote monitoring

Automatic optimized
operation

n
tio
za
Di
git

n

Decentralization

tio

a
fic

ali

tri

c
Ele

Venturecompanies

RenewableenergyCustomerenergysavingCold water
Steam
Air

Data collection

Helionet AdvanceOn-site terminal

Automated optimizationof energy equipment
Compressor

CGS

BoilerFreezer

Optimalregional
lending

Financial data

Remote control

Electricity

Helionet21(failure prediction /energy saving operational support)

Tokyo Gas
Acario Ventures(100% ownership)

2

Digitalization for energy management

2

Invisible assets

Stop and restart gas supply to zonepressure regulators, etc., by remote
operation using an earthquake disasterprevention system
Optimize efficiency of distribution
utilizing LP gas usage data gatheredusing frequent remote metering
technology

Creating innovation through our Silicon Valley location

Venture capital

IoT(rechargeable
batteries)

Corporate governanceTechnological development

Investment in Japan andoverseas

Robotics

Storage cells

We are effectively introducing digital technologies such as IoT, AI, mobile
devices, and technologies utilizing big data, while at the same time drawing
on advantages such as our technical capabilities and sales network that isclosely linked to local communities.

Digital innovation domain 1
Open innovation

AcarioInnovation LLC

VPP

Digitalization initiatives

Digital innovation

AcarioInvestment One
LLC

RenewableenergyBusiness overview

1902
First gasequipment toreceive a patentin Japan

Overall image after
full deregulation

The history and future of our innovation

GPS2020

Moving forward, we will shift from our previous R&D focused on gas energy toan open innovation style of R&D focused on a broad range of innovative energy
technologies.
In order to improve efficiency and save labor in our existing business operations,develop new products and services, and create new business, we will gather
information on a broad range of innovative energy technologies while alsocollaborating with progressive universities and venture companies both in Japan andoverseas, to absorb new technologies and create innovation.

Contributing to the achievement of
Sustainable Development Goals (SDGs)

Tokyo Gas
establishedMessage

Digitalization andtechnology development(innovation) capabilities

Operations
bundling
multiplecustomers

52

TOKYO GAS ANNUAL REPORT 2018

Invisible assets

Human resources

Contributing to the achievement of
Sustainable Development Goals (SDGs)

Personnel hiringand development

Strengthening personnel
to support growth

Creating anenvironment conducive
to maximizing theeffective use ofknowledge, skills andexperience

Because we see human resources as the underlying source of creation of corporate value,
the Tokyo Gas Group is striving to develop employees who have high-level expertise andintegrity, and respond flexibly to changes in society and the business environment.
In line with this policy, we are working to implement workstyle reforms and promote
diversity, to ensure maximum effective utilization of the knowledge, skills andexperience of personnel working in the Tokyo Gas Group.

WorkstylereformPromotingdiversity

Improving productivity
and achieving a healthy
work-life balance

Promoting active roles
for diverse personnel

Driving

Personnel hiring and development
We are engaged in thehiring and development of
human resources with astrong sense of duty andresponsibility, who can takethe initiative to think and act
for themselves, and who cangrow while cooperating with
their fellow colleagues; who
can become core personnel
and act as a strong driving
force for business operations
in a diverse range of fields.

Hiring personnel with highlevels of expertise

Strategic shift to growth domains

Developing business leaders

In addition to hiring new graduates
for specific job types (in humanities,
sciences and the professional
domain), we also engage in flexible
hiring of experienced and highlyspecialized mid-career personnel.

In addition to our gas business,
we also prioritize assignment of
personal to strategically-importantfields such as our electric power andoverseas business operations (wehave increased numbers of personnel
assigned to these businesses byapproximately 50% in comparison
with FY2015.) In this way, we arepromoting growth and expansion in adiverse range of fields.

We train business leaders who will lead
the Tokyo Gas Group in the future,with a training program that focuses
primarily on development througha wide range of on-the-job training(OJT) experiences gained by means oftransfers and rotations, combined withadditional off-the-job education andtraining (OFF-JT).

Hiring, fostering and placing of personnel who support promotion of “GPS x G”
Multi-purpose space in the new office ofTokyo Gas Engineering Solutions

Workstyle reform (Improving productivity andachieving a healthy work-life balance)
In order to enable each and every
one of our employees to work
energetically and make maximum
effective use of their abilities, we areworking proactively to rectify andreduce long working hours, and to
implement workstyle reforms withawareness of “the value of time,”
which we regard as important issues
for management involvement.

53

Specific initiatives
Promoting workstyles with awareness of the value of time
Prohibiting overtime work after 20:00 (as a general rule) andencouraging employees to declare in advance what time they will beleaving work, etc.
Promoting workstyle reform project “Work with Enthusiasm”• Eliminating restrictions on working location with “Work Anywhere” (including at home, or on the move, etc.)• Working to create workplaces that enable innovation to occur• “Work in a Free-form Animated Manner” (Online video conferencing, office reforms, etc.)• Promoting automation / mechanization using ICT, and more sophisticated use of data (utilizing RPA, etc.) with “Workto Be Entrusted”

Introduction

Basic Policy Regarding Promotion of Diversity
1 Realize diversity in working styles,

and productivity enhancement
We aim to achieve the realization of an organization(with diverse working styles and increased
productivity) in which every person accepts eachother’s working style while enhancing productivity.
2 Promoting empowerment of women in workplace

We regard promoting the success of women as the
beginning of the promotion of diversity, and willcontinue to undertake this proactively.
We will establish a “Group Diversity Promotion Team”
and promote diversity throughout the entire group, in
an integrated manner together with management.

Almost 100% return-to-work rate for female
employees returning from childcare leave
Almost no difference in gender in terms of average years inservice of the company
Employment rate of 2.35%, exceeding the mandatory rate (as ofJune 2018)
Established a liaison committee to promote employment of
disabled people as a group
Working to create safe and comfortable working environments

Career development
support for
employees in their
50s and overEstablished the “Grand Career System” to support careerdevelopment for employees in their 50s and over, throughtraining sessions and interviews with career consultants, etc.

LGBT

Childcare

Promotion of
employmentof people withdisabilities

Young
staff

Nursingcare

Careerdevelopment
support for
employees

Mid-career
hired staff
Diverse working
styles andproductivity
enhancement

Foreignnationals

External
Evaluation

Tokyo Gas was selected
as a corporate brandthat is appealing interms of its proactive
efforts to encourage andempower women.

Granted Kurumin
certification
Tokyo Gas was certified by theministry of health, Labour andWelfare (MHLW) as a company
that has formulated an action
plan, achieved targets and met
certain criteria in accordancewith the Act on Advancement of
Measures to Support Raising the
Next Generation of Children.

Selected as a Health& Productivity Stock
Tokyo Gas was selected
as a Health & Productivity
Stock, as a company thatconsiders and strategicallyapproaches employee
health management froma corporate management
perspective.

Financial data

Selected as aNadeshiko Brand

Invisible assets

Occupational safety and health
Health and safety is the essential basis for the existence of any company, in protecting the lives and health of their employees.
The Tokyo Gas Group is working to reduce risks with a view to eliminating work-related accidents, and to maintain and improve
the health of its employees through mental health initiatives and measures to prevent lifestyle-related illnesses. In terms of healthmanagement, we work to ensure that 100% of our employees take regular health checkups, and make effective use of early-stage
detection of disease outbreaks and external healthcare institutions.

Corporate governance

Employmentof people withdisabilities

Promotingempowermentof women in
workplace

Business overview

Promoting diversity

2016: First female executive officer appointed
2018: First female senior executive officer appointed

Overall image after
full deregulation

3 Diversity Promotion TeamSpecific Initiatives

Promotingempowermentof women in
workplace

GPS2020

Top Management Commitment
The Tokyo Gas Group is working to promote diversity (promoting
active roles for diverse human resources), with a view to future growth
and advancement. Even in the midst of this great competitive age ofenergy, the Group aims to grow and advance as a global total energy
corporation by coming to terms with every one of its customers, having
them choose Tokyo Gas products and services, and contributing tocreation of a better society and secure and comfortable lifestyles.
One important issue for the entire Group to tackle in order to achievethis, is the promotion of diversity. In order to satisfy the continually
diversifying needs of each and every customer, it is essential for us
to create an environment in which every Group employee can takean active role and work as part of a team, making maximum effective
use of his or her knowledge, skills and experience.
Moving forward, we will continue working proactively to develop andenhance more schemes for supporting this ideal, to foster greater
employee awareness and create a better corporate culture within
our organization, and aim to create a corporate group in which all
employees can take an active role, regardless of their gender, age,presence or absence of disabilities, employment type, nationality,
sexuality, gender identity, or any other such attributes.

Message

Promoting diversity (Promoting active roles for diverse personnel)

54

TOKYO GAS ANNUAL REPORT 2018

Financial data
11-Year Consolidated Financial Highlights

As of March 31, 20182008.32009.32010.32011.3

1,487,496

1,660,162

1,415,718

1,535,242

Operating Profit (¥ million)

70,04865,20485,229122,451

Operating Profit Margin (%)

4.71

3.93

6.02

7.98

Ordinary Profit (¥ million)

66,83258,337

83,519121,548

Profit attributable to owners of parent (¥ million)

42,48741,70853,781

95,467

Equity (¥ million)

769,072

772,365

813,886

858,920

1,703,651

1,764,185

1,840,972

1,829,661

Interest-bearing Debt (¥ million)

558,716

593,230

555,919584,169

Operating Cash Flow (¥ million)

184,908

182,791

199,898

244,803

Free Cash Flow (¥ million)

46,90236,862

51,712

94,600EBITDA (¥ million)

212,469

206,287

231,346

271,788

Capital Expenditure (¥ million)

138,006

145,929

148,186

150,202

Depreciation (¥ million)

142,421141,083

146,117

149,336

EPS (Earnings per Share, fully diluted) (¥)

15.50

15.37

19.86

35.63

BPS (Book Value per Share) (¥)

289.49284.72301.58320.702,741,571

2,717,571

2,703,761

2,684,193

8

8

9

9

DOE (Dividends on Equity) (%)

2.72

2.78

3.07

2.88

Payout Ratio (%)

50.19

51.18

45.32

25.26

Total Payout Ratio (%)

73.56

63.35

60.11

60.87

Current Ratio (%)

106.76118.99120.93142.26

D/E (Debt-Equity) Ratio (times)

0.73

0.77

0.68

0.68

Equity Ratio (%)

45.14

43.78

44.21

46.94

ROE (Return on Equity) (%)

5.43

5.41

6.78

11.41

ROA (Return on Assets) (%)

2.50

2.41

2.98

5.20

Total Asset Turnover (times)

0.88

0.96

0.79

0.84

TEP (¥100 million)

17

-48

186

640

WACC (%)

3.6

3.4

3.2

3.3

10,38010,513

10,637

10,73914,215

13,942

13,666

14,745————Net Sales (¥ million)

Total Assets (¥ million)

Number of Issued Shares (Common Stock) (thousands of shares)
Dividend per Share (¥)

Number of Customers (thousands, meter)
Gas Sales Volume (million m3)
2020 vision basis*2

Notes Depreciation includes amortization of long-term prepaid expenses.
The financial information contained in this annual report is based on annual securities report. However, it has not been audited by certified public accountants.
*1 The Company carried out a share consolidation at a ratio of 5 common shares to 1 on October 1, 2017.
The dividend per share of 55.0 yen is calculated on the post-consolidation basis (the interim dividend of 5.50 yen per share before the share consolidation and the year-end dividend of
27.50 yen per share after the share consolidation).
*2 2020 Vision basis … The figures represent baseline values for sales volume targets set forth in our management vision, Challenge 2020 Vision. They are obtained by adding volume forin-house use and LNG sales volume (excluding volume for Nijio) to consolidated gas sales volume.

55

Introduction

1,754,257

1,915,639

2,112,117

2,292,548

1,884,656

1,587,085

1,777,344

77,075

145,633

166,044

171,753

192,008

58,365

116,302

4.39

7.60

7.86

7.49

10.19

3.68

6.54

75,620147,453

159,613

168,169

188,80955,688111,546

46,060101,678

108,451

95,828111,936

53,13474,987

839,166

927,634

1,011,787

1,069,515

1,100,271

1,101,498

1,136,027

1,863,885

1,992,403

2,176,816

2,257,662

2,251,518

2,230,269

2,334,721

625,830

642,550

713,823

730,739715,769

713,596

724,940

194,565

240,448

248,831237,680

257,122

217,439

240,328

48,15256,651827

13,08425,08914,081

31,583

225,580

284,403

306,424

313,605

337,194

222,670

281,643

146,413

183,797

248,004

224,596

232,033

203,358

208,745

148,505

138,770

140,380

141,852

145,187

164,305

165,341

17.70

39.52

43.10

39.15

46.68

23.02

164.12*1

324.67360.70402.91438.28460.35479.742,487.58*1

2,590,715

2,577,919

2,517,551

2,446,778

2,396,778

2,302,856

458,073*1

9

10

10

10

11

11

55*1

2.74

2.91

2.59

2.34

2.58

2.29

2.25

50.85

25.30

23.20

25.55

23.57

47.79

33.51

61.36

60.70

60.00

60.80

60.10

60.71

60.20

156.89162.16

156.67150.63155.48142.69138.51

0.75

0.69

0.71

0.68

0.65

0.65

0.64

45.02

46.56

46.48

47.37

48.87

49.39

48.66

5.42

11.51

11.18

9.21

10.32

4.83

6.70

2.49

5.27

5.20

4.32

4.96

2.37

3.29

0.95

0.99

1.01

1.03

0.84

0.71

0.78

91

598

507

434

676

-62

244

3.1

3.2

3.2

3.6

3.4

3.0

3.1

10,855

10,978

11,111

11,263

11,398

11,536

11,67815,19015,39014,735

15,541

15,436

15,72015,56815,833

16,741

17,22518,36018,587

19,05319,052Computations
Operating Cash Flow = Profit attributable to owners of parent + Amortization of Long-term Prepaid Expenses + Depreciation
Free Cash Flow = Profit attributable to owners of parent + Amortization of Long-term Prepaid Expenses + Depreciation – Capital Expenditure
Current Ratio = Current Assets (year-end) / Current Liabilities (year-end) x 100
Debt-Equity Ratio = Interest-bearing Debt (year-end) / Equity (year-end)
Equity Ratio = Equity (year-end) / Total Assets (year-end) x 100
Total Asset Turnover = Net Sales / Total Assets (average)
TEP (Tokyo Gas Economic Profit) = Profit after taxes and before interest payments – Cost of capital (invested capital x WACC)

Financial data

2018.3Invisible assets

2017.3

Corporate governance2016.3Business overview

2015.3Overall image after
full deregulation

2014.3

GPS2020

2013.3Message2012.3

WACC calculation data (fiscal 2017 actual)∙ Interest-bearing debt cost: Real interest rate of 1.04%(after tax)
∙ Cost of shareholders’ equity∙ Risk-free rate: 10-year JGB yield of 0.05%∙ Risk premium: 5.5%, Beta coefficient of 0.75

56

TOKYO GAS ANNUAL REPORT 2018

Financial data
Operating cash flow

Total payout ratio(¥ million)(%)

300,000

75.0

250,000

62.5

200,000

50.0

150,000

37.5

100,000

25.0

50,00012.5

002009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

Return on equity (ROE)(%)(¥100 million)

12

750

10

600

8

450

6

300

4

150

2

0

0

-150
2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

Gas sales volume3(million m )21,00017,50014,00010,500

7,000

3,500

0
2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

57

TEP

2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3

Consolidated Statement of Income(¥ million)

2017.3.31(¥ million)

2018.3.31

Assets

Net sales

Non-current assets

Cost of sales
Gross profit

Property, plant and equipment
Production facilities
Distribution facilities
Service and maintenance facilities
Inactive facilities
Construction in progress
Total property, plant and equipment

236,334
560,216
52,244406,221316
157,913
1,413,246

1,600
77,615
79,215

1,254
92,16793,422Intangible assets
Goodwill
Other intangible assets
Total intangible assets
Investments and other assets

239,379
27,9291730,86436,693(378)
334,505
1,841,174

Current assets
Cash and deposits
Lease receivables and investment assets
Securities
Merchandise and finished goods
Work in process
Raw materials and supplies
Deferred tax assets
Other current assets
Allowance for doubtful accounts
Total current assets

General and administrative expenses
Total selling, general andadministrative expenses
Operating profit

56,39596,413
10,33320,000145,843
328,987
1,117,461

58,09480,8197,800
30,237
179,376
356,328
1,186,288

476,834

457,050

58,365

116,302

901
2,178
1,740

1,158
2,967
1,637

3,583

2,493

5,889
14,2934,800
13,057

11,514
2,564
2,893
16,971
55,688

11,6191,829
4,364
17,813
111,546

6,610
9,120
15,730

3,403
3,049
6,452

2,408
2,408
69,01025,271(10,305)
14,96654,044910
53,134

3,213
3,213
114,784
31,527
7,957
39,48475,300312
74,987

Non-operating income
Interest income
Dividend income
Rent income
Share of profit of entities accounted
for using equity method
Miscellaneous income
Total non-operating income
Non-operating expenses
Interest expenses
Balance on commissioned construction
Miscellaneous expenses
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sales of investment securities
Total extraordinary income
Extraordinary losses
Impairment loss
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
ProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

Liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Deferred tax liabilities
Net defined benefit liability
Provision for gas holder repairs
Provision for safety measures
Provision for appliance warranties
Provision for point card certificates
Asset retirement obligations
Other non current liabilities
Total non-current liabilities
Current liabilities
Current portion of non-current liabilities
Notes and accounts payable - trade
Short-term loans payable
Income taxes payable
Other current liabilities
Total current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares

Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated othercomprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

141,844
1,898
936,635(3,642)
1,076,736

27,16630,282(990)
36,3994,845(251)
33,206(3,945)67,42259,291

11,309
1,112,807
2,230,269

12,405
1,148,433
2,334,721(¥ million)
2016.4.1 - 2017.3.31
Profit before minority interests
Other comprehensive income
Valuation difference on availablefor-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit
plans, net of tax
Share of other comprehensive
income of entities accounted forusing equity method
Total other comprehensive income
Comprehensive income
Breakdown of comprehensive income
Comprehensive income
attributable to owners of parent
Comprehensive income attributable tonon-controlling interests2017.4.1 - 2018.3.31

54,04475,300

870

3,145

1,360
(6,470)666(3,537)22,875(8,784)(1,844)407

16,791
70,835(8,101)
67,19869,91966,856915

341

Financial data

Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on availablefor-sale securities
Deferred gains or losses on hedges

141,844
1,883
893,436(3,087)
1,034,076

Consolidated Statements ofComprehensive Income

Invisible assets

294,998
358,680
11,30373,161
3,107
3,115
9,984
835
13,20061,572829,959

392,680
64,370

Corporate governance314,997
326,752
11,29973,5243,262
4,711
10,298
11,97531,650788,474

410,125
66,708Business overview

Total assets

Supply and sales expenses

Overall image after
full deregulation

Notes and accounts receivable - trade128,331
216,234
22,18815
2,494
12,41745,454
10,39656,897(884)
493,547
2,334,721

1,777,344
1,203,991
573,353

Selling, general and administrative expenses

Gain on sales of non-current assets

132,626
194,240
24,0972,317
12,466
40,763
9,050
54,259(374)
469,447
2,230,269

1,587,085
1,051,885
535,200

GPS2020

182,443
Long-term loans receivable
28,128Net defined benefit asset
24
Deferred tax assets
40,127
Other investments and other assets
39,100Allowance for doubtful accounts(367)
Total investments and other assets
289,456
Total non-current assets
1,760,821
Investment securities

2017.4.1 - 2018.3.31

Message

Other facilities

235,152
539,840
53,623416,142316
147,074
1,392,149

2016.4.1 - 2017.3.31

Introduction

Consolidated Balance Sheet

58

TOKYO GAS ANNUAL REPORT 2018

Factors Affecting Revenues
and Expenses

Financial data
Consolidated Statements of Cash Flows(¥ million)
2016.4.1- 2017.3.31

2017.4.1 - 2018.3.31

Cash flows from operating activities
Profit before income taxes

69,010114,784

Depreciation

160,871

161,093

Impairment loss

2,408

3,213

Amortization of long-term prepaid expenses

3,433

4,248

Loss on retirement of property, plant and equipment

2,047

1,845

Loss (gain) on sales of non-current assets(6,555)(3,397)

Loss (gain) on sales of investment securities(9,120)(3,042)

Increase (decrease) in net defined benefit liability(3,374)(12,461)

Increase (decrease) in provision forsafety measures

4,245(1,596)

Interest and dividend income(3,080)(4,125)Interest expenses

11,514

11,619

Share of loss (profit) of entities
accounted for using equity method(3,583)(2,493)

Decrease (increase) in notes andaccounts receivable - trade

4,286(20,602)

Decrease (increase) in inventories

3,700(4,948)

Increase (decrease) in notes andaccounts payable - trade17,567(631)

Increase (decrease) in accrued
consumption taxes(4,326)3,000

Decrease (increase) in accounts
receivable - other

1,997

1,265

Net decrease (increase) in leasereceivables

(12)

1,959

Other, net

18,22931,525

Subtotal

269,261

281,258

Interest and dividend income received

14,593

12,295Interest expenses paid

(11,509)(11,502)

Income taxes paid

(33,610)(22,312)Net cash provided by (used in) operating activities

238,734

259,738

Purchase of investment securities(9,922)(47,898)

Proceeds from sales and redemption of
investment securities

9,489

5,021

Purchase of property, plant and equipment(165,918)(177,671)

Purchase of intangible assets(29,542)(27,638)

Purchase of long-term prepaid expenses(8,322)(1,653)

Proceeds from sale of non-current assets

7,124

3,799

Payments of long-term loans receivable(6,073)(3,101)

Collection of long-term loans receivable

1,675

2,801

Other, net(3,383)(821)(204,873)(247,162)

Net increase (decrease) in short-term loans payable(6,260)(2,645)

Repayments of lease obligations(1,399)(1,526)

Cash flows from investing activities

Net cash provided by (used in) investing activities
Cash flows from financing activities

22,67060,471

Repayments of long-term loans payable(19,982)(62,065)

Proceeds from issuance of bonds

30,00020,000-2,034

Purchase of treasury shares(41,065)(7,082)

Cash dividends paid

(26,969)(25,187)

Other, net(27,892)(648)

Net cash provided by (used in) financing activities(70,899)(16,651)

(498)

(220)

Net increase (decrease) in cash and cash
equivalents(37,536)(4,294)

Cash and cash equivalents at beginning of period

170,102132,566

Cash and cash equivalents at end of period

132,566

128,271

Effect of exchange rate change on cash
and cash equivalents59

Gas prices are determined using the gas rateadjustment system. Through this system,
average raw material prices over a three-month
period according to trade statistics arecompared with the raw material cost that is usedas the standard (standard average raw materialcost), and the gas rates are adjusted using adefined calculation method based on the
differences. A time lag of four months on
average (called a sliding time lag) exists
between the payment of raw material costs andthe reflection of such changes in gas rates.
Consequently, fluctuations in crude oil prices
and exchange rates may result in the underrecovery or over-recovery of raw material costs if
this lag cuts across a fiscal year, thereby
affecting income. Looking at the medium- tolong-term, however, the gas rate adjustment
system has a neutralizing effect on the income
impacts of fluctuations in raw material costs.

Timing of the Standard Average Raw Material
Cost Calculation and Reflection in Gas Rates
Timing of standard average raw material cost calculation
Jan. Feb. Mar. Apr. May. Jun.

Jul.

Aug.

Jul.

Aug.

Sep.

Dec.

Average raw
material price
Average raw
material price
Average raw
material price

Reflection in gas rates Jun.

The average raw material price over the past
three months is calculated every month and thenreflected in the gas rate three months later.

How the Sliding Time Lag in Rates Works
All Japan LNG price

Proceeds from long-term loans payable

Proceeds from share issuance to noncontrolling shareholders

Gas Rate Adjustment System’s Mediumto Long-Term Neutralizing Effect on Crude
Oil Price and Exchange Rate Fluctuations

Average raw material price reflected in gas rate

Under
recovery

FY N

Over
recoveryFY N+1North Kanto
Industrial Zone

Ibaraki–Tochigi Line

Moka Power Station

Introduction

Hitachi LNG Terminal(Scheduled for FY2019)

Message

Ibaraki Line (Scheduled for FY2020)

Kashima Waterfront
Industrial Zone

Kawasaki Natural Gas
Power Generation Co., Ltd.

GPS2020

Kashima Waterfront Line

Chiba–Kashima Line

Tokyo–Yokohama
Industrial Zone

Overall image after
full deregulation

Tokyo–Chiba
Industrial Zone

Ohgishima
Power Co., Ltd.

Tokyo Gas Baypower Co., Ltd.
Sodegaura LNG Terminal

Tokyo Gas Group pipelines(under construction)

Other companies’ pipelines

Ohgishima LNG Terminal
Negishi LNG Terminal(existing)Tokyo Gas Group Supply Area

Tokyo Gas Yokosuka Power Co., Ltd.

Industrial zones
Factories

Business overview

Tokyo Gas’s pipeline

Our Potential

Energy demand concentration in
the Kanto Region
We are extending our pipelines across the Kanto region, ourmarket area, to meet the huge potential demand for natural
gas mainly from industrial districts where many plants using
heavy oil are located.

100~200-km area

Gas handling volume target revised upward

20.7 billion m

100-km area

7.0 billion m 3

Cogeneration system /Power generation
0.3 billion m 3

Fuel conversion
5.1 billion m 3

15.0 billion m

3

Financial data

2.0 billion m 3

Cogeneration system /Power generation
1.9 billion m 3

Fuel conversion
1.7 billion m 3

3

Invisible assets

Potential for Industrial and Commercial Demand in the
Kanto Region (200-kilometer radius around Tokyo)

Corporate governance

100km

Total

9.0 billion m3

2012.3
Reference value as of the time
the Vision was put in place

2021.360

Financial and Industry Data (EXCEL Spreadsheet Data Available)

Investors’ Guide

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

Quarterly Financial Results

Earnings Announcements
www.tokyo-gas.co.jp/IR/english/event/earn_e.html

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

Details of The Tokyo Gas Group FY2018-2020 Management Plan (GPS2020)

Tokyo Gas Group – Initiatives for Energy and for the Future –(Released in October 2017)www.tokyo-gas.co.jp/Press_e/20171005-02e.pdf

Details of Corporate GovernanceCorporate Governance Reportwww.tokyo-gas.co.jp/IR/english/gvnnc/index_e.html

CSR Activities

Tokyo Gas Group CSR Reportwww.tokyo-gas.co.jp/csr/index_e.html

Tokyo Gas Co., Ltd. ANNUAL REPORT 2018
Stock CodeIR Contact9531
E-mail:tgir@tokyo-gas.co.jp

1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan

www.tokyo-gas.co.jp/index_e.html

This annual report is printed on Tokyo Gas Recycled Paper(made from recycled paper from Tokyo Gas offices,
trimmings from afforestation activities, and reused andunused wood materials) using vegetable oil ink that
contains low levels of organic solvents.

Published on August, 2018
For inquiries regarding planning and editing of this report:
Investor Relations Sect., Finance Dept., Tokyo Gas Co., Ltd.

Printed in Japan