ICT and Gas Industry Deregulation in TIC et dérégulation de l‘Industrie du Gaz au Japon

1. Current Utilization of ICT in the Japanese Gas Industry 1.1. Gas Industry in Japan

There are 233 gas utility companies in Japan as of October, 2002, of which 172 are privately owned and 61 are municipal. Those utilities serve 26.5 million customers in total. By way of comparison, this is roughly the same number of customers served by LPG or liquified petroleum gas. 70% of those customers are covered by four major gas companies; Tokyo Gas, Osaka Gas, Toho Gas in , and in . Other companies range from 100 to roughly over 700,000 in number of customers. Except for the four larger companies, the average number of customers is roughly 120,000. In short, Japanese gas industry comprises of the two distinct groups; a small number of larger companies and a large number of smaller companies. And this situation has some relevance to the utilization of ICT in the Japanese gas industry.

Tokyo Gas (Tokyo) 9.1 x 106 Osaka Gas (Osaka) 6.5 x 106 Toho Gas (Nagoya) 1.7 x 106 Saibu Gas (Fukuoka) 1.1 x 106 Other 229 companies From 100+ to 730,000 Total (233 companies) 26.5 x 106

Table 1. Number of Customers (As of Oct. 2002)

1.2. ICT Utilization in the Japanese Gas Industry

Table 2 shows the situation of information systems utilization in the Japanese gas industry. These numbers are taken from the 2001 Japan Gas Association IT survey over all the Japanese gas companies. Five processes are shown where the percentage of IT utilization is high. Since regular and accurate billing is essential to a gas utility, it is quite natural that almost all the companies utilize some form of IT in the billing and customer information management process. Accounting and finance, and customer appliance information systems follow.

“Routine Inspection Information” is a mandatory customer appliance inspection for safety by gas companies. The Japanese gas business law requires all the gas companies to conduct the inspection and to maintain its record for all the residential customers. This explains why 80% of the companies utilize IT for this process.

Billing/Customer Information 96.6% Accounting / Finance 89.1% Customer Appliance Information 82.2% Routine Inspection Information 79.2% Gas Appliance Sales Information 65.9%

Table 2. ICT Utilization (2001 JGA IT Survey)

- 1/4 - In other processes such as human resources management, pipeline asset management, and pipeline construction management, percentage of IT utilization is below 50%. Generally speaking, number of processes that utilize IT is larger in larger utilities than in smaller ones.

1.3. Changes in ICT Utilization

Renovation New IS Planned Planned Tokyo, Osaka, Toho, Saibu 0% 25% Medium Standing 9 5% 27% Private (<300 employee) 15% 9% Private (<20 employee) 15% 7% Public 7% 5%

Table 3. Changes in ICT Utilization (2001 JGA IT Survey)

Table 3 tries to capture the changes taking place in the situation just described. Again from the 2001 Japan Gas Association IT survey, these numbers show the percentage of companies that plan new development or renovation of their information systems. Some larger companies have renovation projects on existing information systems, whereas in smaller companies new developments seem to outweigh renovation projects.

Probably this is the reflection of the fact that larger companies have already utilizing IT in most of their business processes whereas smaller companies have number of processes where IT is not utilized. These numbers may be quite obsolete, however. The same survey planned this year by Japan Gas Association will probably reveal much higher percentage of companies planning to develop or renovate information systems to cope with the deregulation.

2. Deregulation and Its Impact

2.1 Deregulation Schedule

Year Scope in gas volume Impact - 700+ customers. 1995 2 x 106 m3 or more. - 35.8% of volume - 1,300+ customers. 1999 1 x 106 m3 or more. - 40.0% of volume - 2,300+ customers. 2004 0.5 x 106 m3 or more. - 43.9% of volume - 8,000+ customers. 2007 0.1 x 106 m3 or more. - 50.2% of volume

Table 4. Deregulation Schedule and Its Impact

Table 4 shows the current schedule of deregulation in the Japanese gas industry made public by the Ministry of Economy, Trade and Industry in April, 2003. The market of customers whose annual consumption is 1 million cubic meters or more has been deregulated already. Next year, the lower

- 2/4 - bound of the deregulated market goes down to annual consumption of 500,000 cubic meters. With this deregulation, about 43% of the gas sales will be in the unregulated market. However, in terms of the number of customers, this covers less than three thousand customers only and these customers concentrate in 10 larger utilities among over 200 companies.

Further deregulation is stipulated to take place in 2007 when 100,000 cubic meters or more of annual sales volume will be deregulated. At this stage, residential customers will remain in the regulated market. Whether or not the whole market including residential customers should be deregulated is going to be discussed after 2007.

It seems that, at least until 2007, impact of the deregulation will be felt mostly by the larger players. But actually, even though it will be some time before the full deregulation takes effect, it does not necessarily mean most of the gas utilities can enjoy monopolistic peace in the market place. Electric utilities are, with their own deregulation schedule in sight, gearing up their marketing efforts, and taking away demands from traditionally gas dominated areas such as water heating and cooking in residential customers. Also competition with LPG has been intensifying also in residential market.

With such deregulation schedule laid out, obviously large scale industrial restructuring such as seen in Europe or in the US is not taking place in Japan. However, since deregulation processes are going on in overall energy industry, gas utilities both large and small have started feel intensifying competition against other forms of energy, if not against other gas companies.

2.2. ICT Utilization in Response to Deregulation

Naturally, better utilization of ICT is one of the means for gas utilities to take up the challenge of beating the competition. From this view point, couple of things that are taking place in ICT utilization in the Japanese gas industry can be identified.

First of all, efforts to reduce the cost of developing and operating information systems are seen universally. These efforts include; moves from legacy systems in main frame to open systems; outsourcing of ICT capability including utilization of IT subsidiary; collaboration with other utility companies in developing/using information systems; and adaptation of packaged software especially in accounting, finance, purchasing and human resources management.

It would be noted that packaged software for billing and customer information systems are fairly popular, although larger companies are inclined to use in-house developed systems. Also there are several instances where one company’s experience in building a new customer information system is transferred to other companies.

Also some of the larger gas utilities have started to enhance their marketing functions through better utilization of ICT, since they have started to see the impact of deregulation in their market, especially in the commercial and industrial sectors. For example, renovation of customer information systems in these sectors is being contemplated. Some companies like Osaka gas and Tokyo Gas have started various energy services other than gas, including electricity. Although these offerings are through subsidiaries at this moment, by the time these service offerings are transferred to the utility company themselves, naturally CIS (Customer Information System) have to be improved so that it can handle multiple utility services.

Other areas of enhancement include improvement of effectiveness and efficiency of customer contact point by use of CRM software.

- 3/4 - Also various trials and experiments are being conducted for better utilization of Internet. The number of transactions through Internet is rapidly increasing but still a very small portion of customer contacts.

In addition, importance of combination of GIS - geographical information systems and CIS has to be pointed out; this is especially true in planning and following up on local pipeline investment projects. Improving pipeline investment efficiency through these means is an important contribution to the enhancement of overall competitiveness in the market.

2.3. Tokyo Gas Example

In this last section, what Tokyo Gas is doing to improve ICT effectiveness anticipating the challenge of deregulation is described.

The first is an organizational change: last year, responsibility of information system development and operation is shifted from information systems department to user organization. Until last year, IS department has the budget to develop and manage all the information systems within the company. Right now each individual business division has its own IS budgets and authority to execute it. I believe through this change, our business divisions can adopt appropriate ICT more flexibly and more responsively depending on the needs of their own business strategy. Now IS department is concentrating on providing expert support services to business divisions in executing their responsibility.

A small but important step along this change is identification of data and systems owners. Now the owners, not the IS department, are responsible for the integrity and security of the data and systems they are in charge of. Gas companies have to anticipate many and various organizational changes through the process of deregulation. Since individual business units are the owners of data and systems, they can effectively plan and manage required changes in data and systems that reflect the changes in organization.

Tokyo Gas is also taking the initiative in renovating existing system assets. Currently existing systems have been developed to maximize the efficiency of existing and fairly fixed organizational functions. In the time of deregulation, change is the rule. Our renovation projects are targeted to maximizing the flexibility of IS systems so that each business division can effectively respond to the changes in market place. (End)

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