Printed in Japan Financial and Industry Data (EXCEL Spreadsheet Data Available) Investors’ Guide http://www.tokyo-gas.co.jp/IR/english/library/invguid_e.html Quarterly Financial Results Earnings Announcements http://www.tokyo-gas.co.jp/IR/english/event/earn_e.html Consolidated Financial Results Bulletin http://www.tokyo-gas.co.jp/IR/english/library/earn_e.html Details of Challenge 2020 Vision The Tokyo Gas Group’s Vision for Energy and the Future ~Challenge 2020 Vision~ (Released in November 2011) http://www.tokyo-gas.co.jp/IR/english/manage/vision_e.html Details of Corporate Governance Corporate Governance Report http://www.tokyo-gas.co.jp/IR/english/gvnnc/index_e.html CSR Activities Tokyo Gas Group CSR Report http://www.tokyo-gas.co.jp/csr/index_e.htm Stock Code 9531 IR Contact E-mail:[email protected] Tel: +81-3-5400-3888 Fax: +81-3-5472-3849 1-5-20 Kaigan, Minato-ku, Tokyo 105-8527, Japan http://www.tokyo-gas.co.jp/index_e.html This annual report is printed on Tokyo Gas Recycled Paper (made from Published on August, 2016 recycled paper from Tokyo Gas offices, trimmings from afforestation For inquiries regarding planning and editing of this report: activities, and reused and unused wood materials) using vegetable oil ink Investor Relations Sect., Finance Dept., Tokyo Gas Co., Ltd. that contains low levels of organic solvents. Tokyo Gas Co., Ltd. TOKYO GAS ANNUAL REPORT 2016 REPORT ANNUAL ANNUAL REPORT 2016 Tokyo Gas Co., Ltd. The Tokyo Gas Group aims to be a true power source for people’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 and trust 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 and be deliberate in taking action on their behalf. Our efforts will be group-wide as will be our bold, confident approach to the challenges ahead. TOKYO GAS ANNUAL REPORT 2016 01 Contents 03 Our history 05 President’s message 11 CFO’s message 13 LNG Value Chain for Value Creation 15 Deregulation 17 Challenge 2020 Vision 21 Gas business 25 Electric power business 29 Overseas business 31 Other business 35 Corporate governance 45 Invisible assets 49 Financial data 54 Our potential Forward-Looking Statements This annual report includes various management goals and other forecasts relating to the “Challenge 2020 Vision” announced in November 2011 and other strategies. This information is based on forecasts, assumptions, and available information when preparing the “Challenge 2020 Vision” and other strategies and does not guarantee 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 2016 are based on the judgment of management and the information available when the figures were published (April 28, 2016). The company will disclose the latest information to the Tokyo Stock Exchange in a timely manner and at the same time publish it in the investor relations section of its website (http://www.tokyo-gas. co.jp/IR/english/index.html). 02 TOKYO GAS ANNUAL REPORT 2016 (billion m3) 20 Tokyo Gas continues to grow as “New Energy Frontier” 15 For generations of Japanese people the Tokyo Gas Group has provided a stable, reliable supply of gas for industries and households, to support economic development of all, and ensure comfortable home environments and desirable lifestyles. At the same time, we have raised the corporate value of Group companies. We believe we are in the midst of an era we call the second foundation of the company as the full deregulation of the electric power and gas markets draws near. In this context, we are pledged to make our “Challenge 2020 Vision” adopted in 2011 a reality and ensure the unfaltering growth of the Tokyo Gas Group in the years to come. * The numbers of gas customers and gas sales volumes are parent-based up to fiscal 2002 and consolidated-based from fiscal 2003. 10 Number of customers 1974 5 million Number of customers 1966 3 million The Tokyo Bay Underwater Line Gas sales volume (LH) went into service. Number of customers (RH) The Looped Line (Negishi- Sodegaura) 5 went into service. Number of customers 1955 1 million Number of customers LNG imports from Brunei started. 1885 300 Sodegaura LNG Terminal started operation. LNG imports from Alaska started. Tokyo Gas was established. Negishi LNG Terminal started operation. Following the enactment of the Commercial Code, name changed to Tokyo Gas Co., Ltd. 0 1885 1890 1895 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 Main gas resources Coal Oil Gas usage Lighting Heating Started to supply gas for lighting Developed household gas appliances for a more comfortable life 1902 “Gas Kamado” oven went on sale. 1957 “Automatic gas rice cooker” went on sale. The old Shinjuku District First natural gas Residential fuel cell Gas lamp Gas Kamado oven Automatic gas rice cooker Kuramae Kokugikan Heating and Cooling Center cogeneration system “ENE-FARM” TOKYO GAS ANNUAL REPORT 2016 03 Our history Number of customers (million) 2013 11 million 12 Number of customers Hitachi LNG Terminal started operation 2007 10 million and the Ibaraki-Tochigi Line went into service. LNG imports of a non-conventional type from the Queensland Curtis LNG Project started. The Chiba-Kashima Line went into service. The Chuo Line went into service. LNG imports from Russia started. 9 "Tokyo Gas LIFEVAL" was established. Number of customers 1995 8 million Keihin Line and Yokohama Line went into service (three LNG terminals were linked). Ohgishima LNG Terminal started operation. LNG imports from Qatar started. LNG imports from Indonesia started. 6 LNG imports from Australia started. Caloric value conversion to natural gas completed. LNG imports from Malaysia started. 1972-1988 Caloric value conversion was carried out over 17 years. 3 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Natural Gas Heating and electricity Expansion in the commercial Promoted cogeneration Entered the electric power Promoted and expanded and industrial user segment business “ENE-FARM” residential fuel cells 1981 The first cogeneration system was 1970 The first gas air-conditioning installed at the National Stadium. 2000 Ennet was established. 2009 A model for detached homes went unit was installed at Kuramae 1987 “Gas heat pump” was launched. 2003 Tokyo Gas Baypower Station went on sale. Kokugikan sumo arena. into operation. 2014 A model for housing complexes 1971 District heating and cooling 2006 Yokosuka Power Station went into went on sale. service launched in the Shinjuku operation. 2015 A model with built-in self- district, Tokyo (first customer, Keio 2008 Kawasaki Natural Gas Power sustaining power generation Plaza Hotel). Station went into operation. function went on sale. 1974 Use of industrial gas took off with 2010 Ohgishima Power Station went into adoption of gas boilers by Nisshin operation. Sugar Co., Ltd. 2016 Entered into the electric power retail business. 04 TOKYO GAS ANNUAL REPORT 2016 Toward realizing the “Challenge 2020 Vision” Tokyo Gas will confidently and boldly persist dealing with challenges Michiaki Hirose Representative Director, President TOKYO GAS ANNUAL REPORT 2016 05 President’s message My mission is to create new Tokyo Gas corporate value. Since 1885, Tokyo Gas has provided a stable and reliable supply of gas to industries and households in the Greater Tokyo Area to support its economic development and quality of life of its people. While doing so the company has also raised its corporate value. We believe we are in the midst of an era we call the second foundation of the company as the full deregulation of the electric power and gas markets draws near. In this context, we are pledged to make our "Challenge 2020 Vision" adopted in 2011 a reality and ensure the unfaltering growth of the Tokyo Gas Group in the years to come. Kashima area, as a last component to complete our Fiscal 2016 will be a year to form a solid base for infrastructure in the Greater Tokyo Area. Upon completion of future growth the Ibaraki Line and pipeline loops, we can surely In fiscal 2015, ended March 31, 2016, we achieved a record accommodate future additional gas demand in the Greater high in operating income, ¥192 billion (up 11.8% year-on- Tokyo Area. year). This was mainly due to a lagged benefit from lower oil Concerning the electric power business, the third unit of prices, and adjusted for such extraordinary factors, Ohgishima Power Station (Tokyo Gas generation capacity: operating income was estimated to be similar to that of the 300 MW) started operation in February 2016, ahead of the full previous year. deregulation of the retail electric power market in April 2016. For fiscal 2016, ending March 31, 2017, assuming the exchange In January, we commenced pre-order sales of electricity to rate of ¥115 per U.S. dollar and an oil price of $37.5/bbl ($35 in residential and commercial customers and have been steadily the first half and $40 in the second half), operating income building up the number of customers. Our plan for the initial (initial forecast) is expected to be ¥48 billion (down 75% y-o-y). year is 400,000 customers but we are making group-wide Major factors for this profit decline will be an absence of the efforts to achieve and exceed the target as soon as possible, lagged benefit of last year, pension actuarial difference, and an with the aim of becoming the No.