The lower fiscal year 2014 effective income tax rate, when comparing to fiscal years 2015 and 2013, is a result of the tax benefit recorded during the first quarter of fiscal year 2014 for the reinstatement of regulatory assets related to the tax effect of Med D, causing the rate to be lower during that year. Refer to Note 9—Income Taxes of the Notes to the Consolidated Financial Statements for details.

# Liquidity and Capital Resources

Liquidity and capital resources for Washington Gas are substantially the same as the liquidity and capital resources discussion included in the Management’s Discussion of WGL (except for certain items and transactions that pertain to WGL Holdings and its unregulated subsidiaries). Those explanations are incorporated by reference into this discussion.

# Rates and Regulatory Matters

Washington Gas makes its requests to modify existing rates based on its determination of the level of net investment in plant and equipment, operating expenses, and a level of return on invested capital that is just and reasonable.

# SUMMARY OF MAJOR RATE INCREASE APPLICATIONS AND RESULTS

<table><tr><td rowspan="2">Jurisdiction</td><td rowspan="2"> Aliippcaton 
Filed</td><td rowspan="2">Effective
Date</td><td rowspan="2">Test Year 12 
Months Ended</td><td colspan="4">Increase in Annual Revenues (Millions)</td><td colspan="2">Allowed Rate 
of Return</td></tr><tr><td colspan="2">Requested</td><td colspan="2">Granted</td><td>Overall</td><td>Equity</td></tr><tr><td>District of Columbia</td><td>2/29/2012</td><td>6/4/2013</td><td>9/30/2011</td><td>$    29.0</td><td>14.00%</td><td>$     8.4</td><td>4.03%</td><td>7.93%</td><td>9.25%</td></tr><tr><td>Marlyand</td><td>4/26/2013</td><td>11/22/2013</td><td>3/31/2013</td><td>$    28.3</td><td>5.80%</td><td>$     8.9</td><td>1.80%</td><td>7.70%</td><td>9.50%</td></tr><tr><td>Virignia</td><td>1/31/2011</td><td>10/1/2011</td><td>9/30/2010</td><td>$    28.5</td><td>5.75%</td><td>$    20.0</td><td>4.04%</td><td>8.26%</td><td>9.75%</td></tr></table>

The following is a discussion of significant current regulatory matters. Refer to the section “Accelerated Pipe Replacement Programs” for a discussion of regulatory matters associated with those programs.

# District of Columbia Jurisdiction

# Investigation into Washington Gas’ Cash Reimbursement to CSPs

On August 5, 2014, the Office of the People’s Counsel’s (“OPC”) of DC filed a complaint with the PSC of DC requesting that the Commission open an investigation into Washington Gas’ payments to CSPs to cash-out over-deliveries of natural gas supplies during the 2008-2009 winter heating season. OPC asserted that Washington Gas made excess payments in the amount of \$2.4 million to CSPs. On December 19, 2014, the PSC of DC granted the OPC of DC’s request and opened a formal investigation. On October 27, 2015, the PSC of DC issued an order finding that the company, in performing the cash-out, had violated D.C. Code 34-1101’s requirement that no service shall be provided without Commission approval. The PSC of DC directed Washington Gas to provide calculations showing what the impact would have been had Washington Gas made volumetric adjustments to CSP deliveries as of April 2009, which Washington Gas calculates would result in a refund of approximately \$2.4 million, which was recognized by WGL in fiscal year 2015. Washington Gas is considering its options with respect to the order.

# Weather Normalization Adjustment

On November 8, 2013, Washington Gas filed an application for approval of a Weather Normalization Adjustment (WNA) before the PSC of DC. The proposal would authorize Washington Gas to implement a rate design mechanism that would eliminate the variability of weather from the calculation of revenues and offer customers more stability in their bills, during the colder than normal winter heating season. On April 10, 2015, the PSC of DC denied Washington Gas’ application for approval of a WNA, indicating that Washington Gas may request a WNA in its next base rate case.

# Virginia Jurisdiction

# Affiliate Transactions

On June 5, 2013, Washington Gas submitted a petition for declaratory judgment with the State Corporations Commission of Virginia (“SCC of VA”) related to a proposed transfer to WGL Midstream of the remainder of the term of two agreements for natural gas storage service at the Washington Storage Service (WSS) and Eminence Storage Service (ESS) storage fields. Specifically, Washington Gas sought a declaratory judgment that the SCC of VA did not have jurisdiction over the proposed transaction since the WSS and ESS agreements were no longer utilized to provide utility service and the SCC of VA was preempted by the federal authority over the transfers. On April 15, 2015, the SCC of VA approved the transfer of WSS and ESS but did not issue a ruling on the request for declaratory judgment.

# Virginia Gas Reserves

In the 2014 Session, the General Assembly of the Commonwealth of Virginia amended Title 56 of the Virginia Code. The legislative provisions are intended to encourage regulated utilities to invest in natural gas reserves, upstream pipelines and facilities that are reasonably expected to benefit customers by lowering costs,

reducing volatility or lowering the utility’s supply risk. A regulated utility company can obtain the recovery through its rates charged to customers for the entire incurred cost, including the return of and a return on the investment in reserves, as well as all operating costs.

Pursuant to the law, on May 6, 2015, Washington Gas entered into a 20-year agreement with Energy Corporation of America (ECA) to acquire natural gas reserves through non-operating working interests in 25 producing wells located in Pennsylvania’s Appalachian Basin for \$126 million.

The purchase of the reserves is conditional upon approval by the SCC of VA. Washington Gas filed an application and supporting testimony with the SCC of VA on May 12, 2015, for approval of the gas reserves purchase agreement with ECA as part of a Natural Gas Supply Investment Plan. On November 6, 2015, the SCC of VA issued an order denying the application. Washington Gas is considering its options.

# Other Matters

# Labor Contracts

Washington Gas has four labor contracts with bargaining units represented by three labor unions. On April 30, 2015, Washington Gas entered into a five-year labor contract with the Teamsters Local Union No. 96 (Local 96), a union affiliated with the International Brotherhood of Teamsters. The contract covers approximately 520 employees and is effective from June 1, 2015 through May 31, 2020. Local 96 also represents union-eligible employees in the Shenandoah Gas division of Washington Gas and has a five-year labor contract with Washington Gas that became effective on August 1, 2015 and expires on July 31, 2020. This contract covers approximately 23 employees. On April 1, 2013, Washington Gas entered into a three-year labor contract with The Office and Professional Employees International Union Local No. 2 (A.F.L.-C.I.O.). The contract covers approximately 117 employees and is effective beginning April 1, 2013 through March 31, 2016. Additionally, on August 1, 2014, Washington Gas entered into a new three-year labor contract with the International Brotherhood of Electrical Workers Local 1900 that covers approximately 21 employees and will expire on July 31, 2017. Washington Gas is subject to the terms of its labor contracts with respect to operating practices and compensation matters dealing with employees represented by the various bargaining units described above.

# Use of Business Process Outsourcing

Washington Gas outsources certain of its business processes related to human resources, information technology, consumer services, construction, integrated supplier and finance operations. While Washington Gas expects to continue agreements for the benefit of customers and shareholders, the continued management of service levels provided is critical to the success of these outsourcing arrangements.

Washington Gas has divided its BPO governance between functional areas within the organization, each containing a comprehensive set of processes to monitor and control the cost effectiveness and quality of services provided through the BPO.