Exhibit 4.8

 

WGL Holdings, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

	
(In thousands)
    	
 
    	
March 31,
   2018
    	
 
    	
September 30,
   2017
    	
 
    
	
ASSETS
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Property,   Plant and Equipment
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
At original cost
    	
 
    	
$
    	
6,199,912
    	
 
    	
$
    	
6,143,841
    	
 
    
	
Accumulated   depreciation and amortization
    	
 
    	
(1,552,274
    	
)
    	
(1,513,790
    	
)
    
	
Net property,   plant and equipment
    	
 
    	
4,647,638
    	
 
    	
4,630,051
    	
 
    
	
Current   Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash   equivalents
    	
 
    	
46,319
    	
 
    	
8,524
    	
 
    
	
Receivables
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts   receivable
    	
 
    	
515,903
    	
 
    	
398,149
    	
 
    
	
Gas costs and   other regulatory assets
    	
 
    	
8,723
    	
 
    	
21,705
    	
 
    
	
Unbilled   revenues
    	
 
    	
242,837
    	
 
    	
165,483
    	
 
    
	
Allowance for   doubtful accounts
    	
 
    	
(36,900
    	
)
    	
(32,025
    	
)
    
	
Net receivables
    	
 
    	
730,563
    	
 
    	
553,312
    	
 
    
	
Materials and supplies—principally   at average cost
    	
 
    	
18,592
    	
 
    	
20,172
    	
 
    
	
Storage gas
    	
 
    	
76,199
    	
 
    	
243,984
    	
 
    
	
Prepaid taxes
    	
 
    	
41,086
    	
 
    	
31,549
    	
 
    
	
Other   prepayments
    	
 
    	
75,863
    	
 
    	
86,465
    	
 
    
	
Derivatives
    	
 
    	
10,011
    	
 
    	
15,327
    	
 
    
	
Other
    	
 
    	
22,391
    	
 
    	
26,556
    	
 
    
	
Total current   assets
    	
 
    	
1,021,024
    	
 
    	
985,889
    	
 
    
	
Deferred   Charges and Other Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Regulatory   assets
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gas costs
    	
 
    	
66,694
    	
 
    	
90,136
    	
 
    
	
Pension and   other post-retirement benefits
    	
 
    	
129,478
    	
 
    	
139,499
    	
 
    
	
Other
    	
 
    	
118,204
    	
 
    	
104,596
    	
 
    
	
Prepaid   post-retirement benefits
    	
 
    	
237,566
    	
 
    	
231,577
    	
 
    
	
Derivatives
    	
 
    	
29,575
    	
 
    	
38,389
    	
 
    
	
Investments in   unconsolidated affiliates
    	
 
    	
584,594
    	
 
    	
394,201
    	
 
    
	
Other
    	
 
    	
12,053
    	
 
    	
11,671
    	
 
    
	
Total deferred   charges and other assets
    	
 
    	
1,178,164
    	
 
    	
1,010,069
    	
 
    
	
Total   Assets
    	
 
    	
$
    	
6,846,826
    	
 
    	
$
    	
6,626,009
    	
 
    
	
CAPITALIZATION   AND LIABILITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Capitalization
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
WGL Holdings   common shareholders’ equity
    	
 
    	
$
    	
1,721,772
    	
 
    	
$
    	
1,502,690
    	
 
    
	
Non-controlling   interest
    	
 
    	
6,868
    	
 
    	
6,851
    	
 
    
	
Washington Gas   Light Company preferred stock
    	
 
    	
28,173
    	
 
    	
28,173
    	
 
    
	
Total equity
    	
 
    	
1,756,813
    	
 
    	
1,537,714
    	
 
    
	
Long-term debt
    	
 
    	
1,879,304
    	
 
    	
1,430,861
    	
 
    
	
Total capitalization
    	
 
    	
3,636,117
    	
 
    	
2,968,575
    	
 
    
	
Current   Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   maturities of long-term debt
    	
 
    	
100,000
    	
 
    	
250,000
    	
 
    
	
Notes payable   and project financing
    	
 
    	
424,833
    	
 
    	
559,844
    	
 
    
	
Accounts payable   and other accrued liabilities
    	
 
    	
358,046
    	
 
    	
423,824
    	
 
    
	
Wages payable
    	
 
    	
26,681
    	
 
    	
18,096
    	
 
    
	
Accrued interest
    	
 
    	
8,655
    	
 
    	
7,806
    	
 
    
	
Dividends   declared
    	
 
    	
26,780
    	
 
    	
26,452
    	
 
    
	
Customer   deposits and advance payments
    	
 
    	
47,902
    	
 
    	
65,841
    	
 
    
	
Gas costs and   other regulatory liabilities
    	
 
    	
53,983
    	
 
    	
22,814
    	
 
    
	
Accrued taxes
    	
 
    	
33,070
    	
 
    	
17,657
    	
 
    
	
Derivatives
    	
 
    	
26,181
    	
 
    	
43,990
    	
 
    
	
Other
    	
 
    	
47,666
    	
 
    	
52,664
    	
 
    
	
Total current   liabilities
    	
 
    	
1,153,797
    	
 
    	
1,488,988
    	
 
    
	
Deferred   Credits
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Unamortized   investment tax credits
    	
 
    	
154,667
    	
 
    	
155,007
    	
 
    
	
Deferred income   taxes
    	
 
    	
402,204
    	
 
    	
868,067
    	
 
    
	
Accrued pensions   and benefits
    	
 
    	
187,015
    	
 
    	
181,552
    	
 
    
	
Asset retirement   obligations
    	
 
    	
303,361
    	
 
    	
296,810
    	
 
    
	
Regulatory   liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accrued asset   removal costs
    	
 
    	
280,026
    	
 
    	
292,173
    	
 
    
	
Other   post-retirement benefits
    	
 
    	
127,748
    	
 
    	
135,035
    	
 
    
	
Excess deferred   taxes and other
    	
 
    	
450,870
    	
 
    	
9,403
    	
 
    
	
Derivatives
    	
 
    	
104,032
    	
 
    	
122,607
    	
 
    
	
Other
    	
 
    	
46,989
    	
 
    	
107,792
    	
 
    
	
Total deferred   credits
    	
 
    	
2,056,912
    	
 
    	
2,168,446
    	
 
    
	
Commitments   and Contingencies (Note 13)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   Capitalization and Liabilities
    	
 
    	
$
    	
6,846,826
    	
 
    	
$
    	
6,626,009
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

1











 

WGL Holdings, Inc.

Condensed Consolidated Statements of Income (Unaudited)

 

	
 
    	
 
    	
Three Months Ended
   March 31,
    	
 
    	
Six Months Ended
   March 31,
    	
 
    
	
(In thousands, except per share data)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
OPERATING   REVENUES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Utility
    	
 
    	
$
    	
523,480
    	
 
    	
$
    	
466,270
    	
 
    	
$
    	
898,470
    	
 
    	
$
    	
793,333
    	
 
    
	
Non-utility
    	
 
    	
362,971
    	
 
    	
375,480
    	
 
    	
640,421
    	
 
    	
657,904
    	
 
    
	
Total   Operating Revenues
    	
 
    	
886,451
    	
 
    	
841,750
    	
 
    	
1,538,891
    	
 
    	
1,451,237
    	
 
    
	
OPERATING   EXPENSES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Utility cost of   gas
    	
 
    	
196,757
    	
 
    	
134,458
    	
 
    	
319,030
    	
 
    	
209,958
    	
 
    
	
Non-utility cost   of energy-related sales
    	
 
    	
287,204
    	
 
    	
301,780
    	
 
    	
512,706
    	
 
    	
554,666
    	
 
    
	
Operation and   maintenance
    	
 
    	
112,556
    	
 
    	
118,261
    	
 
    	
214,782
    	
 
    	
218,978
    	
 
    
	
Depreciation and   amortization
    	
 
    	
40,722
    	
 
    	
39,110
    	
 
    	
81,707
    	
 
    	
74,393
    	
 
    
	
General taxes   and other assessments
    	
 
    	
55,039
    	
 
    	
50,544
    	
 
    	
99,926
    	
 
    	
90,932
    	
 
    
	
Total   Operating Expenses
    	
 
    	
692,278
    	
 
    	
644,153
    	
 
    	
1,228,151
    	
 
    	
1,148,927
    	
 
    
	
OPERATING   INCOME
    	
 
    	
194,173
    	
 
    	
197,597
    	
 
    	
310,740
    	
 
    	
302,310
    	
 
    
	
Equity in earnings   of unconsolidated affiliates
    	
 
    	
(27,414
    	
)
    	
7,344
    	
 
    	
(21,522
    	
)
    	
7,609
    	
 
    
	
Other expenses —   net
    	
 
    	
(391
    	
)
    	
(1,953
    	
)
    	
(1,171
    	
)
    	
(1,475
    	
)
    
	
Interest expense
    	
 
    	
7,637
    	
 
    	
14,255
    	
 
    	
27,834
    	
 
    	
30,490
    	
 
    
	
INCOME   BEFORE INCOME TAXES
    	
 
    	
158,731
    	
 
    	
188,733
    	
 
    	
260,213
    	
 
    	
277,954
    	
 
    
	
INCOME   TAX (BENEFIT) EXPENSE
    	
 
    	
27,223
    	
 
    	
70,778
    	
 
    	
(3,887
    	
)
    	
104,232
    	
 
    
	
NET   INCOME
    	
 
    	
$
    	
131,508
    	
 
    	
$
    	
117,955
    	
 
    	
$
    	
264,100
    	
 
    	
$
    	
173,722
    	
 
    
	
Non-controlling   interest
    	
 
    	
(4,372
    	
)
    	
(5,439
    	
)
    	
(10,150
    	
)
    	
(7,974
    	
)
    
	
Dividends on   Washington Gas Light Company preferred stock
    	
 
    	
330
    	
 
    	
330
    	
 
    	
660
    	
 
    	
660
    	
 
    
	
NET   INCOME APPLICABLE TO COMMON STOCK
    	
 
    	
$
    	
135,550
    	
 
    	
$
    	
123,064
    	
 
    	
$
    	
273,590
    	
 
    	
$
    	
181,036
    	
 
    
	
WEIGHTED   AVERAGE COMMON SHARES OUTSTANDING
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
51,358
    	
 
    	
51,217
    	
 
    	
51,336
    	
 
    	
51,192
    	
 
    
	
Diluted
    	
 
    	
51,577
    	
 
    	
51,476
    	
 
    	
51,561
    	
 
    	
51,458
    	
 
    
	
EARNINGS   PER AVERAGE COMMON SHARE
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
$
    	
2.64
    	
 
    	
$
    	
2.40
    	
 
    	
$
    	
5.33
    	
 
    	
$
    	
3.54
    	
 
    
	
Diluted
    	
 
    	
$
    	
2.63
    	
 
    	
$
    	
2.39
    	
 
    	
$
    	
5.31
    	
 
    	
$
    	
3.52
    	
 
    
	
DIVIDENDS   DECLARED PER COMMON SHARE
    	
 
    	
$
    	
0.5150
    	
 
    	
$
    	
0.5100
    	
 
    	
$
    	
1.0250
    	
 
    	
$
    	
0.9975
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

2











 

WGL Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

	
 
    	
 
    	
Three Months Ended
   March 31,
    	
 
    	
Six Months Ended March 31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
NET   INCOME
    	
 
    	
$
    	
131,508
    	
 
    	
$
    	
117,955
    	
 
    	
$
    	
264,100
    	
 
    	
$
    	
173,722
    	
 
    
	
OTHER   COMPREHENSIVE INCOME, BEFORE INCOME TAXES:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Qualified   cash flow hedging instruments
    	
 
    	
53
    	
 
    	
48
    	
 
    	
105
    	
 
    	
49,503
    	
 
    
	
Pension   and other post-retirement benefit plans
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Change in net   prior service credit
    	
 
    	
(273
    	
)
    	
(217
    	
)
    	
(547
    	
)
    	
(434
    	
)
    
	
Change in   actuarial net loss
    	
 
    	
530
    	
 
    	
588
    	
 
    	
1,057
    	
 
    	
1,176
    	
 
    
	
Total   other comprehensive income before taxes
    	
 
    	
$
    	
310
    	
 
    	
$
    	
419
    	
 
    	
$
    	
615
    	
 
    	
$
    	
50,245
    	
 
    
	
INCOME   TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME
    	
 
    	
104
    	
 
    	
167
    	
 
    	
165
    	
 
    	
20,580
    	
 
    
	
OTHER   COMPREHENSIVE INCOME
    	
 
    	
$
    	
206
    	
 
    	
$
    	
252
    	
 
    	
$
    	
450
    	
 
    	
$
    	
29,665
    	
 
    
	
COMPREHENSIVE   INCOME
    	
 
    	
$
    	
131,714
    	
 
    	
$
    	
118,207
    	
 
    	
$
    	
264,550
    	
 
    	
$
    	
203,387
    	
 
    
	
Non-controlling   interest
    	
 
    	
(4,372
    	
)
    	
(5,439
    	
)
    	
(10,150
    	
)
    	
(7,974
    	
)
    
	
Dividends   on Washington Gas Light Company preferred stock
    	
 
    	
330
    	
 
    	
330
    	
 
    	
660
    	
 
    	
660
    	
 
    
	
COMPREHENSIVE   INCOME ATTRIBUTABLE TO WGL HOLDINGS
    	
 
    	
$
    	
135,756
    	
 
    	
$
    	
123,316
    	
 
    	
$
    	
274,040
    	
 
    	
$
    	
210,701
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

3











 

WGL Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

	
 
    	
 
    	
Six Months Ended March 31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
OPERATING   ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net income
    	
 
    	
$
    	
264,100
    	
 
    	
$
    	
173,722
    	
 
    
	
ADJUSTMENTS TO   RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Depreciation and   amortization
    	
 
    	
81,707
    	
 
    	
74,393
    	
 
    
	
Amortization of:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other regulatory   assets and liabilities—net
    	
 
    	
3,548
    	
 
    	
1,797
    	
 
    
	
Debt related   costs
    	
 
    	
1,351
    	
 
    	
873
    	
 
    
	
Deferred income   taxes
    	
 
    	
(192
    	
)
    	
77,278
    	
 
    
	
Dividends   received from equity method investments
    	
 
    	
7,252
    	
 
    	
—
    	
 
    
	
Accrued/deferred   pension and other post-retirement benefit cost
    	
 
    	
5,275
    	
 
    	
10,819
    	
 
    
	
Earnings in   equity interest
    	
 
    	
(12,478
    	
)
    	
(7,609
    	
)
    
	
Compensation   expense related to stock-based awards
    	
 
    	
9,833
    	
 
    	
8,605
    	
 
    
	
Provision for   doubtful accounts
    	
 
    	
12,548
    	
 
    	
3,373
    	
 
    
	
Impairment loss
    	
 
    	
34,000
    	
 
    	
—
    	
 
    
	
Unrealized   (gain) loss on derivative contracts
    	
 
    	
(9,367
    	
)
    	
(73,603
    	
)
    
	
Amortization of   investment tax credits
    	
 
    	
(3,695
    	
)
    	
(3,553
    	
)
    
	
Other non-cash   charges (credits)—net
    	
 
    	
(480
    	
)
    	
3,401
    	
 
    
	
Changes in   operating assets and liabilities (Note 16)
    	
 
    	
(29,019
    	
)
    	
(174,626
    	
)
    
	
Net Cash   Provided by Operating Activities
    	
 
    	
364,383
    	
 
    	
94,870
    	
 
    
	
FINANCING   ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common stock   issued
    	
 
    	
—
    	
 
    	
298
    	
 
    
	
Long-term debt   issued
    	
 
    	
550,000
    	
 
    	
50,000
    	
 
    
	
Long-term debt   retired
    	
 
    	
(250,000
    	
)
    	
—
    	
 
    
	
Debt issuance   costs
    	
 
    	
(2,503
    	
)
    	
(404
    	
)
    
	
Notes payable   issued —net
    	
 
    	
(136,000
    	
)
    	
230,806
    	
 
    
	
Contributions   from non-controlling interest
    	
 
    	
9,808
    	
 
    	
10,816
    	
 
    
	
Distributions to   non-controlling interest
    	
 
    	
(256
    	
)
    	
—
    	
 
    
	
Project financing
    	
 
    	
989
    	
 
    	
9,429
    	
 
    
	
Dividends on   common stock and preferred stock
    	
 
    	
(53,043
    	
)
    	
(49,220
    	
)
    
	
Other financing   activities—net
    	
 
    	
(6,558
    	
)
    	
(1,296
    	
)
    
	
Net Cash   Provided by Financing Activities
    	
 
    	
112,437
    	
 
    	
250,429
    	
 
    
	
INVESTING   ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Capital   expenditures (excluding Allowance for Funds Used During Construction)
    	
 
    	
(210,279
    	
)
    	
(266,545
    	
)
    
	
Investments in   non-utility interests
    	
 
    	
(228,746
    	
)
    	
(89,295
    	
)
    
	
Distributions   and receipts from non-utility interests
    	
 
    	
—
    	
 
    	
2,827
    	
 
    
	
Proceeds from   the sale of assets
    	
 
    	
—
    	
 
    	
10,466
    	
 
    
	
Loans to   external parties
    	
 
    	
—
    	
 
    	
(863
    	
)
    
	
Net Cash Used in   Investing Activities
    	
 
    	
(439,025
    	
)
    	
(343,410
    	
)
    
	
INCREASE   IN CASH AND CASH EQUIVALENTS
    	
 
    	
37,795
    	
 
    	
1,889
    	
 
    
	
Cash and Cash   Equivalents at Beginning of Year
    	
 
    	
8,524
    	
 
    	
5,573
    	
 
    
	
Cash   and Cash Equivalents at End of Period
    	
 
    	
$
    	
46,319
    	
 
    	
$
    	
7,462
    	
 
    
	
SUPPLEMENTAL   DISCLOSURES OF CASH FLOW INFORMATION (Note 16)
    	
 
    	
 
    	
 
    	
 
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

4









 

Washington Gas Light Company

Condensed Balance Sheets (Unaudited)

 

	
(In thousands)
    	
 
    	
March 31,
   2018
    	
 
    	
September 30,
   2017
    	
 
    
	
ASSETS
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Property,   Plant and Equipment
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
At original cost
    	
 
    	
$
    	
5,413,647
    	
 
    	
$
    	
5,310,337
    	
 
    
	
Accumulated   depreciation and amortization
    	
 
    	
(1,460,140
    	
)
    	
(1,422,622
    	
)
    
	
Net property,   plant and equipment
    	
 
    	
3,953,507
    	
 
    	
3,887,715
    	
 
    
	
Current   Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and cash   equivalents
    	
 
    	
13,724
    	
 
    	
1
    	
 
    
	
Receivables
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts receivable
    	
 
    	
292,504
    	
 
    	
190,740
    	
 
    
	
Gas costs and   other regulatory assets
    	
 
    	
8,723
    	
 
    	
21,705
    	
 
    
	
Unbilled   revenues
    	
 
    	
181,034
    	
 
    	
107,967
    	
 
    
	
Allowance for   doubtful accounts
    	
 
    	
(28,620
    	
)
    	
(23,741
    	
)
    
	
Net receivables
    	
 
    	
453,641
    	
 
    	
296,671
    	
 
    
	
Materials and   supplies—principally at average cost
    	
 
    	
18,546
    	
 
    	
20,126
    	
 
    
	
Storage gas
    	
 
    	
27,469
    	
 
    	
92,753
    	
 
    
	
Prepaid taxes
    	
 
    	
21,587
    	
 
    	
23,350
    	
 
    
	
Other   prepayments
    	
 
    	
25,961
    	
 
    	
13,238
    	
 
    
	
Receivables from   associated companies
    	
 
    	
30,715
    	
 
    	
32,362
    	
 
    
	
Derivatives
    	
 
    	
1,280
    	
 
    	
5,061
    	
 
    
	
Other
    	
 
    	
120
    	
 
    	
102
    	
 
    
	
Total current   assets
    	
 
    	
593,043
    	
 
    	
483,664
    	
 
    
	
Deferred   Charges and Other Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Regulatory   assets
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gas costs
    	
 
    	
66,694
    	
 
    	
90,136
    	
 
    
	
Pension and   other post-retirement benefits
    	
 
    	
128,745
    	
 
    	
138,573
    	
 
    
	
Other
    	
 
    	
117,813
    	
 
    	
104,538
    	
 
    
	
Prepaid   post-retirement benefits
    	
 
    	
236,249
    	
 
    	
230,283
    	
 
    
	
Derivatives
    	
 
    	
14,350
    	
 
    	
16,244
    	
 
    
	
Other
    	
 
    	
5,244
    	
 
    	
3,561
    	
 
    
	
Total deferred   charges and other assets
    	
 
    	
569,095
    	
 
    	
583,335
    	
 
    
	
   Total Assets
    	
 
    	
$
    	
5,115,645
    	
 
    	
$
    	
4,954,714
    	
 
    
	
CAPITALIZATION   AND LIABILITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Capitalization
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common   shareholder’s equity
    	
 
    	
$
    	
1,383,302
    	
 
    	
$
    	
1,164,749
    	
 
    
	
Preferred stock
    	
 
    	
28,173
    	
 
    	
28,173
    	
 
    
	
Long-term debt
    	
 
    	
1,084,757
    	
 
    	
1,134,461
    	
 
    
	
Total   capitalization
    	
 
    	
2,496,232
    	
 
    	
2,327,383
    	
 
    
	
Current   Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   maturities of long-term debt
    	
 
    	
50,000
    	
 
    	
—
    	
 
    
	
Notes payable   and project financing
    	
 
    	
78,772
    	
 
    	
166,772
    	
 
    
	
Accounts payable   and other accrued liabilities
    	
 
    	
176,282
    	
 
    	
219,827
    	
 
    
	
Wages payable
    	
 
    	
24,356
    	
 
    	
16,508
    	
 
    
	
Accrued interest
    	
 
    	
3,915
    	
 
    	
3,967
    	
 
    
	
Dividends   declared
    	
 
    	
22,286
    	
 
    	
22,098
    	
 
    
	
Customer   deposits and advance payments
    	
 
    	
47,455
    	
 
    	
64,194
    	
 
    
	
Gas costs and   other regulatory liabilities
    	
 
    	
53,983
    	
 
    	
22,814
    	
 
    
	
Accrued taxes
    	
 
    	
24,805
    	
 
    	
12,808
    	
 
    
	
Payables to   associated companies
    	
 
    	
111,555
    	
 
    	
94,844
    	
 
    
	
Derivatives
    	
 
    	
17,381
    	
 
    	
30,263
    	
 
    
	
Other
    	
 
    	
7,107
    	
 
    	
7,473
    	
 
    
	
Total current   liabilities
    	
 
    	
617,897
    	
 
    	
661,568
    	
 
    
	
Deferred   Credits
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Unamortized   investment tax credits
    	
 
    	
3,742
    	
 
    	
4,100
    	
 
    
	
Deferred income   taxes
    	
 
    	
519,813
    	
 
    	
888,385
    	
 
    
	
Accrued pensions   and benefits
    	
 
    	
185,248
    	
 
    	
179,814
    	
 
    
	
Asset retirement   obligations
    	
 
    	
298,007
    	
 
    	
291,871
    	
 
    
	
Regulatory   liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accrued asset   removal costs
    	
 
    	
280,026
    	
 
    	
292,173
    	
 
    
	
Other   post-retirement benefits
    	
 
    	
126,952
    	
 
    	
134,181
    	
 
    
	
Excess deferred   taxes and other
    	
 
    	
449,225
    	
 
    	
9,403
    	
 
    
	
Derivatives
    	
 
    	
92,816
    	
 
    	
112,299
    	
 
    
	
Other
    	
 
    	
45,687
    	
 
    	
53,537
    	
 
    
	
Total deferred   credits
    	
 
    	
2,001,516
    	
 
    	
1,965,763
    	
 
    
	
Commitments   and Contingencies (Note 13)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total   Capitalization and Liabilities
    	
 
    	
$
    	
5,115,645
    	
 
    	
$
    	
4,954,714
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

5











 

Washington Gas Light Company

Condensed Statements of Income (Unaudited)

 

	
  
    	
 
    	
Three Months Ended March 31,
    	
 
    	
Six Months Ended March 31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
OPERATING   REVENUES
    	
 
    	
$
    	
532,040
    	
 
    	
$
    	
475,021
    	
 
    	
$
    	
909,510
    	
 
    	
$
    	
809,007
    	
 
    
	
OPERATING   EXPENSES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Utility cost of   gas
    	
 
    	
205,296
    	
 
    	
143,189
    	
 
    	
330,041
    	
 
    	
225,620
    	
 
    
	
Operation and   maintenance
    	
 
    	
90,984
    	
 
    	
86,754
    	
 
    	
170,535
    	
 
    	
168,920
    	
 
    
	
Depreciation and   amortization
    	
 
    	
33,468
    	
 
    	
33,116
    	
 
    	
67,114
    	
 
    	
63,242
    	
 
    
	
General taxes   and other assessments
    	
 
    	
50,493
    	
 
    	
46,104
    	
 
    	
90,476
    	
 
    	
82,359
    	
 
    
	
Total   Operating Expenses
    	
 
    	
380,241
    	
 
    	
309,163
    	
 
    	
658,166
    	
 
    	
540,141
    	
 
    
	
OPERATING   INCOME
    	
 
    	
151,799
    	
 
    	
165,858
    	
 
    	
251,344
    	
 
    	
268,866
    	
 
    
	
Other   expense — net
    	
 
    	
(1,227
    	
)
    	
(1,357
    	
)
    	
(3,019
    	
)
    	
(2,136
    	
)
    
	
Interest   expense
    	
 
    	
14,672
    	
 
    	
13,005
    	
 
    	
29,645
    	
 
    	
25,767
    	
 
    
	
INCOME   BEFORE INCOME TAXES
    	
 
    	
135,900
    	
 
    	
151,496
    	
 
    	
218,680
    	
 
    	
240,963
    	
 
    
	
INCOME   TAX EXPENSE
    	
 
    	
27,816
    	
 
    	
57,886
    	
 
    	
52,670
    	
 
    	
91,892
    	
 
    
	
NET   INCOME
    	
 
    	
$
    	
108,084
    	
 
    	
$
    	
93,610
    	
 
    	
$
    	
166,010
    	
 
    	
$
    	
149,071
    	
 
    
	
Dividends   on Washington Gas preferred stock
    	
 
    	
330
    	
 
    	
330
    	
 
    	
660
    	
 
    	
660
    	
 
    
	
NET   INCOME APPLICABLE TO COMMON STOCK
    	
 
    	
$
    	
107,754
    	
 
    	
$
    	
93,280
    	
 
    	
$
    	
165,350
    	
 
    	
$
    	
148,411
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

6











 

Washington Gas Light Company

Condensed Statements of Comprehensive Income (Unaudited)

 

	
 
    	
 
    	
Three Months Ended
   March 31,
    	
 
    	
Six Months Ended
   March 31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
NET   INCOME
    	
 
    	
$
    	
108,084
    	
 
    	
$
    	
93,610
    	
 
    	
$
    	
166,010
    	
 
    	
$
    	
149,071
    	
 
    
	
OTHER   COMPREHENSIVE INCOME, BEFORE INCOME TAXES:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pension   and other post-retirement benefit plans
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Change in net   prior service credit
    	
 
    	
(273
    	
)
    	
(217
    	
)
    	
(547
    	
)
    	
(434
    	
)
    
	
Change in   actuarial net loss
    	
 
    	
530
    	
 
    	
588
    	
 
    	
1,057
    	
 
    	
1,176
    	
 
    
	
Total   pension and other post-retirement benefit plans
    	
 
    	
$
    	
257
    	
 
    	
$
    	
371
    	
 
    	
$
    	
510
    	
 
    	
$
    	
742
    	
 
    
	
INCOME   TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME
    	
 
    	
74
    	
 
    	
148
    	
 
    	
135
    	
 
    	
295
    	
 
    
	
OTHER   COMPREHENSIVE INCOME
    	
 
    	
$
    	
183
    	
 
    	
$
    	
223
    	
 
    	
$
    	
375
    	
 
    	
$
    	
447
    	
 
    
	
COMPREHENSIVE   INCOME
    	
 
    	
$
    	
108,267
    	
 
    	
$
    	
93,833
    	
 
    	
$
    	
166,385
    	
 
    	
$
    	
149,518
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

7











 

Washington Gas Light Company

Condensed Statements of Cash Flows (Unaudited)

 

	
 
    	
 
    	
Six Months Ended March 31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
OPERATING   ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net income
    	
 
    	
$
    	
166,010
    	
 
    	
$
    	
149,071
    	
 
    
	
ADJUSTMENTS TO   RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Depreciation and   amortization
    	
 
    	
67,114
    	
 
    	
63,242
    	
 
    
	
Amortization of:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other regulatory   assets and liabilities—net
    	
 
    	
3,548
    	
 
    	
1,797
    	
 
    
	
Debt related   costs
    	
 
    	
803
    	
 
    	
692
    	
 
    
	
Deferred income   taxes
    	
 
    	
52,889
    	
 
    	
61,408
    	
 
    
	
Accrued/deferred   pension and other post-retirement benefit cost
    	
 
    	
5,285
    	
 
    	
7,551
    	
 
    
	
Compensation   expense related to stock-based awards
    	
 
    	
8,361
    	
 
    	
8,094
    	
 
    
	
Provision for   doubtful accounts
    	
 
    	
12,223
    	
 
    	
2,410
    	
 
    
	
Unrealized (gain)   loss on derivative contracts
    	
 
    	
(10,846
    	
)
    	
(36,145
    	
)
    
	
Amortization of   investment tax credits
    	
 
    	
(358
    	
)
    	
(378
    	
)
    
	
Other non-cash   charges (credits)—net
    	
 
    	
(480
    	
)
    	
2,343
    	
 
    
	
Changes in   operating assets and liabilities (Note 16)
    	
 
    	
(106,535
    	
)
    	
(133,126
    	
)
    
	
Net Cash Provided   by Operating Activities
    	
 
    	
198,014
    	
 
    	
126,959
    	
 
    
	
FINANCING   ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Capital   contributions from WGL Holdings, Inc.
    	
 
    	
100,000
    	
 
    	
—
    	
 
    
	
Debt issuance   costs
    	
 
    	
(237
    	
)
    	
(399
    	
)
    
	
Notes payable   issued —net
    	
 
    	
(88,000
    	
)
    	
121,329
    	
 
    
	
Project   financing
    	
 
    	
—
    	
 
    	
2,034
    	
 
    
	
Dividends on   common stock and preferred stock
    	
 
    	
(44,336
    	
)
    	
(42,921
    	
)
    
	
Other financing   activities—net
    	
 
    	
(6,197
    	
)
    	
(1,226
    	
)
    
	
Net Cash (Used   in) Provided by Financing Activities
    	
 
    	
(38,770
    	
)
    	
78,817
    	
 
    
	
INVESTING   ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Capital   expenditures (excluding Allowance for Funds Used During Construction)
    	
 
    	
(145,521
    	
)
    	
(205,776
    	
)
    
	
Net Cash Used In   Investing Activities
    	
 
    	
(145,521
    	
)
    	
(205,776
    	
)
    
	
INCREASE   IN CASH AND CASH EQUIVALENTS
    	
 
    	
13,723
    	
 
    	
—
    	
 
    
	
Cash and Cash   Equivalents at Beginning of Year
    	
 
    	
1
    	
 
    	
1
    	
 
    
	
Cash   and Cash Equivalents at End of Period
    	
 
    	
$
    	
13,724
    	
 
    	
$
    	
1
    	
 
    
	
SUPPLEMENTAL   DISCLOSURES OF CASH FLOW INFORMATION (Note 16)
    	
 
    	
 
    	
 
    	
 
    	
 
    


 

The accompanying notes are an integral part of these statements.

 

8









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1. ACCOUNTING POLICIES

 

Basis of Presentation

 

WGL Holdings, Inc. (WGL) is a holding company that owns all of the shares of common stock of Washington Gas Light Company (Washington Gas), a regulated natural gas utility, and all of the shares of common stock of Washington Gas Resources Corporation (Washington Gas Resources) and Hampshire Gas Company (Hampshire). Washington Gas Resources owns all of the shares of common stock of four non-utility subsidiaries that include WGL Energy Services, Inc. (WGL Energy Services), WGL Energy Systems, Inc. (WGL Energy Systems), WGL Midstream, Inc. (WGL Midstream) and WGSW, Inc. (WGSW). Except where the content clearly indicates otherwise, “WGL,” “we,” “us” or “our” refers to the holding company or the consolidated entity of WGL Holdings, Inc. and all of its subsidiaries. Unless otherwise noted, these notes apply equally to WGL and Washington Gas.

 

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) are omitted in this interim report. The interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the combined Annual Report on Form 10-K for WGL and Washington Gas for the fiscal year ended September 30, 2017 . Due to the seasonal nature of our businesses, the results of operations for the periods presented in this report are not necessarily indicative of actual results for the full fiscal years ending September 30, 2018 and 2017 of either WGL or Washington Gas.

 

The accompanying unaudited condensed financial statements for WGL and Washington Gas reflect all normal recurring adjustments that are necessary, in our opinion, to present fairly the results of operations in accordance with GAAP.

 

For a complete description of our accounting policies, refer to Note 1— Accounting Policies of the Notes to Consolidated Financial Statements of the combined Annual Report on Form 10-K for WGL and Washington Gas for the fiscal year ended September 30, 2017 .

 

Impairment of Long-Lived Assets and Equity Method Investments

 

Management regularly reviews property and equipment and other long-lived assets, including certain definite-lived intangible assets and our equity method investments for possible impairment. For our equity method investments, an impairment is recorded when the investment has experienced decline in value that is other-than-temporary. Additionally, if the projects in which we hold an investment recognize an impairment loss, we would record our proportionate share of that impairment loss and evaluate the investment for decline in value that is other-than-temporary. This review occurs quarterly, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

 

During the three months ended March 31, 2018, management determined that, in light of the recent actions taken by the courts and regulators related to our equity method investment in Constitution Pipeline Company, LLC (Constitution), the decline in value was other-than-temporary, resulting in WGL recording an impairment charge of $ 34.0 million in “Equity in earnings of unconsolidated affiliates” reducing our investment in Constitution to its estimated fair market value. During the three months ended March 31, 2017, WGL did not record any impairments related to our long-lived assets. Refer to Note 9— Fair Value Measurements  and Note 11— Other Investments  of the Notes to the Condensed Consolidated Financial Statements for a further discussion of Constitution.

 

Change in Accounting Principle and Storage Gas Valuation

 

On October 1, 2017, Washington Gas and WGL Energy Services implemented a voluntary change in the application of an accounting principle with respect to accounting for natural gas, propane, and odorant inventories. Washington Gas and WGL Energy Services now apply the average cost methodology under which the cost of units carried in inventory is based on the weighted average cost per unit of inventory. Prior to this change, Washington Gas and WGL Energy Services applied the First-in First-out (FIFO) method of accounting for inventory under which the oldest inventory items were recorded as being sold first.

 

9











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

We believe the new policy is preferable as it conforms to the method predominately used by our peers, better reflects the physical flow of inventory, conforms to the method used for certain of our other inventories, and will simplify recordkeeping requirements.

 

The change in accounting principle was implemented on a prospective basis, therefore, we did not retrospectively adjust any prior periods or record a cumulative effect adjustment, as discussed below.

 

Washington Gas implemented the change in accounting principle on a prospective basis in accordance with Accounting Standards Codification (ASC) No. 980, Regulated Operations which permits regulated entities to implement changes for financial reporting purposes in the same way those changes are implemented for regulatory reporting purposes when the change impacts allowable costs. WGL Energy Services implemented the change on a prospective basis as the impact on its financial statements for all periods presented, including the cumulative effect at October 1, 2017, was immaterial. The difference during the quarter between the prior FIFO method and the new average cost method was immaterial.

 

WGL Midstream continues to account for its inventory using the weighted average cost method.

 

On October 1, 2017, WGL adopted ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory . This standard modified the previous calculation for valuing inventory. As a result of the new standard, beginning October 1, 2017, our inventory balances are stated at the lower of cost or net realizable value. Prior to October 1, 2017, our inventory balances were stated at the lower of cost or market. Interim period inventory losses attributable to lower of cost or net realizable value adjustments may be reversed if the net realizable value of the inventory is recovered by the end of the same fiscal year.

 

For more information see ASU 2015-11 in the accounting standards adopted in fiscal year 2018 table below . For the three and six months ended March 31, 2018 and 2017, WGL and Washington Gas did not record any lower of cost or net realizable value adjustments.

 

10











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

ACCOUNTING STANDARDS ADOPTED IN FISCAL YEAR 2018

 

	
Standard
    	
 
    	
Description
    	
 
    	
Date of adoption
    	
 
    	
Effect on the financial statements or
   other significant matters
    
	
ASU 2018-05, Income Taxes (Topic   740)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin   No. 118
    	
 
    	
This standard adds to the Codification various SEC   paragraphs pursuant to the Issuance of Staff Accounting Bulletin (SAB)   No. 118. and addresses the specific situation in which the initial   accounting for certain income tax effects of the Tax Act will not be complete   at the time that financial statements were issued covering the reporting   period that includes the enactment date of December 22, 2017.
    	
 
    	
October 1, 2017
    	
 
    	
Quarterly disclosures were incorporated in the   Income Tax footnote in the first quarter FY 2018 10-Q filed with the SEC on   February 8, 2018, which will be updated each quarter until the end of   the measurement period. See Note 7,  Income Taxes,   of the   Notes to Condensed Consolidated   Financial Statements for additional information.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
ASU 2016-09, Compensation—Stock Compensation   (Topic 718): Improvements to Employee Share-Based Payment Accounting
    	
 
    	
This standard simplifies several aspects of the   accounting for share-based payment transactions, including accounting for   income taxes, forfeitures, statutory tax withholding requirements and   classification in the statement of cash flows.
    	
 
    	
October 1, 2017
    	
 
    	
Forfeitures  - WGL has   elected to continue to estimate forfeitures for its share-based payment   awards rather than account for forfeitures when they occur.

 

Income Taxes  - On   October 1, 2017, WGL and Washington Gas recorded $4.3 million and $4.2   million, respectively, on a modified retrospective basis, as a cumulative   effect adjustment to retained earnings. For the six months ended   March 31, 2018, WGL and Washington Gas recorded $3.4 million and $3.2   million, respectively, to current tax expense for excess tax benefits related   to performance shares that vested in the quarter.

 

Cash Flows  - WGL and   Washington Gas reclassified $3.6 million and $3.5 million, respectively,   retroactively on the statement of cash flows for the six months ended   March 31, 2017 from operating to financing activities related to shares   withheld to pay for employee taxes. For the presentation of excess tax   benefits in the statement of cash flows, WGL elected to present the change   prospectively.

 

Statutory Tax Withholding    - No changes were made.
    


 

11











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

	
ASU 2016-06, Derivatives and Hedging (Topic 815)   - Contingent Put and Call Options in Debt Instruments
    	
 
    	
The amendments in this update clarify the   requirements for assessing whether contingent call (put) options that can   accelerate the payment of principal on debt
   instruments are clearly and closely related to their debt hosts. The guidance   states that for contingent call (put) options to be considered clearly and   closely related, they can be indexed only to interest rates or credit risk.   An entity is required to assess the embedded call (put) options solely in   accordance with the four-step decision sequence.
    	
 
    	
October 1, 2017
    	
 
    	
The implementation of this standard did not have an   effect on WGL or Washington Gas’ financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
ASU 2015-11, Inventory (Topic 330) -   Simplifying the Measurement of Inventory
    	
 
    	
This standard reduces the complexity in the current measurement   of inventory. This ASU requires inventory to be measured at the lower of cost   and net realizable value, where net realizable value is the estimated selling   price in the ordinary course of business less reasonably predictable costs of   completion, disposal and transportation (no change to the definition of net   realizable value). The amendment eliminates the guidance that requires   inventory to be stated at the lower of cost or market, which includes   consideration of the replacement cost of inventory and the net realizable   value of inventory, less an approximately normal profit margin.
    	
 
    	
October 1, 2017
    	
 
    	
The implementation of this standard did not have a   material effect on WGL or Washington Gas’ financial statements.
    


 

12











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

OTHER NEWLY ISSUED ACCOUNTING STANDARDS

 

	
Standard
    	
 
    	
Description
    	
 
    	
Required date of
   adoption
    	
 
    	
Effect on the financial statements
   or other significant matters
    
	
ASU 2017-07, Compensation - Retirement Benefits   (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net   Periodic Postretirement Benefit Cost
    	
 
    	
This standard requires entities to report the   service cost component in the same financial statement line item as other   compensation costs arising from services rendered by the pertinent employees   during the period.  The other components of net benefit cost are to be   presented separately from service cost and outside of operating income.    In addition, only the service cost component of net benefit cost is eligible   for capitalization.  Changes to the presentation of service costs and   other components of net benefit cost should be applied retrospectively.   Changes in capitalization practices should be implemented prospectively.
    	
 
    	
October 1, 2018
    	
 
    	
We are currently evaluating the interaction of this   standard with the various regulatory provisions concerning pensions and   post-retirement benefit costs. We anticipate that the change in   capitalization of retirement benefits will not have a material impact on WGL   or Washington Gas’ financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
ASU 2016-15, Statement of Cash Flows (Topic 230)—Classification   of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging   Issues Task Force)
    	
 
    	
This update provides guidance on the classification   of certain cash receipts and payments in the statement of cash flows.
    	
 
    	
October 1, 2018*
    	
 
    	
We are in the process of evaluating the impact the   adoption of this standard will have on our financial statements. We do not   anticipate that adoption of this standard will have a material effect on WGL   or Washington Gas’ financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
ASU 2014-09, Revenue from Contracts with   Customers (Topic 606), including subsequent ASUs clarifying the guidance.
    	
 
    	
ASU 2014-09 establishes a comprehensive revenue   recognition model clarifying the method used to determine the timing and   requirements for revenue recognition from contracts with customers. The   disclosure requirements under the new standard will enable users of financial   statements to understand the nature, amount, timing, and uncertainty of   revenue and cash flows arising from contracts with customers.
    	
 
    	
October 1, 2018
    	
 
    	
An implementation team is currently evaluating all   revenue streams and reviewing contracts with customers, as well as, related   financial statement disclosures to determine the impact the adoption of this   standard will have on our financial statements. WGL is also monitoring final   conclusions for industry specific implementation issues that could impact the   timing of revenue recognition for our regulated utility tariff based sales,   including the evaluation of collectability from customers if a utility has   regulatory mechanisms to help assure recovery of uncollected accounts from   ratepayers and accounting for contributions in aid of construction (CIAC).   WGL will adopt using the modified retrospective approach.
    


 

13











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

	
ASU 2016-01, Financial Instruments (Subtopic   825-10): Recognition and Measurement of Financial Assets and Financial   Liabilities including subsequent ASUs clarifying the guidance.
    	
 
    	
The new standard amends certain disclosure   requirements associated with the fair value of financial instruments, and   significantly revises an entity’s accounting related to the classification   and measurement of investments in equity securities and the presentation of   certain fair value changes for financial liabilities measured at fair value.
    	
 
    	
October 1, 2018*
    	
 
    	
We have performed a preliminary evaluation and the   adoption of this standard will primarily impact the disclosure of our   financial instruments in our Fair Value Measurements Footnote however, we do   not expect the impact to be material.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
ASU 2018-02, Income Statement—Reporting Comprehensive   Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated   Other Comprehensive Income
    	
 
    	
This update provides an option to reclassify the   stranded tax effects resulting from the enactment of the TCJA from   accumulated other comprehensive income to retained earnings.  The   amendment only relates to the reclassification of the income tax effects of   the TCJA and the underlying guidance that requires that the effect of a   change in tax laws or rates be included in income from continuing operations   is not affected.

 

Election to reclassify the income tax effects in   accumulated other comprehensive income (AOCI) to retained earnings is   voluntary and should be disclosed if AOCI is not adjusted.

 

Early adoption is permitted and can be applied   either at the beginning of the period adopted or retrospectively to each   period (or periods) in which the effect of the change in the U.S. federal   corporate income tax rate in the Tax is recognized.
    	
 
    	
October 1, 2019
    	
 
    	
WGL applied the effect of the change in the U.S.   federal corporate income tax rate due to the TCJA in the first quarter of FY   2018. The updates were recorded to the deferred tax asset and liability   accounts and the income statement. Tax entries recorded to AOCI for the   employee benefit plans, stock compensation and the cash flow hedge were not   adjusted to the new rate. We are performing an analysis to determine the   amount to adjust to the new tax rate. Early adoption is expected to occur in   fourth quarter of fiscal year 2018.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
ASU 2016-02, Leases (Topic 842) including   subsequent ASUs clarifying the guidance.
    	
 
    	
This standard requires recognition of a right-to-use   asset and lease liability on the statement of financial position and   disclosure of key information about leasing arrangements. The standard   requires application using a modified retrospective approach.
    	
 
    	
October 1, 2019*
    	
 
    	
We are in the process of evaluating the impact the   adoption of this standard will have on our financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
ASU 2016-13, Financial Instruments-Credit Losses   (Topic 326): Measurement of Credit Losses on Financial Instruments
    	
 
    	
For credit losses on financial instruments, this   standard changes the current incurred loss impairment methodology to an   expected loss methodology and requires consideration of a broader range   of reasonable and supportable information to determine credit loss estimates.
    	
 
    	
October 1, 2020*
    	
 
    	
We are in the process of evaluating the impact the   adoption of this standard will have on our financial statements.
    


 

14











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

	
ASU 2017-12, Derivatives and Hedging (Topic 815):   Targeted improvements to Accounting for Hedging Activities
    	
 
    	
The new standard amends the hedge accounting and   recognition requirements by expanding an entity’s ability to hedge   non-financial and financial risk components and reduce the complexity in fair   value hedges of interest rate risk. Additionally, this standard eliminates   the requirement to separately measure and disclose the ineffective portion of   the hedge with the entire change in the fair value of a hedging instrument to   be presented in the same income statement line as the hedged item.
    	
 
    	
October 1, 2020*
    	
 
    	
We are in the process of evaluating the impact the   adoption of this standard will have on our financial statements.
    


 




*Subject to acceleration if the proposed merger with AltaGas is consummated due to the difference in fiscal year end between AltaGas and WGL.

 

NOTE 2. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

 

The tables below provide details for the amounts included in “Accounts payable and other accrued liabilities” on the balance sheets for both WGL and Washington Gas.

 

WGL Holdings, Inc.

 

	
(In millions)
    	
 
    	
March 31, 2018
    	
 
    	
September 30, 2017
    	
 
    
	
Accounts   payable—trade
    	
 
    	
$
    	
294.8
    	
 
    	
$
    	
361.6
    	
 
    
	
Employee   benefits and payroll accruals
    	
 
    	
21.1
    	
 
    	
35.0
    	
 
    
	
Other accrued   liabilities
    	
 
    	
42.1
    	
 
    	
27.2
    	
 
    
	
Total
    	
 
    	
$
    	
358.0
    	
 
    	
$
    	
423.8
    	
 
    


 

Washington Gas Light Company

 

	
(In millions)
    	
 
    	
March 31, 2018
    	
 
    	
September 30, 2017
    	
 
    
	
Accounts   payable—trade
    	
 
    	
$
    	
138.4
    	
 
    	
$
    	
174.9
    	
 
    
	
Employee   benefits and payroll accruals
    	
 
    	
20.0
    	
 
    	
32.4
    	
 
    
	
Other accrued   liabilities
    	
 
    	
17.9
    	
 
    	
12.5
    	
 
    
	
Total
    	
 
    	
$
    	
176.3
    	
 
    	
$
    	
219.8
    	
 
    


 

15









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 3. SHORT-TERM DEBT

 

WGL and Washington Gas satisfy their short-term financing requirements through the sale of commercial paper, financing arrangements with third-party lenders, or through bank borrowings. Due to the seasonal nature of the regulated utility and retail energy-marketing segments, short-term financing requirements can vary significantly during the year. Revolving credit agreements are maintained to support outstanding commercial paper and to permit short-term borrowing flexibility. The policy of each of WGL and Washington Gas is to maintain bank credit facilities in amounts equal to or greater than their expected maximum commercial paper position. The following is a summary of committed credit available at March 31, 2018 and September 30, 2017 .

 

Committed Credit Available   ($ In millions)

 

	
March 31, 2018
    	
 
    	
WGL (b)
    	
 
    	
Washington Gas
    	
 
    	
Total Consolidated
    	
 
    
	
Committed   credit agreements
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Unsecured   revolving credit facility, expires December 19, 2019 (a)
    	
 
    	
$
    	
650.0
    	
 
    	
$
    	
350.0
    	
 
    	
$
    	
1,000.0
    	
 
    
	
Less:   Commercial Paper
    	
 
    	
(334.0
    	
)
    	
(35.0
    	
)
    	
(369.0
    	
)
    
	
Net   committed credit available
    	
 
    	
$
    	
316.0
    	
 
    	
$
    	
315.0
    	
 
    	
$
    	
631.0
    	
 
    
	
Weighted   average interest rate
    	
 
    	
2.14
    	
%
    	
1.74
    	
%
    	
2.10
    	
%
    
	
September 30,   2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Committed credit   agreements
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Unsecured   revolving credit facility, expires December 19, 2019 (a)
    	
 
    	
$
    	
650.0
    	
 
    	
$
    	
350.0
    	
 
    	
$
    	
1,000.0
    	
 
    
	
Less: Commercial   Paper
    	
 
    	
(382.0
    	
)
    	
(123.0
    	
)
    	
(505.0
    	
)
    
	
Net committed   credit available
    	
 
    	
$
    	
268.0
    	
 
    	
$
    	
227.0
    	
 
    	
$
    	
495.0
    	
 
    
	
Weighted average   interest rate
    	
 
    	
1.52
    	
%
    	
1.22
    	
%
    	
1.45
    	
%
    


 




(a) Washington Gas has the right to request extensions with the banks’ approval. Washington Gas’ revolving credit facility permits it to borrow an additional $100 million , with the banks’ approval, for a total of $450 million .

(b) WGL includes WGL Holdings, Inc. and all subsidiaries other than Washington Gas.

 

At March 31, 2018 and September 30, 2017 , there were no outstanding bank loans from WGL’s or Washington Gas’ revolving credit facilities.

 

16











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

PROJECT FINANCING

 

Washington Gas previously obtained third-party project financing on behalf of the federal government to provide funds during the construction of certain energy management services projects entered into under Washington Gas’ area-wide contract. In connection with work completed under the area-wide contract, the construction work is performed by WGL Energy Systems on behalf of Washington Gas and an inter-company payable is recorded for work provided by WGL Energy Systems. As work is performed, Washington Gas establishes a receivable representing the government’s obligation to remit principal and interest. The payable and receivable are equal to each other at the end of the construction period, but there may be timing differences in the recognition of the project related payable and receivable during the construction period. When these projects are formally “accepted” by the government and deemed complete, Washington Gas assigns the ownership of the receivable to the third party lender in satisfaction of the obligation and removes both the receivable and the obligation related to the financing from its financial statements. In March 2016, the SCC of VA denied Washington Gas’ further participation in the third party financing arrangement but allowed existing debt arrangements to remain intact until the related obligations were satisfied. At March 31, 2018, there were two contracts remaining totaling $ 43.8 million on the Washington Gas balance sheet as a short-term obligation to third party lenders in “Notes payable and project financing”. Additionally, at March 31, 2018, there was one contract that had not been novated.

 

In December 2016, WGL Energy Systems entered into an agreement to obtain third-party financing and receive funds directly from the third-party lender during the construction period associated with the related energy management service projects. As a result, Washington Gas will no longer be liable under future third-party financing arrangements, for projects entered into under the area-wide contract. The general terms of the financing agreement are the same as the prior financing arrangements between Washington Gas and the third-party lender mentioned above. Washington Gas will continue to record a receivable representing the government’s obligation, and will record an inter-company payable to WGL Energy Systems for the construction work performed for the same amount. At March 31, 2018, there were two contracts remaining totaling $ 12.0 million on the WGL Energy Systems balance sheet as a short-term obligation to third party lenders in “Notes payable and project financing”.

 

As of March 31, 2018 , WGL and Washington Gas recorded $ 98.8 million and $ 88.9 million , respectively, in “Unbilled revenues” on the balance sheet, and $ 55.8 million and $ 43.8 million , respectively, in a corresponding short-term obligation to third-party lenders in “Notes payable and project financing”, for energy management services projects that were not complete. The variance between the Washington Gas’ recorded unbilled revenues and corresponding short-term obligation to third-party lenders is due to the one contract that has not been novated. As of September 30, 2017 , WGL and Washington Gas recorded $85.6 million and $ 78.2 million in “Unbilled revenues” on the balance sheet and $54.8 million and $ 43.8 million , respectively, in a corresponding short-term obligation to third party lenders in “Notes payable and project financing” for energy management services projects that were not complete. Because these projects are financed for government agencies that have minimal credit risk, and with which we have previous collection experience, neither WGL nor Washington Gas recorded a corresponding reserve for bad debts related to these receivables at March 31, 2018 or September 30, 2017 .

 

17











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 4. LONG-TERM DEBT

 

UNSECURED NOTES

 

WGL and Washington Gas issue long-term notes with individual terms regarding interest rates, maturities and call or put options. These notes can have maturity dates of one or more years from the date of issuance.

 

At March 31, 2018 and September 30, 2017 , WGL had capacity under a shelf registration statement to issue an unlimited amount of long-term debt securities. As a result of certain covenants included in the Merger Agreement among WGL, AltaGas and Wrangler, Inc., WGL may not issue debt with a term longer than two years. Refer to Note 17 — Planned Merger with AltaGas Ltd. of the Notes to Condensed Consolidated Financial Statements for a discussion of the proposed merger.

 

At March 31, 2018 and September 30, 2017 , Washington Gas had capacity under a shelf registration statement to issue up to $150.0 million of additional Medium-Term Notes (MTNs).

 

The following tables show our outstanding notes as of March 31, 2018 and September 30, 2017 .

 

Long-Term Debt Outstanding

 

	
($ In millions)
    	
 
    	
WGL (a)
    	
 
    	
Washington Gas
    	
 
    	
Total Consolidated
    	
 
    
	
March 31,   2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Long-term   debt (b)
    	
 
    	
$
    	
850.0
    	
 
    	
$
    	
1,146.0
    	
 
    	
$
    	
1,996.0
    	
 
    
	
Unamortized   discount
    	
 
    	
(1.4
    	
)
    	
(3.0
    	
)
    	
(4.4
    	
)
    
	
Unamortized   debt expense
    	
 
    	
(4.0
    	
)
    	
(8.3
    	
)
    	
(12.3
    	
)
    
	
Total   Long-Term Debt
    	
 
    	
$
    	
844.6
    	
 
    	
$
    	
1,134.7
    	
 
    	
$
    	
1,979.3
    	
 
    
	
Weighted   average interest rate
    	
 
    	
2.85
    	
%
    	
4.89
    	
%
    	
4.02
    	
%
    
	
September 30,   2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Long-term debt (b)
    	
 
    	
$
    	
550.0
    	
 
    	
$
    	
1,146.0
    	
 
    	
$
    	
1,696.0
    	
 
    
	
Unamortized   discount
    	
 
    	
(1.5
    	
)
    	
(3.0
    	
)
    	
(4.5
    	
)
    
	
Unamortized debt   expense
    	
 
    	
(2.1
    	
)
    	
(8.5
    	
)
    	
(10.6
    	
)
    
	
Total Long-Term   Debt
    	
 
    	
$
    	
546.4
    	
 
    	
$
    	
1,134.5
    	
 
    	
$
    	
1,680.9
    	
 
    
	
Weighted average   interest rate
    	
 
    	
2.81
    	
%
    	
4.89
    	
%
    	
4.21
    	
%
    


 




(a) WGL includes WGL Holdings, Inc. and all subsidiaries other than Washington Gas.

(b) Includes senior notes, term loans and floating rate notes for WGL and both MTNs and private placement notes for Washington Gas. Represents face value including current maturities.

 

18











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables show long-term debt issuances and retirements for WGL for the six months ended March 31, 2018 and 2017.

 

WGL Long-Term Debt Issuances and Retirements (a)

 

	
($ In millions)
    	
 
    	
Principal (b)
    	
 
    	
Interest
   Rate
    	
 
    	
Effective
   Cost
    	
 
    	
Nominal
   Maturity Date
    	
 
    
	
Six   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Issuances:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
11/29/2017
    	
 
    	
$
    	
300.0
    	
 
    	
1.88
    	
%(c)
    	
2.01
    	
%
    	
11/29/2019
    	
 
    
	
03/14/2018
    	
 
    	
$
    	
250.0
    	
 
    	
2.66
    	
%(d)
    	
2.79
    	
%
    	
03/12/2020
    	
 
    
	
Total   consolidated issuances
    	
 
    	
$
    	
550.0
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Retirements:
    	
 
    	
$
    	
250.0
    	
 
    	
1.24
    	
%
    	
1.24
    	
%
    	
02/18/2018
    	
 
    
	
Total
    	
 
    	
$
    	
250.0
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Six Months Ended   March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Issuances:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1/26/2017
    	
 
    	
$
    	
50.0
    	
 
    	
1.57
    	
%(e)
    	
1.57
    	
%
    	
1/26/2019
    	
 
    
	
Total consolidated   issuances
    	
 
    	
$
    	
50.0
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    


 




(a) WGL includes WGL Holdings, Inc. and all subsidiaries other than Washington Gas.

(b) Represents face amount of notes.

(c) Floating rate per annum and reset quarterly based on terms set forth in the prospectus supplement filed by WGL pursuant to Securities Act Rule 424 on November 27, 2017.

(d) Floating rate per annum and reset quarterly based on terms set forth in the prospectus supplement filed by WGL pursuant to Securities Act Rule 424 on March 13, 2018.

(e) Floating rate per annum that will be determined from time to time based on parameters set forth in the credit agreement.

 

There were no issuances or retirements of long-term debt by Washington Gas for the six months ended March 31, 2018 or 2017.

 

19









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 5. COMPONENTS OF TOTAL EQUITY

 

The tables below reflect the components of “Total equity” for WGL and Washington Gas for the six months ended March 31, 2018 and 2017.

 

WGL Holdings, Inc.

Components of Total Equity

 

	
(In thousands, except
    	
 
    	
Common Stock
    	
 
    	
Paid-In
    	
 
    	
Retained
    	
 
    	
Accumulated Other
   Comprehensive
   Income (Loss), Net
    	
 
    	
WGL Holdings
   Common
   Shareholders’
    	
 
    	
Non-controlling
    	
 
    	
Washington
   Gas Light
   Company
    	
 
    	
 
    	
 
    
	
shares)
    	
 
    	
Shares
    	
 
    	
Amount
    	
 
    	
Capital
    	
 
    	
Earnings
    	
 
    	
of Taxes
    	
 
    	
Equity
    	
 
    	
Interest
    	
 
    	
Preferred Stock
    	
 
    	
Total Equity
    	
 
    
	
Balance at September 30, 2017
    	
 
    	
51,219,000
    	
 
    	
$
    	
582,716
    	
 
    	
$
    	
10,149
    	
 
    	
$
    	
915,822
    	
 
    	
$
    	
(5,997
    	
)
    	
$
    	
1,502,690
    	
 
    	
$
    	
6,851
    	
 
    	
$
    	
28,173
    	
 
    	
$
    	
1,537,714
    	
 
    
	
Net income (loss)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
273,590
    	
 
    	
—
    	
 
    	
273,590
    	
 
    	
(10,150
    	
)
    	
660
    	
 
    	
264,100
    	
 
    
	
Contributions from non-controlling interest
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
9,809
    	
 
    	
—
    	
 
    	
9,809
    	
 
    
	
Distributions to non-controlling interest
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(256
    	
)
    	
—
    	
 
    	
(256
    	
)
    
	
Business combination (a)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
614
    	
 
    	
—
    	
 
    	
614
    	
 
    
	
Other comprehensive income
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
450
    	
 
    	
450
    	
 
    	
—
    	
 
    	
—
    	
 
    	
450
    	
 
    
	
Stock-based compensation (b)
    	
 
    	
140,182
    	
 
    	
12,390
    	
 
    	
(18,650
    	
)
    	
4,013
    	
 
    	
—
    	
 
    	
(2,247
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(2,247
    	
)
    
	
Dividends declared:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(52,711
    	
)
    	
—
    	
 
    	
(52,711
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(52,711
    	
)
    
	
Preferred stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(660
    	
)
    	
(660
    	
)
    
	
Balance at  March 31, 2018
    	
 
    	
51,359,182
    	
 
    	
$
    	
595,106
    	
 
    	
$
    	
(8,501
    	
)
    	
$
    	
1,140,714
    	
 
    	
$
    	
(5,547
    	
)
    	
$
    	
1,721,772
    	
 
    	
$
    	
6,868
    	
 
    	
$
    	
28,173
    	
 
    	
$
    	
1,756,813
    	
 
    
	
Balance at September 30, 2016
    	
 
    	
51,080,612
    	
 
    	
$
    	
574,496
    	
 
    	
$
    	
12,519
    	
 
    	
$
    	
827,085
    	
 
    	
$
    	
(38,539
    	
)
    	
$
    	
1,375,561
    	
 
    	
$
    	
409
    	
 
    	
$
    	
28,173
    	
 
    	
$
    	
1,404,143
    	
 
    
	
Net income (loss)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
181,036
    	
 
    	
—
    	
 
    	
181,036
    	
 
    	
(7,974
    	
)
    	
660
    	
 
    	
173,722
    	
 
    
	
Contributions from non-controlling interest
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
10,816
    	
 
    	
—
    	
 
    	
10,816
    	
 
    
	
Other comprehensive income
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
29,665
    	
 
    	
29,665
    	
 
    	
—
    	
 
    	
—
    	
 
    	
29,665
    	
 
    
	
Stock-based compensation (b)
    	
 
    	
112,146
    	
 
    	
6,564
    	
 
    	
(5,268
    	
)
    	
(238
    	
)
    	
—
    	
 
    	
1,058
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,058
    	
 
    
	
Issuance of common stock (c)
    	
 
    	
26,242
    	
 
    	
1,653
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,653
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,653
    	
 
    
	
Dividends declared:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(51,091
    	
)
    	
—
    	
 
    	
(51,091
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(51,091
    	
)
    
	
Preferred stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(660
    	
)
    	
(660
    	
)
    
	
Balance at March 31, 2017
    	
 
    	
51,219,000
    	
 
    	
$
    	
582,713
    	
 
    	
$
    	
7,251
    	
 
    	
$
    	
956,792
    	
 
    	
$
    	
(8,874
    	
)
    	
$
    	
1,537,882
    	
 
    	
$
    	
3,251
    	
 
    	
$
    	
28,173
    	
 
    	
$
    	
1,569,306
    	
 
    


 




(a) Resulted from the consolidation of SFEE. For more information, see Note 11—Other investments of the Notes to Condensed Consolidated Financial Statements.

(b) Includes dividend equivalents related to our performance shares and implementation of ASU 2016-09, see Note 1—Accounting policies of the Notes to Condensed Consolidated Financial Statements.

(c) Includes dividend reinvestment and common stock purchase plans.

 

20









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Washington Gas Light Company

Components of Total Equity

 

	
 
    	
 
    	
Common Stock
    	
 
    	
Paid-In
    	
 
    	
Retained
    	
 
    	
Accumulated Other
   Comprehensive Income
    	
 
    	
 
    	
 
    
	
(In thousands, except shares)
    	
 
    	
Shares
    	
 
    	
Amount
    	
 
    	
Capital
    	
 
    	
Earnings
    	
 
    	
(Loss), Net of Taxes
    	
 
    	
Total
    	
 
    
	
Balance at   September 30, 2017
    	
 
    	
46,479,536
    	
 
    	
$
    	
46,479
    	
 
    	
$
    	
492,101
    	
 
    	
$
    	
630,691
    	
 
    	
$
    	
(4,522
    	
)
    	
$
    	
1,164,749
    	
 
    
	
Net income
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
166,010
    	
 
    	
—
    	
 
    	
166,010
    	
 
    
	
Other   comprehensive income
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
375
    	
 
    	
375
    	
 
    
	
Stock-based   compensation (a)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(7,505
    	
)
    	
4,197
    	
 
    	
—
    	
 
    	
(3,308
    	
)
    
	
Capital   contributed by WGL Holdings
    	
 
    	
—
    	
 
    	
—
    	
 
    	
100,000
    	
 
    	
—
    	
 
    	
—
    	
 
    	
100,000
    	
 
    
	
Dividends   declared:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(43,864
    	
)
    	
—
    	
 
    	
(43,864
    	
)
    
	
Preferred stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(660
    	
)
    	
—
    	
 
    	
(660
    	
)
    
	
Balance   at March 31, 2018
    	
 
    	
46,479,536
    	
 
    	
$
    	
46,479
    	
 
    	
$
    	
584,596
    	
 
    	
$
    	
756,374
    	
 
    	
$
    	
(4,147
    	
)
    	
$
    	
1,383,302
    	
 
    
	
Balance at   September 30, 2016
    	
 
    	
46,479,536
    	
 
    	
$
    	
46,479
    	
 
    	
$
    	
488,135
    	
 
    	
$
    	
586,662
    	
 
    	
$
    	
(7,830
    	
)
    	
$
    	
1,113,446
    	
 
    
	
Net income
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
149,071
    	
 
    	
—
    	
 
    	
149,071
    	
 
    
	
Other   comprehensive income
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
447
    	
 
    	
447
    	
 
    
	
Stock-based   compensation (a)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,220
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,220
    	
 
    
	
Dividends   declared:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Common stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(42,907
    	
)
    	
—
    	
 
    	
(42,907
    	
)
    
	
Preferred stock
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(660
    	
)
    	
—
    	
 
    	
(660
    	
)
    
	
Balance at   March 31, 2017
    	
 
    	
46,479,536
    	
 
    	
$
    	
46,479
    	
 
    	
$
    	
489,355
    	
 
    	
$
    	
692,166
    	
 
    	
$
    	
(7,383
    	
)
    	
$
    	
1,220,617
    	
 
    


 




(a) Stock-based compensation is based on the stock awards of WGL that are allocated to Washington Gas Light Company for its pro-rata share and includes implementation of ASU 2016-09, see Note 1—Accounting policies of the Notes to Condensed Consolidated Financial Statements.

 

21









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 6. EARNINGS PER SHARE

 

Basic earnings per share (EPS) of WGL is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted EPS assumes the issuance of common shares pursuant to stock-based compensation plans at the beginning of the applicable period unless the effect of such issuance would be anti-dilutive. The following table reflects the computation of our basic and diluted EPS for the three and six months ended March 31, 2018 and 2017.

 

Basic and Diluted EPS

 

	
(In thousands, except per share data)
    	
 
    	
Net Income
   Applicable to
   Common Stock
    	
 
    	
Shares
    	
 
    	
Per Share
   Amount
    	
 
    
	
Three   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic   EPS
    	
 
    	
$
    	
135,550
    	
 
    	
51,358
    	
 
    	
$
    	
2.64
    	
 
    
	
Stock-based   compensation plans
    	
 
    	
—
    	
 
    	
219
    	
 
    	
 
    	
 
    
	
Diluted   EPS
    	
 
    	
$
    	
135,550
    	
 
    	
51,577
    	
 
    	
$
    	
2.63
    	
 
    
	
Three Months   Ended March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic EPS
    	
 
    	
$
    	
123,064
    	
 
    	
51,217
    	
 
    	
$
    	
2.40
    	
 
    
	
Stock-based   compensation plans
    	
 
    	
—
    	
 
    	
259
    	
 
    	
 
    	
 
    
	
Diluted EPS
    	
 
    	
$
    	
123,064
    	
 
    	
51,476
    	
 
    	
$
    	
2.39
    	
 
    
	
Six   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic   EPS
    	
 
    	
$
    	
273,590
    	
 
    	
51,336
    	
 
    	
$
    	
5.33
    	
 
    
	
Stock-based   compensation plans
    	
 
    	
—
    	
 
    	
225
    	
 
    	
 
    	
 
    
	
Diluted   EPS
    	
 
    	
$
    	
273,590
    	
 
    	
51,561
    	
 
    	
$
    	
5.31
    	
 
    
	
Six Months Ended   March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic EPS
    	
 
    	
$
    	
181,036
    	
 
    	
51,192
    	
 
    	
$
    	
3.54
    	
 
    
	
Stock-based   compensation plans
    	
 
    	
—
    	
 
    	
266
    	
 
    	
 
    	
 
    
	
Diluted EPS
    	
 
    	
$
    	
181,036
    	
 
    	
51,458
    	
 
    	
$
    	
3.52
    	
 
    


 

There were no anti-dilutive shares issued for the three and six months ended March 31, 2018 and 2017.

 

NOTE 7. INCOME TAXES

 

As of March 31, 2018 and September 30, 2017 , our uncertain tax positions were approximately $40.2 million and $ 48.1 million , respectively, primarily due to the change in tax accounting for repairs. If the amounts of unrecognized tax benefits are eventually realized, it would not materially impact the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefit with respect to some of WGL’s and Washington Gas’ uncertain tax positions will significantly increase or decrease in the next 12 months. At this time, however, an estimate of the range of reasonably possible outcomes cannot be determined.

 

Under ASC Topic 740, Income Taxes , Washington Gas recognizes any accrued interest associated with uncertain tax positions in interest expense and recognizes any accrued penalties associated with uncertain tax positions in other expenses in the statements of income. At March 31, 2018 and September 30, 2017 , we did not have an accrual of interest expense or penalties related to uncertain tax positions.

 

WGL files a consolidated federal tax return and various other state returns. We are no longer subject to income tax examinations by the Internal Revenue Service for years ended prior to September 30, 2013. Substantially all state income tax years in major jurisdictions are closed for years ended prior to September 30, 2013.

 

The Tax Act was enacted on December 22, 2017. The Tax Act substantially reforms the Tax Code. Among other things, the Tax Act reduced the federal corporate income tax rate from a top marginal rate of 35% to a flat rate of 21% . The Tax Act also denies bonus depreciation to regulated public utilities and imposes limitations on the amount of interest expense which may be deducted by unregulated operations. ASC Topic 740 requires companies to recognize the impacts of a change in tax law or tax rates in the period of enactment.

 

22











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

On December 22, 2017, after enactment of the Tax Act, the SEC Staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of GAAP when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the necessary accounting. At March 31, 2018, we have not completed our accounting for the tax effects of enactment of the Tax Act and have followed the guidance issued in SAB 118. SAB 118 expresses the Staff’s views on how ASC Topic 740 should be applied in the context of the Tax Act. It allows entities to take a reasonable period of time to measure and recognize the effects of the Tax Act, while requiring robust disclosures during that period. Under this guidance, registrants record the effects of all items for which the accounting is complete. To the extent a company has not completed the accounting for the effects of the Act, it may record reasonable estimates as provisional amounts. The recorded provisional amounts remain subject to adjustment within the measurement period. The measurement period begins in the reporting period that includes the Tax Act’s enactment date and continues until such time as the accounting can be completed, not to exceed one year from the date of enactment. To the extent a company cannot reasonably estimate the effects of the Tax Act, it should apply the provisions of the tax law that were in effect immediately prior to enactment. SAB 118 requires disclosure of any measurement period adjustments, both provisional and final, and the effect of measurement period adjustments on the effective tax rate. All measurement period adjustments recorded in the six months ended March 31, 2018 are provisional amounts.

 

Qualitative disclosures of items impacting the provision for tax expense:

 

Bonus depreciation . Under the Tax Act, regulated public utility property is generally ineligible for bonus depreciation and is depreciated under MACRS while non-utility property is generally subject to 100% bonus depreciation. We have considered all public utility property placed in service after October 1, 2017 to be ineligible for bonus depreciation. The impact of changing the depreciation methodology for public utility property from bonus depreciation to MACRS in the current fiscal year is reasonably estimated to be a reduction in the amount of $ 88 million in tax depreciation expense based on current assumptions of assets to be placed in service, when compared to the amount of depreciation expense under the previous rules, and a decrease to the forecasted taxable loss. A deferred tax amount related to this depreciation was not recorded; therefore, there is no associated deferred tax amount that was required to be re-measured.

 

Decrease in regulated revenues : In January 2018, Washington Gas filed applications for approval to reduce the distribution rates it charges customers in Maryland, Virginia and the District of Columbia to reflect the impact of the Tax Act. These applications proposed to reduce rates in these jurisdictions by a combined amount of $ 39.5 million annually, until base rates are reestablished in a general rate case. Refer to Note 13 - Commitments and Contingencies for more information on the status of these applications. As described further below, the portion of this reduction in regulated revenues represented by the re-measurement of deferred tax assets and liabilities was recorded as a net regulatory liability under ASC 980, Regulated Operations. The net regulatory liability recorded is the amount we consider probable of regulatory treatment and will be refunded to customers in future periods. In addition, a portion of this reduction in regulated revenues relates to the federal tax expense included in current base rates that needs to be adjusted to the new federal rate of 21% effective January 1, 2018. As a result, regulated revenues were reduced by $ 18.7 million for the three months ended March 31, 2018.

 

In addition, amounts collected under other revenue mechanisms remain subject to adjustment for the decrease in the federal tax rate beginning January 1, 2018.

 

Items for which the accounting is not yet complete as of the end of the quarter but for which we have recorded provisional amounts at March 31, 2018 which are subject to adjustment during the measurement period:

 

Re-measurement of deferred tax assets and liabilities . Under ASC 740, the tax rate or rates that are used to measure deferred tax liabilities and deferred tax assets are the enacted tax rates expected to apply to taxable income in the years that the liability is expected to be settled or the asset recovered. As a result of using a 21% tax rate for our first quarter of fiscal year 2018 income tax provision, we did not create new amounts requiring re-measurement in the first quarter of fiscal year 2018. Therefore, we re-measured the deferred tax balances at September 30, 2017. The re-measurement of our deferred tax assets and liabilities includes the re-measurement of our cumulative net operating loss deferred tax asset (“NOL DTA”) as of September 30, 2017.

 

The effect of the re-measurement at a federal tax rate of 21% resulted in a net decrease in consolidated deferred tax liabilities in the amount of $ 485.3 million , including net tax gross-up. Of this amount, $ 418.8 million is attributable to the regulated utility and $ 66.5 million is attributable to non-utility operations. Of the amount related to utility operations, the net decrease in plant-related deferred tax liabilities was $ 319.4 million before tax gross-up. In addition, an increase in income tax expense of $ 6.2 million attributable to the regulated utility was recorded as a discrete item. Of the amount related to non-utility operations, a $ 66.5 million tax benefit was recorded as a discrete item as a result of the re-measurement of deferred tax liabilities. In addition, the re-measurement of the deferred tax liability associated with the Company’s uncertain tax position was a decrease in the amount of $ 14.8 million . A reserve for uncertain tax benefits related to prior years would generally not be re-measured if the tax exposure related to prior years. However, WGLH’s reserve for uncertain tax benefits relates solely to repair deductions for which the tax consequence of any disallowed deductions related to these timing differences is expected to be prospective only.

 

23











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Consolidated deferred tax assets and liabilities were re-measured at a federal rate of 21%, based on the expectation that we will experience a taxable loss in the current fiscal year, increasing our net operating loss carryforward from the prior year. In the event taxable income is reported for the current fiscal year, we would need to apply a blended federal tax rate of 24.5% to any tax owed in the current period, before the utilization of any net operating loss carryforward to offset all or a portion of the taxable income on which federal tax would otherwise be owed. Additionally, the portion of the temporary differences settling or reversing in the first quarter of our fiscal year 2018 would be re-measured at the rate of 24.5% instead of 21%. We have recorded provisional estimates based on current information as the Company continues to work towards refinement and completion of the income tax provision for the current period. Under ASC 980, we recorded a net increase to the regulatory liability for excess deferred income taxes in the amount of $ 431.0 million including tax gross-up, and a net increase in regulatory assets in the amount of $ 5.9 million , for a net increase in regulatory liabilities in the amount of $ 425.1 million . We recorded a decrease in the regulatory asset for flow-through in the amount of $ 22.4 million , including tax gross-up; and a regulatory asset for the re-measurement of non-plant excess deferred taxes and the net operating loss carryforward deferred tax asset in the amount of $ 28.3 million , including tax gross-up, for a net increase in regulatory assets in the amount of $ 5.9 million .

 

All provisional amounts recorded for re-measurement remain subject to adjustment within the measurement period pending the preparation and analysis of additional information. In addition, we have recorded a provisional estimate but have not fully completed the accounting for the tax sharing impacts of the re-measurement of the deferred tax assets and deferred tax liabilities.

 

Existing current or deferred tax amounts for which the income tax effects of the Tax Act have not been completed:

 

Accounting for the tax basis adjustment for ITC.  Under prior tax law and under the Tax Act, the basis of property must be reduced by one-half of the investment tax credits claimed thereon. Under GAAP, we adjust the book basis and amortize the investment tax credits over the book life of the associated assets. We have not yet completed the accounting for the effects of the Tax Act on the adjustment of book basis and have not recast the amortization pending additional analysis.

 

NOTE 8. DERIVATIVE AND WEATHER-RELATED INSTRUMENTS

DERIVATIVE INSTRUMENTS

Regulated Utility Operations

 

Washington Gas enters into contracts that qualify as derivative instruments and are accounted for under ASC Topic 815. These derivative instruments are recorded at fair value on our balance sheets and Washington Gas does not currently designate any derivatives as hedges under ASC Topic 815. Washington Gas’ derivative instruments relate to: (i)  Washington Gas’ asset optimization program; (ii)  managing price risk associated with the purchase of gas to serve utility customers and (iii)  managing interest rate risk.

 

Asset Optimization. Washington Gas optimizes the value of its long-term natural gas transportation and storage capacity resources during periods when these resources are not being used to physically serve utility customers. Specifically, Washington Gas utilizes its transportation capacity assets to benefit from favorable natural gas prices between different geographic locations and utilizes its storage capacity assets to benefit from favorable natural gas prices between different time periods. As part of this asset optimization program, Washington Gas enters into physical and financial derivative transactions in the form of forward, futures and option contracts with the primary objective of securing operating margins that Washington Gas will ultimately realize. The derivative transactions entered into under this program are subject to mark-to-market accounting treatment under ASC 820.

 

Regulatory sharing mechanisms provide for the annual realized profit from these transactions to be shared between Washington Gas’ shareholders and customers; therefore, changes in fair value are recorded through earnings, or as regulatory assets or liabilities to the extent that it is probable that realized gains and losses associated with these derivative transactions will be included in the rates charged to customers when they are realized. Unrealized gains and losses recorded to earnings may cause significant period-to-period volatility; this volatility does not change the operating margins that Washington Gas expects to ultimately realize from these transactions through the use of its storage and transportation capacity resources.

 

All physically and financially settled contracts under our asset optimization program are reported on a net basis in the statements of income in “Utility cost of gas.” Total net margins recorded to “Utility cost of gas” after sharing and management fees associated with all asset optimization transactions for the three months ended March 31, 2018 were a net gain of $18.8 million , including an unrealized gain of $12.3 million . During the three months ended March 31, 2017 , we recorded a net gain of $28.9 million , including an unrealized gain of $21.0 million . Total net margins recorded for the six months ended March 31, 2018 was a net gain of $24.6 million , including an unrealized gain of $10.8 million . During the six months ended March 31, 2017 , we recorded a net gain of $53.4 million , including an unrealized gain of $36.5 million .

 

24











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Managing Price Risk. To manage price risk associated with acquiring natural gas supply for utility customers, Washington Gas enters into physical and financial derivative transactions in the form of forward, option and other contracts, as authorized by its regulators. Any gains and losses associated with these derivatives are recorded as regulatory liabilities or assets, respectively, to reflect the rate treatment for these economic hedging activities.

 

Managing Interest-Rate Risk . Washington Gas may utilize derivative instruments that are designed to minimize the risk of interest-rate volatility associated with planned issuances of debt securities. Any gains and losses associated with these types of derivatives are recorded as regulatory liabilities or assets, respectively, and amortized in accordance with regulatory requirements, typically over the life of the related debt.

 

Non-Utility Operations

 

Trading Activities. WGL Midstream enters into derivative contracts for the purpose of optimizing its storage and transportation capacity as well as managing the transportation and storage assets on behalf of third parties. WGL Midstream does not designate these derivatives as hedges under ASC Topic 815; therefore, changes in the fair value of these derivative instruments are reflected in the earnings of our non-utility operations and may cause significant period-to-period volatility in earnings.

 

Managing Price Risk. WGL Energy Services enters into certain derivative contracts as part of its strategy to manage the price risk associated with the sale and purchase of natural gas and electricity. WGL Energy Services elects “normal purchases and normal sales” treatment for a portion of these physical contracts related to the purchase of natural gas and electricity to serve its customers, and, therefore, they are not subject to the fair value accounting requirements of ASC Topic 815. Derivative instruments not designated as ‘‘normal purchases and normal sales” are recorded at fair value on our consolidated balance sheets, and changes in the fair value of these derivative instruments are reflected in the earnings of our non-utility operations, which may cause significant period-to-period volatility in earnings. WGL Energy Services does not designate derivatives as hedges under ASC Topic 815.

 

Managing Interest-Rate Risk . WGL utilizes derivative instruments that are designed to limit the risk of interest-rate volatility associated with future debt issuances.

 

WGL had $250 million of 30-year forward starting interest rate swaps which settled in January 2018. Through December 2016, WGL had designated these interest rate swaps as cash flow hedges in anticipation of a 30-year debt issuance in January 2018, and reported the effective portion of changes in fair value as a component of other comprehensive income (loss). As a result of certain covenants related to the proposed merger with AltaGas, in January 2017, WGL de-designated these hedges as it was no longer probable that the debt would be issued and any further changes in the fair value of the interest rate swaps were recorded in interest expense. WGL believes that the debt issuance is still reasonably possible to occur, therefore, the fair value of the swaps prior to the dedesignation in the amount of $ 6.4 million is recorded in accumulated other comprehensive income at March 31, 2018 . In January 2018, WGL settled these swaps for a gain of $13.8 million . For the three and six months ended March 31, 2018 , we recorded income of $13.2 million and $12.8 million , respectively, to interest expense related to these swaps. Refer to Note 17 —Planned Merger with AltaGas Ltd. for a discussion of the proposed merger.

 

WGL’s comprehensive income (loss) also includes amounts for settled hedges related to prior debt issuances, which are being amortized to income over the life of the outstanding debt. The amortization was minimal for the six months ended March 31, 2018 and 2017 .

 

Consolidated Operations

 

Reflected in the tables below is information for WGL as well as Washington Gas. The information for WGL includes derivative instruments for both utility and non-utility operations.

 

25











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

At March 31, 2018 and September 30, 2017, respectively, the absolute notional amounts of our derivatives were as follows:

 

Absolute Notional Amounts

of Open Positions on Derivative Instruments

 

	
Derivative transactions
    	
 
    	
WGL Holdings, Inc.
    	
 
    	
Washington Gas
    	
 
    
	
 
    	
 
    	
Notional Amounts
    	
 
    
	
March 31,   2018
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural   Gas   (In millions of therms)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Asset   optimization & trading
    	
 
    	
22,841.8
    	
 
    	
11,938.0
    	
 
    
	
Retail sales
    	
 
    	
127.6
    	
 
    	
—
    	
 
    
	
Other   risk-management activities
    	
 
    	
1,530.3
    	
 
    	
1,126.0
    	
 
    
	
Electricity     (In millions of kWhs)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Retail sales
    	
 
    	
8,880.6
    	
 
    	
—
    	
 
    
	
Other   risk-management activities (a)
    	
 
    	
18,745.7
    	
 
    	
—
    	
 
    
	
Interest   Rate Swaps   (In millions of dollars)
    	
 
    	
$
    	
—
    	
 
    	
—
    	
 
    
	
September 30,   2017
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural   Gas   (In millions of therms)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Asset   optimization & trading
    	
 
    	
21,663.5
    	
 
    	
11,223.0
    	
 
    
	
Retail sales
    	
 
    	
124.3
    	
 
    	
—
    	
 
    
	
Other   risk-management activities
    	
 
    	
1,546.7
    	
 
    	
1,181.0
    	
 
    
	
Electricity     (In millions of kWhs)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Retail sales
    	
 
    	
10,011.7
    	
 
    	
—
    	
 
    
	
Other   risk-management activities (a)
    	
 
    	
22,962.1
    	
 
    	
—
    	
 
    
	
Interest   Rate Swaps   (In millions of dollars)
    	
 
    	
$
    	
250.0
    	
 
    	
—
    	
 
    


 




(a) Comprised primarily of financial swaps, financial transmission rights and physical forward purchases.

 

The following tables present the balance sheet classification for all derivative instruments as of March 31, 2018 and September 30, 2017 .

 

WGL Holdings, Inc.

Balance Sheet Classification of Derivative Instruments (b)

 

(In millions)

 

	
As of March 31, 2018
    	
 
    	
Gross
   Derivative
   Assets
    	
 
    	
Gross
   Derivative
   Liabilities
    	
 
    	
Netting of
   Collateral
    	
 
    	
Total (a)
    	
 
    
	
Current   Assets—Derivatives
    	
 
    	
$
    	
17.7
    	
 
    	
$
    	
(7.7
    	
)
    	
$
    	
—
    	
 
    	
$
    	
10.0
    	
 
    
	
Deferred   Charges and Other Assets—Derivatives
    	
 
    	
31.0
    	
 
    	
(1.4
    	
)
    	
—
    	
 
    	
29.6
    	
 
    
	
Current   Liabilities—Derivatives
    	
 
    	
5.4
    	
 
    	
(37.8
    	
)
    	
6.2
    	
 
    	
(26.2
    	
)
    
	
Deferred   Credits—Derivatives
    	
 
    	
16.4
    	
 
    	
(126.1
    	
)
    	
5.7
    	
 
    	
(104.0
    	
)
    
	
Total
    	
 
    	
$
    	
70.5
    	
 
    	
$
    	
(173.0
    	
)
    	
$
    	
11.9
    	
 
    	
$
    	
(90.6
    	
)
    
	
As of   September 30, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   Assets—Derivatives
    	
 
    	
$
    	
26.6
    	
 
    	
$
    	
(11.3
    	
)
    	
$
    	
—
    	
 
    	
$
    	
15.3
    	
 
    
	
Deferred Charges   and Other Assets—Derivatives
    	
 
    	
38.9
    	
 
    	
(0.4
    	
)
    	
(0.1
    	
)
    	
38.4
    	
 
    
	
Accounts payable
    	
 
    	
1.0
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1.0
    	
 
    
	
Current   Liabilities—Derivatives
    	
 
    	
10.9
    	
 
    	
(57.0
    	
)
    	
2.1
    	
 
    	
(44.0
    	
)
    
	
Deferred   Credits—Derivatives
    	
 
    	
19.2
    	
 
    	
(148.8
    	
)
    	
7.0
    	
 
    	
(122.6
    	
)
    
	
Total
    	
 
    	
$
    	
96.6
    	
 
    	
$
    	
(217.5
    	
)
    	
$
    	
9.0
    	
 
    	
$
    	
(111.9
    	
)
    


 

26











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Washington Gas Light Company

Balance Sheet Classification of Derivative Instruments (b)

 

(In millions)

 

	
As of March 31, 2018
    	
 
    	
Gross
   Derivative
   Assets
    	
 
    	
Gross
   Derivative
   Liabilities
    	
 
    	
Total (a)
    	
 
    
	
Current   Assets—Derivatives
    	
 
    	
$
    	
3.9
    	
 
    	
$
    	
(2.6
    	
)
    	
$
    	
1.3
    	
 
    
	
Deferred   Charges and Other Assets—Derivatives
    	
 
    	
14.4
    	
 
    	
—
    	
 
    	
14.4
    	
 
    
	
Current   Liabilities—Derivatives
    	
 
    	
—
    	
 
    	
(17.4
    	
)
    	
(17.4
    	
)
    
	
Deferred   Credits—Derivatives
    	
 
    	
0.1
    	
 
    	
(92.9
    	
)
    	
(92.8
    	
)
    
	
Total
    	
 
    	
$
    	
18.4
    	
 
    	
$
    	
(112.9
    	
)
    	
$
    	
(94.5
    	
)
    
	
As of   September 30, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   Assets—Derivatives
    	
 
    	
$
    	
7.5
    	
 
    	
$
    	
(2.4
    	
)
    	
$
    	
5.1
    	
 
    
	
Deferred Charges   and Other Assets—Derivatives
    	
 
    	
16.5
    	
 
    	
(0.3
    	
)
    	
16.2
    	
 
    
	
Current   Liabilities—Derivatives
    	
 
    	
—
    	
 
    	
(30.3
    	
)
    	
(30.3
    	
)
    
	
Deferred   Credits—Derivatives
    	
 
    	
—
    	
 
    	
(112.3
    	
)
    	
(112.3
    	
)
    
	
Total
    	
 
    	
$
    	
24.0
    	
 
    	
$
    	
(145.3
    	
)
    	
$
    	
(121.3
    	
)
    


 




(a) WGL has elected to offset the fair value of recognized derivative instruments against the right to reclaim or the obligation to return collateral for derivative instruments executed under the same master netting arrangement in accordance with ASC 815. All recognized derivative contracts and associated financial collateral subject to a master netting arrangement or similar that is eligible for offset under ASC 815 have been presented net in the balance sheet.

 

(b) We did not have any derivative instruments outstanding that were designated as hedging instruments at March 31, 2018 or September 30, 2017 .

 

The following table presents all gains and losses associated with derivative instruments for the three and six months ended March 31, 2018 and 2017 .

 

Gains and Losses on Derivative Instruments

 

(In millions)

 

	
 
    	
 
    	
WGL Holdings, Inc.
    	
 
    	
Washington Gas
    	
 
    
	
Three Months Ended March 31,
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
Recorded   to income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
3.8
    	
 
    	
$
    	
54.2
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    
	
Utility cost of   gas
    	
 
    	
3.0
    	
 
    	
19.8
    	
 
    	
3.0
    	
 
    	
19.8
    	
 
    
	
Non-utility cost   of energy-related sales
    	
 
    	
(20.6
    	
)
    	
(4.6
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Interest expense
    	
 
    	
(12.5
    	
)
    	
2.6
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Recorded   to regulatory assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gas costs
    	
 
    	
3.5
    	
 
    	
36.6
    	
 
    	
3.5
    	
 
    	
36.6
    	
 
    
	
Total
    	
 
    	
$
    	
(22.8
    	
)
    	
$
    	
108.6
    	
 
    	
$
    	
6.5
    	
 
    	
$
    	
56.4
    	
 
    


 

	
Six Months Ended March 31,
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
Recorded   to income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
(3.7
    	
)
    	
$
    	
17.5
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    
	
Utility cost of   gas
    	
 
    	
0.4
    	
 
    	
34.5
    	
 
    	
0.4
    	
 
    	
34.5
    	
 
    
	
Non-utility cost   of energy-related sales
    	
 
    	
1.6
    	
 
    	
26.7
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Interest expense
    	
 
    	
(12.9
    	
)
    	
2.5
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Recorded   to regulatory assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gas costs
    	
 
    	
(2.3
    	
)
    	
56.2
    	
 
    	
(2.3
    	
)
    	
56.2
    	
 
    
	
Recorded   to other comprehensive income
    	
 
    	
0.1
    	
 
    	
49.5
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Total
    	
 
    	
$
    	
(16.8
    	
)
    	
$
    	
186.9
    	
 
    	
$
    	
(1.9
    	
)
    	
$
    	
90.7
    	
 
    


 

27









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Collateral

 

WGL utilizes standardized master netting agreements, which facilitate the netting of cash flows into a single net exposure for a given counterparty. As part of these master netting agreements, cash, letters of credit and parent company guarantees may be required to be posted or obtained from counterparties in order to mitigate credit risk related to both derivatives and non-derivative positions. Under WGL’s offsetting policy, collateral balances are offset against the related counterparties’ derivative positions to the extent the application would not result in the over-collateralization of those derivative positions on the balance sheet.

 

The table below presents collateral not offset against derivative assets and liabilities at March 31, 2018 and September 30, 2017 , respectively.

 

Collateral Not Offset Against Derivative Assets and Liabilities (In millions)

 

	
March 31, 2018
    	
 
    	
Collateral deposits posted with
   counterparties
    	
 
    	
Cash collateral held representing an
   obligation
    	
 
    
	
Washington   Gas
    	
 
    	
$
    	
12.4
    	
 
    	
$
    	
3.1
    	
 
    
	
WGL   Energy Services
    	
 
    	
30.5
    	
 
    	
—
    	
 
    
	
WGL   Midstream
    	
 
    	
14.3
    	
 
    	
0.4
    	
 
    
	
September 30,   2017
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Washington Gas
    	
 
    	
$
    	
3.7
    	
 
    	
$
    	
0.1
    	
 
    
	
WGL Energy   Services
    	
 
    	
23.7
    	
 
    	
—
    	
 
    
	
WGL Midstream
    	
 
    	
44.4
    	
 
    	
1.6
    	
 
    


 

Any collateral posted that is not offset against derivative assets and liabilities is included in “Other prepayments” in the accompanying condensed balance sheets. Collateral received and not offset against derivative assets and liabilities is included in “Customer deposits and advance payments” in the accompanying balance sheets.

 

Certain derivative instruments of WGL, Washington Gas, WGL Energy Services and WGL Midstream contain contract provisions that require collateral to be posted if the credit rating of Washington Gas or WGL falls below certain levels or if counterparty exposure to WGL, Washington Gas, WGL Energy Services or WGL Midstream exceeds a certain level (credit-related contingent features). Due to counterparty exposure levels, at March 31, 2018 , WGL Energy Services posted $11.9 million of collateral related to its derivative liabilities that contained credit-related contingent features. At September 30, 2017 , WGL Energy Services posted $8.6 million of collateral related to these aforementioned derivative liabilities. At March 31, 2018 and September 30, 2017 , WGL was not required to post collateral related to a derivative liability that contained a credit-related contingent feature. At both March 31, 2018 and September 30, 2017 , Washington Gas and WGL Midstream were not required to post any collateral related to their respective derivative liabilities that contained credit-related contingent features. The following table shows the aggregate fair value of all derivative instruments with credit-related contingent features that are in a liability position, as well as the maximum amount of collateral that would be required if the most intrusive credit-risk-related contingent features underlying these agreements were triggered on March 31, 2018 and September 30, 2017 , respectively.

 

Potential Collateral Requirements for Derivative Liabilities

with Credit-Risk-Contingent Features

 

	
(In millions)
    	
 
    	
WGL Holdings, Inc.
    	
 
    	
Washington Gas
    	
 
    
	
March 31,   2018
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Derivative   liabilities with credit-risk-contingent features
    	
 
    	
$
    	
13.3
    	
 
    	
$
    	
0.5
    	
 
    
	
Maximum   potential collateral requirements
    	
 
    	
$
    	
7.9
    	
 
    	
$
    	
0.5
    	
 
    
	
September 30,   2017
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Derivative   liabilities with credit-risk-contingent features
    	
 
    	
$
    	
25.0
    	
 
    	
$
    	
2.8
    	
 
    
	
Maximum   potential collateral requirements
    	
 
    	
$
    	
21.9
    	
 
    	
$
    	
2.8
    	
 
    


 

We do not enter into derivative contracts for speculative purposes.

 

28











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Concentration of Credit Risk

 

We are exposed to credit risk from derivative instruments with wholesale counterparties, which is represented by the fair value of these instruments at the reporting date. We actively monitor and work to minimize counterparty concentration risk through various practices. At March 31, 2018 , two counterparties represented over 10% of Washington Gas’ credit exposure to wholesale derivative counterparties for a total credit risk of $20.2 million ; three counterparties each represented over 10% of WGL Energy Services’ credit exposure to wholesale counterparties for a total credit risk of $0.7 million ; and one counterparty represented over 10% of WGL Midstream’s credit exposure to wholesale counterparties for a total credit risk of $15.3 million .

 

WEATHER-RELATED INSTRUMENTS

 

WGL Energy Services utilizes weather-related instruments for managing the financial effects of weather risks. These instruments cover a portion of WGL Energy Services’ estimated revenue or energy-related cost exposure to variations in heating or cooling degree days. These contracts provide for payment to WGL Energy Services of a fixed-dollar amount for every degree day over or under specific levels during the calculation period depending upon the type of contract executed. For the three months ended March 31, 2018 and 2017 , WGL Energy Services recorded a pre-tax gain of $4.7 million and $3.2 million , respectively. During the six months ended March 31, 2018 and 2017 , WGL Energy Services recorded pre-tax gains of $3.9 million and $1.8 million , respectively, related to these instruments included in “Non-utility cost of energy related sales” in the accompanying condensed consolidated statements of income.

 

NOTE 9. FAIR VALUE MEASUREMENTS

 

Recurring Basis

 

We measure the fair value of our financial assets and liabilities using a combination of the income and market approaches in accordance with ASC Topic 820. These financial assets and liabilities primarily consist of derivatives recorded on our balance sheet under ASC Topic 815 and short-term investments, commercial paper and long-term debt outstanding required to be disclosed at fair value. Under ASC Topic 820, fair value is defined as the exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To value our financial instruments, we use market data or assumptions that market participants would use, including assumptions about credit risk (both our own credit risk and the counterparty’s credit risk) and the risks inherent in the inputs to valuation.

 

We enter into derivative contracts in the futures and over-the-counter (OTC) wholesale and retail markets. These markets are the principal markets for the respective wholesale and retail contracts. Our relevant market participants are our existing counterparties and others who have participated in energy transactions at our delivery points. These participants have access to the same market data as WGL. Valuations are generally based on pricing service data or indicative broker quotes depending on the market location. We measure the net credit exposure at the counterparty level where the right to set-off exists. The net exposure is determined using the mark-to-market exposure adjusted for collateral, letters of credit and parent guarantees. We use published default rates from Standard & Poor’s Ratings Services and Moody’s Investors Service as inputs for determining credit adjustments.

 

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy under ASC Topic 820 are described below:

 

Level 1. Level 1 of the fair value hierarchy consists of assets or liabilities that are valued using observable inputs based upon unadjusted quoted prices in active markets for identical assets or liabilities at the reporting date. WGL did not have any Level 1 derivatives at March 31, 2018 or September 30, 2017 .

 

Level 2. Level 2 of the fair value hierarchy consists of assets or liabilities that are valued using directly or indirectly observable inputs either corroborated with market data or based on exchange traded market data. Level 2 includes fair values based on industry-standard valuation techniques that consider various assumptions: (i)  quoted forward prices, including the use of mid-market pricing within a bid/ask spread; (ii)  discount rates; (iii)  implied volatility and (iv)  other economic factors. Substantially all of these assumptions are observable throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the relevant market. At March 31, 2018 and September 30, 2017 , Level 2 financial assets and liabilities included energy-related physical and financial derivative transactions such as forward, option and other contracts for deliveries at active market locations, as well as our interest rate swaps.

 

Level 3. Level 3 of the fair value hierarchy consists of assets or liabilities that are valued using significant unobservable inputs at the reporting date. These unobservable assumptions reflect our assumptions about estimates that market participants would use in pricing the asset or liability, including natural gas basis prices, annualized volatilities of natural gas prices, and electricity congestion prices.

 

29











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

A significant change to any one of these inputs in isolation could result in a significant upward or downward fluctuation in the fair value measurement. These inputs may be used with industry standard valuation methodologies that result in our best estimate of fair value for the assets or liabilities at the reporting date.

 

Our Risk Analysis and Mitigation (RA&M) Group determines the valuation policies and procedures. The RA&M Group reports to WGL’s Chief Financial Officer. In accordance with WGL’s valuation policy, we may utilize a variety of valuation methodologies to determine the fair value of Level 3 derivative contracts, including internally developed valuation inputs and pricing models. The prices used in our valuations are corroborated using multiple pricing sources, and we periodically conduct assessments to determine whether each valuation model is appropriate for its intended purpose. The RA&M Group also evaluates changes in fair value measurements on a daily basis.

 

At March 31, 2018 and September 30, 2017 , Level 3 derivative assets and liabilities included: (i)  physical contracts valued at illiquid market locations with no observable market data; (ii)  long-dated positions where observable pricing is not available over the majority of the life of the contract; (iii)  contracts valued using historical spot price volatility assumptions and (iv)  valuations using indicative broker quotes for inactive market locations.

 

The following tables set forth financial instruments recorded at fair value as of March 31, 2018 and September 30, 2017 , respectively. A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy.

 

WGL Holdings, Inc.

Fair Value Measurements Under the Fair Value Hierarchy

 

	
(In millions)
    	
 
    	
Level 1
    	
 
    	
Level 2
    	
 
    	
Level 3
    	
 
    	
Total
    	
 
    
	
At   March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural   gas related derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
13.3
    	
 
    	
$
    	
48.1
    	
 
    	
$
    	
61.4
    	
 
    
	
Electricity   related derivatives
    	
 
    	
—
    	
 
    	
0.6
    	
 
    	
8.5
    	
 
    	
9.1
    	
 
    
	
Total   Assets
    	
 
    	
$
    	
—
    	
 
    	
$
    	
13.9
    	
 
    	
$
    	
56.6
    	
 
    	
$
    	
70.5
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural   gas related derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(18.2
    	
)
    	
$
    	
(133.1
    	
)
    	
$
    	
(151.3
    	
)
    
	
Electricity   related derivatives
    	
 
    	
—
    	
 
    	
(2.9
    	
)
    	
(18.8
    	
)
    	
(21.7
    	
)
    
	
Total   Liabilities
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(21.1
    	
)
    	
$
    	
(151.9
    	
)
    	
$
    	
(173.0
    	
)
    
	
At   September 30, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas   related derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
18.4
    	
 
    	
$
    	
52.8
    	
 
    	
$
    	
71.2
    	
 
    
	
Electricity   related derivatives
    	
 
    	
—
    	
 
    	
0.1
    	
 
    	
15.5
    	
 
    	
$
    	
15.6
    	
 
    
	
Interest rate derivatives
    	
 
    	
—
    	
 
    	
9.8
    	
 
    	
—
    	
 
    	
$
    	
9.8
    	
 
    
	
Total Assets
    	
 
    	
$
    	
—
    	
 
    	
$
    	
28.3
    	
 
    	
$
    	
68.3
    	
 
    	
$
    	
96.6
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas   related derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(15.5
    	
)
    	
$
    	
(167.4
    	
)
    	
$
    	
(182.9
    	
)
    
	
Electricity   related derivatives
    	
 
    	
—
    	
 
    	
(4.1
    	
)
    	
(21.7
    	
)
    	
(25.8
    	
)
    
	
Interest rate   derivatives
    	
 
    	
—
    	
 
    	
(8.8
    	
)
    	
—
    	
 
    	
(8.8
    	
)
    
	
Total   Liabilities
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(28.4
    	
)
    	
$
    	
(189.1
    	
)
    	
$
    	
(217.5
    	
)
    


 

30











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Washington Gas Light Company

Fair Value Measurements Under the Fair Value Hierarchy

 

	
(In millions)
    	
 
    	
Level 1
    	
 
    	
Level 2
    	
 
    	
Level 3
    	
 
    	
Total
    	
 
    
	
At   March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural   gas related derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
3.1
    	
 
    	
$
    	
15.3
    	
 
    	
$
    	
18.4
    	
 
    
	
Total   Assets
    	
 
    	
$
    	
—
    	
 
    	
$
    	
3.1
    	
 
    	
$
    	
15.3
    	
 
    	
$
    	
18.4
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural   gas related derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(8.6
    	
)
    	
$
    	
(104.3
    	
)
    	
$
    	
(112.9
    	
)
    
	
Total   Liabilities
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(8.6
    	
)
    	
$
    	
(104.3
    	
)
    	
$
    	
(112.9
    	
)
    
	
At   September 30, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas related   derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
7.0
    	
 
    	
$
    	
17.0
    	
 
    	
$
    	
24.0
    	
 
    
	
Total Assets
    	
 
    	
$
    	
—
    	
 
    	
$
    	
7.0
    	
 
    	
$
    	
17.0
    	
 
    	
$
    	
24.0
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas   related derivatives
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(5.7
    	
)
    	
$
    	
(139.6
    	
)
    	
$
    	
(145.3
    	
)
    
	
Total   Liabilities
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(5.7
    	
)
    	
$
    	
(139.6
    	
)
    	
$
    	
(145.3
    	
)
    


 

The following table includes quantitative information about the significant unobservable inputs used in the fair value measurement of our Level 3 financial instruments and the respective fair values of the net derivative asset and liability positions, by contract type, as of March 31, 2018 and September 30, 2017 .

 

31











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Quantitative Information about Level 3 Fair Value Measurements

 

	
(In millions)
    	
 
    	
Net Fair Value
   March 31, 2018
    	
 
    	
Valuation Techniques
    	
 
    	
Unobservable Inputs
    	
 
    	
Range
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
WGL   Holdings, Inc.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas   related derivatives
    	
 
    	
$
    	
(79.3
    	
)
    	
Discounted Cash Flow
    	
 
    	
Natural Gas Basis Price (per dekatherm)
    	
 
    	
$(1.030) - $2.400
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Option Model
    	
 
    	
Natural Gas Basis Price (per dekatherm)
    	
 
    	
$(1.007) - $2.400
    	
 
    
	
 
    	
 
    	
$
    	
(5.7
    	
)
    	
 
    	
 
    	
Annualized Volatility of Spot Market Natural Gas
    	
 
    	
30.2% - 900.9%
    	
 
    
	
Electricity   related derivatives
    	
 
    	
$
    	
(10.3
    	
)
    	
Discounted Cash Flow
    	
 
    	
Electricity Congestion Price (per megawatt hour)
    	
 
    	
$(2.977) - $57.400
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Washington   Gas Light Company
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas   related derivatives
    	
 
    	
$
    	
(89.0
    	
)
    	
Discounted Cash Flow
    	
 
    	
Natural Gas Basis Price (per dekatherm)
    	
 
    	
$(0.9300) - $0.216
    	
 
    


 

	
(In millions)
    	
 
    	
Net Fair Value September 30, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
WGL   Holdings, Inc.
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas   related derivatives
    	
 
    	
$
    	
(112.4
    	
)
    	
Discounted Cash Flow
    	
 
    	
Natural Gas Basis Price (per dekatherm)
    	
 
    	
$
    	
(2.095) - $2.805
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Option Model
    	
 
    	
Natural Gas Basis Price (per dekatherm)
    	
 
    	
$
    	
(2.095) - $2.358
    	
 
    
	
 
    	
 
    	
$
    	
(2.2
    	
)
    	
 
    	
 
    	
Annualized Volatility of Spot Market Natural Gas
    	
 
    	
28.7% - 566.8%
    	
 
    
	
Electricity   related derivatives
    	
 
    	
$
    	
(6.2
    	
)
    	
Discounted Cash Flow
    	
 
    	
Electricity Congestion Price (per megawatt hour)
    	
 
    	
$
    	
(2.736) - $56.500
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Washington Gas   Light Company
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Natural gas   related derivatives
    	
 
    	
$
    	
(122.6
    	
)
    	
Discounted Cash Flow
    	
 
    	
Natural Gas Basis Price (per dekatherm)
    	
 
    	
$
    	
(1.928) - $2.805
    	
 
    


 

The following tables are a summary of the changes in the fair value of our derivative instruments that are measured at net fair value on a recurring basis in accordance with ASC Topic 820 using significant Level 3 inputs during the three and six months ended March 31, 2018 and 2017 , respectively.

 

32











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Reconciliation of Fair Value Measurements Using Significant Level 3 Inputs

 

	
 
    	
 
    	
WGL Holdings, Inc.
    	
 
    	
Washington Gas Light
   Company
    	
 
    
	
(In millions)
    	
 
    	
Natural Gas
   Related
   Derivatives
    	
 
    	
Electricity
   Related
   Derivatives
    	
 
    	
Total
    	
 
    	
Total - Natural Gas
   Related
   Derivatives
    	
 
    
	
Three   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Balance   at January 1, 2018
    	
 
    	
$
    	
(116.9
    	
)
    	
$
    	
(12.8
    	
)
    	
$
    	
(129.7
    	
)
    	
$
    	
(125.4
    	
)
    
	
Realized   and unrealized gains (losses)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded   to income
    	
 
    	
(11.0
    	
)
    	
7.6
    	
 
    	
(3.4
    	
)
    	
(0.7
    	
)
    
	
Recorded   to regulatory assets—gas costs
    	
 
    	
(1.1
    	
)
    	
—
    	
 
    	
(1.1
    	
)
    	
(1.1
    	
)
    
	
Transfers   out of Level 3
    	
 
    	
9.1
    	
 
    	
—
    	
 
    	
9.1
    	
 
    	
9.0
    	
 
    
	
Settlements
    	
 
    	
34.9
    	
 
    	
(5.1
    	
)
    	
29.8
    	
 
    	
29.2
    	
 
    
	
Balance   at March 31, 2018
    	
 
    	
$
    	
(85.0
    	
)
    	
$
    	
(10.3
    	
)
    	
$
    	
(95.3
    	
)
    	
$
    	
(89.0
    	
)
    
	
Three Months   Ended March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Balance at   January 1, 2017
    	
 
    	
$
    	
(228.6
    	
)
    	
$
    	
(8.3
    	
)
    	
$
    	
(236.9
    	
)
    	
$
    	
(208.8
    	
)
    
	
Realized and unrealized   gains (losses)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded to   income
    	
 
    	
42.3
    	
 
    	
(0.6
    	
)
    	
41.7
    	
 
    	
14.8
    	
 
    
	
Recorded to   regulatory assets—gas costs
    	
 
    	
30.4
    	
 
    	
—
    	
 
    	
30.4
    	
 
    	
30.4
    	
 
    
	
Transfers into   Level 3
    	
 
    	
(0.6
    	
)
    	
—
    	
 
    	
(0.6
    	
)
    	
(0.6
    	
)
    
	
Transfers out of   Level 3
    	
 
    	
(0.5
    	
)
    	
—
    	
 
    	
(0.5
    	
)
    	
(0.3
    	
)
    
	
Purchases
    	
 
    	
—
    	
 
    	
(0.2
    	
)
    	
(0.2
    	
)
    	
—
    	
 
    
	
Settlements
    	
 
    	
6.8
    	
 
    	
0.7
    	
 
    	
7.5
    	
 
    	
9.1
    	
 
    
	
Balance at   March 31, 2017
    	
 
    	
$
    	
(150.2
    	
)
    	
$
    	
(8.4
    	
)
    	
$
    	
(158.6
    	
)
    	
$
    	
(155.4
    	
)
    
	
Six   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Balance   at October 1, 2017
    	
 
    	
$
    	
(114.6
    	
)
    	
$
    	
(6.2
    	
)
    	
$
    	
(120.8
    	
)
    	
$
    	
(122.6
    	
)
    
	
Realized   and unrealized gains (losses)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded   to income
    	
 
    	
(15.1
    	
)
    	
(1.6
    	
)
    	
(16.7
    	
)
    	
(4.5
    	
)
    
	
Recorded   to regulatory assets—gas costs
    	
 
    	
(8.0
    	
)
    	
—
    	
 
    	
(8.0
    	
)
    	
(8.0
    	
)
    
	
Transfers   into Level 3
    	
 
    	
0.3
    	
 
    	
—
    	
 
    	
0.3
    	
 
    	
0.2
    	
 
    
	
Transfers   out of Level 3
    	
 
    	
8.8
    	
 
    	
—
    	
 
    	
8.8
    	
 
    	
9.0
    	
 
    
	
Purchases
    	
 
    	
—
    	
 
    	
2.5
    	
 
    	
2.5
    	
 
    	
—
    	
 
    
	
Settlements
    	
 
    	
43.6
    	
 
    	
(5.0
    	
)
    	
38.6
    	
 
    	
36.9
    	
 
    
	
Balance   at March 31, 2018
    	
 
    	
$
    	
(85.0
    	
)
    	
$
    	
(10.3
    	
)
    	
$
    	
(95.3
    	
)
    	
$
    	
(89.0
    	
)
    
	
Six Months Ended   March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Balance at   October 1, 2016
    	
 
    	
$
    	
(264.1
    	
)
    	
$
    	
(9.1
    	
)
    	
$
    	
(273.2
    	
)
    	
$
    	
(251.6
    	
)
    
	
Realized and unrealized   gains (losses)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded to   income
    	
 
    	
52.6
    	
 
    	
(4.2
    	
)
    	
48.4
    	
 
    	
31.8
    	
 
    
	
Recorded to   regulatory assets—gas costs
    	
 
    	
52.4
    	
 
    	
—
    	
 
    	
52.4
    	
 
    	
52.4
    	
 
    
	
Transfers into   Level 3
    	
 
    	
(0.8
    	
)
    	
—
    	
 
    	
(0.8
    	
)
    	
(0.4
    	
)
    
	
Transfers out of   Level 3
    	
 
    	
(0.5
    	
)
    	
—
    	
 
    	
(0.5
    	
)
    	
(0.3
    	
)
    
	
Purchases
    	
 
    	
—
    	
 
    	
(3.0
    	
)
    	
(3.0
    	
)
    	
—
    	
 
    
	
Settlements
    	
 
    	
10.2
    	
 
    	
7.9
    	
 
    	
18.1
    	
 
    	
12.7
    	
 
    
	
Balance at   March 31, 2017
    	
 
    	
$
    	
(150.2
    	
)
    	
$
    	
(8.4
    	
)
    	
$
    	
(158.6
    	
)
    	
$
    	
(155.4
    	
)
    


 

33









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Transfers between different levels of the fair value hierarchy may occur based on fluctuations in the valuation inputs and on the level of observable inputs used to value the instruments from period to period. It is our policy to show both transfers into and out of the different levels of the fair value hierarchy at the fair value as of the beginning of the period. Transfers out of Level 3 for the periods presented were due to an increase in observable market inputs, primarily reflecting a decrease in the duration of the contracts being valued. Transfers into Level 3 for the periods presented were due to an increase in unobservable market inputs, primarily pricing points.

 

The table below sets forth the line items on the statements of income to which amounts are recorded for the three and six months ended March 31, 2018 and 2017 , respectively, related to fair value measurements using significant Level 3 inputs.

 

Realized and Unrealized Gains (Losses) Recorded to Income for Level 3 Measurements

 

	
 
    	
 
    	
WGL Holdings, Inc.
    	
 
    	
Washington Gas Light
   Company
    	
 
    
	
(In millions)
    	
 
    	
Natural Gas
   Related
   Derivatives
    	
 
    	
Electricity
   Related
   Derivatives
    	
 
    	
Total
    	
 
    	
Total - Natural Gas Related
   Derivatives
    	
 
    
	
Three   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
(0.9  
    	
)
    	
$
    	
12.3
    	
 
    	
$
    	
11.4
    	
 
    	
$
    	
—
    	
 
    
	
Utility   cost of gas
    	
 
    	
(0.7
    	
)
    	
—
    	
 
    	
(0.7
    	
)
    	
(0.7
    	
)
    
	
Non-utility   cost of energy-related sales
    	
 
    	
(9.4
    	
)
    	
(4.7
    	
)
    	
(14.1
    	
)
    	
—
    	
 
    
	
Total
    	
 
    	
$
    	
(11.0  
    	
)
    	
$
    	
7.6
    	
 
    	
$
    	
(3.4
    	
)
    	
$
    	
(0.7
    	
)
    
	
Three Months   Ended March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
25.5
    	
 
    	
$
    	
2.2
    	
 
    	
$
    	
27.7
    	
 
    	
$
    	
—
    	
 
    
	
Utility cost of   gas
    	
 
    	
14.8
    	
 
    	
—
    	
 
    	
14.8
    	
 
    	
14.8
    	
 
    
	
Non-utility cost   of energy-related sales
    	
 
    	
2.0
    	
 
    	
(2.8
    	
)
    	
(0.8
    	
)
    	
—
    	
 
    
	
Total
    	
 
    	
$
    	
42.3
    	
 
    	
$
    	
(0.6
    	
)
    	
$
    	
41.7
    	
 
    	
$
    	
14.8
    	
 
    
	
Six   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
(7.4  
    	
)
    	
$
    	
(3.8  
    	
)
    	
$
    	
(11.2
    	
)
    	
$
    	
—
    	
 
    
	
Utility   cost of gas
    	
 
    	
(4.5
    	
)
    	
—
    	
 
    	
(4.5
    	
)
    	
(4.5
    	
)
    
	
Non-utility   cost of energy-related sales
    	
 
    	
(3.2
    	
)
    	
2.2
    	
 
    	
(1.0
    	
)
    	
—
    	
 
    
	
Total
    	
 
    	
$
    	
(15.1  
    	
)
    	
$
    	
(1.6
    	
)
    	
$
    	
(16.7
    	
)
    	
$
    	
(4.5
    	
)
    
	
Six Months Ended   March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
15.2
    	
 
    	
$
    	
(8.5
    	
)
    	
$
    	
6.7
    	
 
    	
$
    	
—
    	
 
    
	
Utility cost of   gas
    	
 
    	
31.8
    	
 
    	
—
    	
 
    	
31.8
    	
 
    	
31.8
    	
 
    
	
Non-utility cost   of energy-related sales
    	
 
    	
5.6
    	
 
    	
4.3
    	
 
    	
9.9
    	
 
    	
—
    	
 
    
	
Total
    	
 
    	
$
    	
52.6
    	
 
    	
$
    	
(4.2
    	
)
    	
$
    	
48.4
    	
 
    	
$
    	
31.8
    	
 
    


 

Unrealized gains (losses) attributable to derivative assets and liabilities measured using significant Level 3 inputs were recorded as follows, for the three and six months ended March 31, 2018 and 2017 , respectively.

 

34











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Unrealized Gains (Losses) Recorded for Level 3 Measurements

 

	
 
    	
 
    	
WGL Holdings, Inc.
    	
 
    	
Washington Gas Light
   Company
    	
 
    
	
(In millions)
    	
 
    	
Natural Gas
   Related
   Derivatives
    	
 
    	
Electricity
   Related
   Derivatives
    	
 
    	
Total
    	
 
    	
Total - Natural Gas
   Related Derivatives
    	
 
    
	
Three   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded   to income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
(1.8
    	
)
    	
$
    	
4.8
    	
 
    	
$
    	
3.0
    	
 
    	
$
    	
—
    	
 
    
	
Utility   cost of gas
    	
 
    	
5.0
    	
 
    	
—
    	
 
    	
5.0
    	
 
    	
5.0
    	
 
    
	
Non-utility   cost of energy-related sales
    	
 
    	
(5.8
    	
)
    	
(2.1
    	
)
    	
(7.9
    	
)
    	
—
    	
 
    
	
Recorded   to regulatory assets—gas costs
    	
 
    	
6.6
    	
 
    	
—
    	
 
    	
6.6
    	
 
    	
6.6
    	
 
    
	
Total
    	
 
    	
$
    	
4.0
    	
 
    	
$
    	
2.7
    	
 
    	
$
    	
6.7
    	
 
    	
$
    	
11.6
    	
 
    
	
Three Months   Ended March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded to   income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
24.1
    	
 
    	
$
    	
4.9
    	
 
    	
$
    	
29.0
    	
 
    	
$
    	
—
    	
 
    
	
Utility cost of gas
    	
 
    	
11.3
    	
 
    	
—
    	
 
    	
11.3
    	
 
    	
11.3
    	
 
    
	
Non-utility cost   of energy-related sales
    	
 
    	
—
    	
 
    	
(4.3
    	
)
    	
(4.3
    	
)
    	
—
    	
 
    
	
Recorded to   regulatory assets—gas costs
    	
 
    	
27.3
    	
 
    	
—
    	
 
    	
27.3
    	
 
    	
27.3
    	
 
    
	
Total
    	
 
    	
$
    	
62.7
    	
 
    	
$
    	
0.6
    	
 
    	
$
    	
63.3
    	
 
    	
$
    	
38.6
    	
 
    
	
Six   Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded   to income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
(7.4
    	
)
    	
$
    	
(8.8
    	
)
    	
$
    	
(16.2
    	
)
    	
$
    	
—
    	
 
    
	
Utility   cost of gas
    	
 
    	
2.6
    	
 
    	
—
    	
 
    	
2.6
    	
 
    	
2.6
    	
 
    
	
Non-utility   cost of energy-related sales
    	
 
    	
1.3
    	
 
    	
4.1
    	
 
    	
5.4
    	
 
    	
—
    	
 
    
	
Recorded   to regulatory assets—gas costs
    	
 
    	
1.7
    	
 
    	
—
    	
 
    	
1.7
    	
 
    	
1.7
    	
 
    
	
Total
    	
 
    	
$
    	
(1.8
    	
)
    	
$
    	
(4.7
    	
)
    	
$
    	
(6.5
    	
)
    	
$
    	
4.3
    	
 
    
	
Six Months Ended   March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Recorded to   income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating   revenues—non-utility
    	
 
    	
$
    	
13.5
    	
 
    	
$
    	
(1.0
    	
)
    	
$
    	
12.5
    	
 
    	
$
    	
—
    	
 
    
	
Utility cost of   gas
    	
 
    	
21.6
    	
 
    	
—
    	
 
    	
21.6
    	
 
    	
21.6
    	
 
    
	
Non-utility cost   of energy-related sales
    	
 
    	
—
    	
 
    	
7.4
    	
 
    	
7.4
    	
 
    	
—
    	
 
    
	
Recorded to   regulatory assets—gas costs
    	
 
    	
39.4
    	
 
    	
—
    	
 
    	
39.4
    	
 
    	
39.4
    	
 
    
	
Total
    	
 
    	
$
    	
74.5
    	
 
    	
$
    	
6.4
    	
 
    	
$
    	
80.9
    	
 
    	
$
    	
61.0
    	
 
    


 

35











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following table presents the carrying amounts and estimated fair values of our financial instruments at March 31, 2018 and September 30, 2017 .

 

WGL Holdings, Inc.

Fair Value of Financial Instruments

 

	
 
    	
 
    	
March 31, 2018
    	
 
    	
September 30, 2017
    	
 
    
	
(In millions)
    	
 
    	
Carrying
   Amount
    	
 
    	
Fair Value
    	
 
    	
Carrying Amount
    	
 
    	
Fair Value
    	
 
    
	
Money market   funds (a)
    	
 
    	
$
    	
46.9
    	
 
    	
$
    	
46.9
    	
 
    	
$
    	
11.8
    	
 
    	
$
    	
11.8
    	
 
    
	
Commercial paper   (b)
    	
 
    	
$
    	
369.0
    	
 
    	
$
    	
369.0
    	
 
    	
$
    	
505.0
    	
 
    	
$
    	
505.0
    	
 
    
	
Project   financing (b)
    	
 
    	
$
    	
55.8
    	
 
    	
$
    	
55.8
    	
 
    	
$
    	
54.8
    	
 
    	
$
    	
54.8
    	
 
    
	
Long-term debt (c)
    	
 
    	
$
    	
1,879.3
    	
 
    	
$
    	
1,979.4
    	
 
    	
$
    	
1,430.9
    	
 
    	
$
    	
1,577.3
    	
 
    


 

Washington Gas Light Company Fair Value of Financial Instruments

 

	
 
    	
 
    	
March 31, 2018
    	
 
    	
September 30, 2017
    	
 
    
	
(In millions)
    	
 
    	
Carrying
   Amount
    	
 
    	
Fair Value
    	
 
    	
Carrying Amount
    	
 
    	
Fair Value
    	
 
    
	
Money market   funds (a)
    	
 
    	
$
    	
18.2
    	
 
    	
$
    	
18.2
    	
 
    	
$
    	
4.8
    	
 
    	
$
    	
4.8
    	
 
    
	
Commercial paper   (b)
    	
 
    	
$
    	
35.0
    	
 
    	
$
    	
35.0
    	
 
    	
$
    	
123.0
    	
 
    	
$
    	
123.0
    	
 
    
	
Project   financing (b)
    	
 
    	
$
    	
43.8
    	
 
    	
$
    	
43.8
    	
 
    	
$
    	
43.8
    	
 
    	
$
    	
43.8
    	
 
    
	
Long-term debt (c)
    	
 
    	
$
    	
1,084.8
    	
 
    	
$
    	
1,180.4
    	
 
    	
$
    	
1,134.5
    	
 
    	
$
    	
1,271.0
    	
 
    


 




(a) Balance is located in cash and cash equivalents in the accompanying balance sheets. These amounts may be offset by outstanding checks.

(b) Balance is located in notes payable in the accompanying balance sheets.

(c) Excludes current maturities.

 

Our money market funds are Level 1 valuations and their carrying amount approximates fair value. Other short-term investments are primarily overnight investment accounts; their carrying amount approximates fair value based on Level 2 inputs. The maturity of our commercial paper outstanding at both March 31, 2018 and September 30, 2017 is under 30 days. Due to the short-term nature of these notes, the carrying cost of our commercial paper approximates fair value using Level 2 inputs. Due to the nature of our project financing arrangements, the carrying cost approximates fair value using Level 2 inputs. Neither WGL’s nor Washington Gas’ long-term debt is actively traded. The fair value of long-term debt was estimated based on the quoted market prices of the U.S. Treasury issues having a similar term to maturity, adjusted for the credit quality of the debt issuer, WGL or Washington Gas. Our long-term debt fair value measurement is classified as Level 3.

 

Non Recurring Basis

 

During the second quarter of fiscal year 2018, WGL Midstream recorded an other than temporary impairment charge of $ 34.0 million to its equity method investment in Constitution based on the estimated fair value of the investment of $ 4.0 million . WGL Midstream utilized income and market approaches to determine the fair value of its investment in Constitution, which fall into Level 3 of the fair value hierarchy because of the significant unobservable inputs utilized in these valuation approaches, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our key inputs included, but were not limited to, significant management judgments and estimates, including projections of the timing and amount of the project’s cash flows, determination of a discount rate for the income approach, market multipliers, probability weighting of potential outcomes of legal and regulatory proceedings, and weighting of the valuations produced by the income and market approaches. For more information, see Note 11- Other Investments of the Notes to Condensed Consolidated Financial Statements.

 

36











 

WGL Holdings, Inc.

 

Washington Gas Light Company

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 10. OPERATING SEGMENT REPORTING

 

We have four reportable operating segments: regulated utility, retail energy-marketing, commercial energy systems and midstream energy services. The division of these segments into separate revenue generating components is based upon regulation, products and services. Our chief operating decision maker is our Chief Executive Officer and we evaluate segment performance based on Earnings Before Interest and Taxes (EBIT). EBIT is defined as earnings before interest and taxes, net of amounts attributable to non-controlling interests. Items we do not include in EBIT are interest expense, intercompany financing activity, dividends on Washington Gas preferred stock, and income taxes. EBIT includes transactions between reportable segments. We also evaluate our operating segments based on other relevant factors, such as penetration into their respective markets and return on equity.

 

Our four segments are summarized below.

 

·                  Regulated Utility — The regulated utility segment is our core business. It consists of Washington Gas and Hampshire. Washington Gas provides regulated gas distribution services (including the sale and delivery of natural gas) to end use customers in the District of Columbia, Maryland and Virginia and natural gas transportation services to an unaffiliated natural gas distribution company in West Virginia under a Federal Energy Regulatory Commission (FERC) approved interstate transportation service operating agreement. Hampshire provides regulated interstate natural gas storage services to Washington Gas under a FERC approved interstate storage service tariff.

·                  Retail Energy-Marketing — The retail energy-marketing segment consists of WGL Energy Services, which sells natural gas and electricity directly to retail customers in competition with regulated utilities and unregulated gas and electricity marketers.

·                  Commercial Energy Systems — The commercial energy systems segment consists of WGL Energy Systems, which provides clean and energy efficient solutions including commercial solar, energy efficiency and combined heat and power projects and other distributed generation solutions to government and commercial clients. In addition, this segment comprises the operations of WGSW, a holding company formed to invest in alternative energy assets.

·                  Midstream Energy Services — The midstream energy services segment consists of WGL Midstream, which specializes in the investment, management, development and optimization of natural gas storage and transportation midstream infrastructure projects.

 

Administrative and business development activity costs associated with WGL and Washington Gas Resources and activities and transactions that are not significant enough on a stand-alone basis to warrant treatment as an operating segment, and that do not fit into one of our four operating segments, are aggregated as “Other Activities” in the Operating Segment Financial Information presented below. Results for other activities primarily relate to costs associated with the planned merger with AltaGas.

 

37









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present operating segment information for the three and six months ended March 31, 2018 and 2017 .

 

	
Operating Segment Financial Information
    	
 
    
	
(In thousands)
    	
 
    	
Operating
   Revenues
    	
 
    	
Depreciation and
   Amortization
    	
 
    	
Equity in
   Earnings of
   Unconsolidated
   Affiliates
    	
 
    	
EBIT
    	
 
    	
Total
   Assets
    	
 
    	
Capital
   Expenditures
    	
 
    	
Equity Method
   Investments
    	
 
    
	
Three Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Regulated utility
    	
 
    	
$
    	
532,040
    	
 
    	
$
    	
33,926
    	
 
    	
$
    	
—
    	
 
    	
$
    	
151,069
    	
 
    	
$
    	
5,145,550
    	
 
    	
$
    	
70,817
    	
 
    	
$
    	
—
    	
 
    
	
Retail energy-marketing
    	
 
    	
316,714
    	
 
    	
278
    	
 
    	
—
    	
 
    	
15,104
    	
 
    	
526,833
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Commercial energy systems  (a)
    	
 
    	
16,406
    	
 
    	
6,480
    	
 
    	
—
    	
 
    	
3,562
    	
 
    	
1,067,381
    	
 
    	
40,408
    	
 
    	
—
    	
 
    
	
Midstream energy services
    	
 
    	
33,324
    	
 
    	
5
    	
 
    	
(27,414
    	
)
    	
7,306
    	
 
    	
1,046,184
    	
 
    	
—
    	
 
    	
584,594
    	
 
    
	
Other activities
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(2,185
    	
)
    	
263,298
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Eliminations  (b)
    	
 
    	
(12,033
    	
)
    	
33
    	
 
    	
—
    	
 
    	
(4,116
    	
)
    	
(1,202,420
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Total consolidated
    	
 
    	
$
    	
886,451
    	
 
    	
$
    	
40,722
    	
 
    	
$
    	
(27,414
    	
)
    	
$
    	
170,740
    	
 
    	
$
    	
6,846,826
    	
 
    	
$
    	
111,225
    	
 
    	
$
    	
584,594
    	
 
    
	
Three Months Ended March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Regulated utility
    	
 
    	
$
    	
475,021
    	
 
    	
$
    	
33,572
    	
 
    	
$
    	
—
    	
 
    	
$
    	
165,171
    	
 
    	
$
    	
4,852,633
    	
 
    	
$
    	
96,612
    	
 
    	
$
    	
—
    	
 
    
	
Retail energy-marketing
    	
 
    	
324,916
    	
 
    	
273
    	
 
    	
—
    	
 
    	
9,255
    	
 
    	
512,583
    	
 
    	
330
    	
 
    	
—
    	
 
    
	
Commercial energy systems (a)
    	
 
    	
20,980
    	
 
    	
5,226
    	
 
    	
2,443
    	
 
    	
8,547
    	
 
    	
945,847
    	
 
    	
13,845
    	
 
    	
74,922
    	
 
    
	
Midstream energy services
    	
 
    	
38,621
    	
 
    	
10
    	
 
    	
4,901
    	
 
    	
41,993
    	
 
    	
611,221
    	
 
    	
—
    	
 
    	
333,777
    	
 
    
	
Other activities
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(15,067
    	
)
    	
338,405
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Eliminations (b)
    	
 
    	
(17,788
    	
)
    	
29
    	
 
    	
—
    	
 
    	
(1,472
    	
)
    	
(850,954
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Total consolidated
    	
 
    	
$
    	
841,750
    	
 
    	
$
    	
39,110
    	
 
    	
$
    	
7,344
    	
 
    	
$
    	
208,427
    	
 
    	
$
    	
6,409,735
    	
 
    	
$
    	
110,787
    	
 
    	
$
    	
408,699
    	
 
    
	
Six Months Ended March 31, 2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Regulated utility
    	
 
    	
$
    	
909,510
    	
 
    	
$
    	
68,029
    	
 
    	
$
    	
—
    	
 
    	
$
    	
249,434
    	
 
    	
$
    	
5,145,550
    	
 
    	
$
    	
147,579
    	
 
    	
$
    	
—
    	
 
    
	
Retail energy-marketing
    	
 
    	
565,407
    	
 
    	
560
    	
 
    	
—
    	
 
    	
18,846
    	
 
    	
526,833
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Commercial energy systems  (a)
    	
 
    	
36,469
    	
 
    	
13,064
    	
 
    	
—
    	
 
    	
9,209
    	
 
    	
1,067,381
    	
 
    	
62,700
    	
 
    	
—
    	
 
    
	
Midstream energy services
    	
 
    	
51,011
    	
 
    	
9
    	
 
    	
(21,522
    	
)
    	
29,491
    	
 
    	
1,046,184
    	
 
    	
—
    	
 
    	
584,594
    	
 
    
	
Other activities
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(6,356
    	
)
    	
263,298
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Eliminations  (b)
    	
 
    	
(23,506
    	
)
    	
45
    	
 
    	
—
    	
 
    	
(2,427
    	
)
    	
(1,202,420
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Total consolidated
    	
 
    	
$
    	
1,538,891
    	
 
    	
$
    	
81,707
    	
 
    	
$
    	
(21,522
    	
)
    	
$
    	
298,197
    	
 
    	
$
    	
6,846,826
    	
 
    	
$
    	
210,279
    	
 
    	
$
    	
584,594
    	
 
    
	
Six Months Ended March 31, 2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Regulated utility
    	
 
    	
$
    	
809,007
    	
 
    	
$
    	
64,132
    	
 
    	
$
    	
—
    	
 
    	
$
    	
267,888
    	
 
    	
$
    	
4,852,633
    	
 
    	
$
    	
208,293
    	
 
    	
$
    	
—
    	
 
    
	
Retail energy-marketing
    	
 
    	
623,600
    	
 
    	
578
    	
 
    	
—
    	
 
    	
38,440
    	
 
    	
512,583
    	
 
    	
734
    	
 
    	
—
    	
 
    
	
Commercial energy systems (a)
    	
 
    	
35,837
    	
 
    	
9,625
    	
 
    	
4,830
    	
 
    	
13,210
    	
 
    	
945,847
    	
 
    	
57,518
    	
 
    	
74,922
    	
 
    
	
Midstream energy services
    	
 
    	
13,633
    	
 
    	
19
    	
 
    	
2,779
    	
 
    	
13,509
    	
 
    	
611,221
    	
 
    	
—
    	
 
    	
333,777
    	
 
    
	
Other activities
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(16,265
    	
)
    	
338,405
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Eliminations (b)
    	
 
    	
(30,840
    	
)
    	
39
    	
 
    	
—
    	
 
    	
(364
    	
)
    	
(850,954
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Total consolidated
    	
 
    	
$
    	
1,451,237
    	
 
    	
$
    	
74,393
    	
 
    	
$
    	
7,609
    	
 
    	
$
    	
316,418
    	
 
    	
$
    	
6,409,735
    	
 
    	
$
    	
266,545
    	
 
    	
$
    	
408,699
    	
 
    


 

38









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 




(a) Commercial Energy Systems’ operating revenues and depreciation and amortization include activity from non-controlling interest. Commercial energy systems’ EBIT is adjusted for the effects of non-controlling interest.

(b) Intersegment eliminations include any mark-to market valuations associated with trading activities between WGL Midstream and WGL Energy Services, intercompany loans and a timing difference between Commercial Energy Systems’ recognition of revenue for the sale of Renewable Energy Credits (RECs) to Retail Energy-Marketing and Retail Energy-Marketing’s recognition of the associated expense. Retail Energy-Marketing has recorded a portion of the RECs purchased as inventory to be used in future periods at which time they will be expensed. Operating revenue amounts in the “Eliminations” row represent total intersegment revenues associated with sales from the regulated utility segment to the retail energy-marketing segment. Midstream Energy Services’ cost of energy related sales is netted with its gross revenues.

 

The following table provides a reconciliation from EBIT to net income applicable to common stock.

 

	
 
    	
 
    	
Three Months Ended March
   31,
    	
 
    	
Six Months Ended March 31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
Total   consolidated EBIT
    	
 
    	
$
    	
170,740
    	
 
    	
$
    	
208,427
    	
 
    	
$
    	
298,197
    	
 
    	
$
    	
316,418
    	
 
    
	
Interest expense
    	
 
    	
7,637
    	
 
    	
14,255
    	
 
    	
27,834
    	
 
    	
30,490
    	
 
    
	
Income tax   expense (benefit)
    	
 
    	
27,223
    	
 
    	
70,778
    	
 
    	
(3,887
    	
)
    	
104,232
    	
 
    
	
Dividends on   Washington Gas Light Company preferred stock
    	
 
    	
330
    	
 
    	
330
    	
 
    	
660
    	
 
    	
660
    	
 
    
	
Net   income applicable to common stock
    	
 
    	
$
    	
135,550
    	
 
    	
$
    	
123,064
    	
 
    	
$
    	
273,590
    	
 
    	
$
    	
181,036
    	
 
    


 

NOTE 11. OTHER INVESTMENTS

 

WGL has both solar and pipeline investments and accounts for its interests in legal entities as either a: (i) variable interest entity (VIE) or a (ii) voting interest entity (non-VIE). A VIE is a legal entity with one of the following characteristics: (i) has insufficient at-risk equity to fund its activities without additional subordinated financial support from any other party or parties; (ii) the equity holders of which, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights.

 

The determination of whether or not to consolidate a VIE under GAAP requires a significant amount of judgment. This includes, but is not limited to, consideration of our contractual relationships with the entity, the legal structure of the entity, the voting power of the equity holders, the obligation of the equity holders to absorb losses of the entity and their rights to receive any expected residual returns.

 

Under the VIE model, we have a controlling financial interest in a VIE (i.e., are the primary beneficiary) and would consolidate the entity when we have current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses. When changes occur to the design of an entity, we reconsider whether the entity is a VIE. We also continuously evaluate whether we have a controlling financial interest in a VIE.

 

We have investments in both consolidated and unconsolidated VIEs which are described in detail below. The unconsolidated investments are accounted for under the equity method of accounting with profits and losses included in “Equity in earnings of unconsolidated affiliates” in the accompanying Condensed Consolidated Statements of Income.

 

Under the voting interest model, we consolidate an entity when we have a controlling financial interest by holding directly or indirectly, more than 50% of the voting rights or by exercising control through substantive participating rights. However, we consider substantive rights held by other partners in determining if we hold a controlling financial interest, and in some cases, may not consolidate the entity despite owning more than 50% of the voting rights. We reevaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change. Where we do not have a controlling financial interest, we apply the equity method of accounting in which investments are initially measured at cost. Investments in, and advances to, affiliated companies are presented in the caption “Investments in unconsolidated affiliates” in the accompanying Condensed Consolidated Balance Sheets.

 

WGL uses the Hypothetical Liquidation at Book Value (HLBV) methodology to determine its earnings or losses for certain equity method investments as well as for the non-controlling interests in consolidated investments when the governing structuring agreement over the equity investment results in different liquidation rights and priorities than what is reflected by the underlying ownership interest percentage. For investments accounted for under the HLBV method, simply applying the percentage ownership interest to GAAP net income in order to determine earnings or losses does not accurately represent the income allocation and cash flow distributions that will ultimately be received by the investors. The HLBV calculation may vary in its complexity depending on the capital structure and the tax considerations for the investments.

 

When applying HLBV, WGL determines the amount that it would receive if an equity investment entity were to liquidate all of its assets at book value (as valued in accordance with GAAP) and distribute that cash to the investors based on the contractually defined liquidation

 

39











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

priorities. The change in WGL’s claim on the investee’s book value at the beginning and end of the reporting period (adjusted for contributions and distributions) is WGL’s share of the earnings or losses from the equity investment for the period.

 

Consolidated Investments

 

Variable Interest Entity Investments-Solar

 

At March 31, 2018, WGL’s subsidiary, WGSW, Inc. was the primary beneficiary of SFGF LLC (SFGF), LLC, SFRC, LLC (SFRC), SFGF II, LLC (SFGF II), ASD Solar LP (ASD) and SFEE LLC (SFEE), because of its ability to direct the activities most significant to the economic performance of those entities plus the right to receive potentially significant benefits or the obligation to absorb potentially significant losses. Accordingly, we have consolidated these VIE’s.

 

SFGF, SFRC, and SFGF II

 

WGSW, along with its various tax equity partners, formed the tax equity partnerships SFGF, SFRC, and SFGF II to acquire, own, and operate distributed generation solar projects nationwide. WGSW is the managing member of these investments and will provide cash equal to the purchase price of the solar projects less any contributions from the tax-equity partner for projects sold by WGL Energy Systems into the partnerships. WGL Energy Systems is the operations and maintenance provider, and the developer of the projects.

 

Profits and losses are allocated between the partners under the HLBV method of accounting and the portion allocated to the tax equity partner is included in “Net income (loss) attributable to non-controlling interest” on the accompanying Condensed Consolidated Statements of Income and is recorded to Non-controlling interest on the accompanying Condensed Consolidated Balance Sheets.

 

As of March 31, 2018, WGSW has contributed $ 16.8 million, $ 29.0 million and $ 4.0 million to SFGF, SFRC, and SFGF II respectively.

 

ASD

 

WGSW is the limited partner in ASD, a limited partnership formed to own and operate a portfolio of residential solar projects, primarily rooftop photovoltaic power generation systems. As a limited partner, WGSW had provided funding to the partnership but did not have power to direct the activities that most significantly affect the operations and economic performance of the entity. In January 2014, the funding commitment period ended for the partnership. Prior to July 10, 2017, ASD was being consolidated by the general partner, Solar Direct LLC (Solar Direct). Solar Direct is a wholly owned subsidiary of American Solar Direct Inc. (ASDI).

 

In June 2017, ASDI filed for Chapter 7 bankruptcy because of financial difficulties. To ensure continuing operations of the partnership and minimal disruptions to the customers, WGSW petitioned the Bankruptcy Court to remove Solar Direct as manager of ASD operations and to approve the appointment of SF ASD, a wholly-owned subsidiary of WGL Energy Systems, formed to take over the management and operations of the partnership, as manager of ASD operations. On July 10, 2017, the Bankruptcy Court granted the bankruptcy trustee’s emergency motion to assign management rights and control of ASD to SF ASD and WGSW consolidated ASD as a result. As of March 31, 2018, WGSW has contributed $ 72.6 million into the tax equity partnership.

 

SFEE

 

On November 23, 2016, WGSW and a tax equity partner formed SFEE to acquire distributed generation solar projects that were to be developed and sold by a third-party developer or WGL Energy Systems. New projects were to be designed and constructed under long-term power purchase agreements. On November 8, 2017, WGSW terminated the Master Purchase Agreement between SFEE, LLC and the third-party developer. The termination triggered a reassessment of the method of accounting for SFEE and, as a result, SFEE is considered a VIE and is consolidated by WGSW. As of March 31, 2018, WGSW has contributed $ 6.5 million into the tax equity partnership.

 

The following table summarizes the fair value amounts of SFEE’s assets and liabilities, as well as the estimated fair value of the non-controlling interest as of the date of consolidation.

 

40











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Fair Value of SFEE at Date of Consolidation

 

	
(in millions)
    	
 
    	
Fair Value
    	
 
    
	
Property, plant   and equipment
    	
 
    	
$
    	
10.1
    	
 
    
	
Other assets
    	
 
    	
0.1
    	
 
    
	
Total   assets
    	
 
    	
$
    	
10.2
    	
 
    
	
Net   assets
    	
 
    	
$
    	
10.2
    	
 
    
	
Non-controlling   interest
    	
 
    	
$
    	
0.6
    	
 
    
	
WGSW   equity interest
    	
 
    	
$
    	
9.6
    	
 
    


 

Property, plant and equipment represents commercial solar assets for SFEE stated at cost. This amount was determined to be equal to the fair value provided by a third-party appraisal.

 

Balance Sheet Location of Consolidated Investments

 

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in our accompanying Condensed Consolidated Balance Sheets at March 31, 2018 and September 30, 2017 are as follows:

 

WGL Holdings, Inc.

Balance Sheet Location of Consolidated Investments

 

	
(in millions)
    	
 
    	
March 31, 2018
    	
 
    	
September 30, 2017
    	
 
    
	
Current assets
    	
 
    	
$
    	
7.4
    	
 
    	
$
    	
4.4
    	
 
    
	
Property, Plant   and Equipment
    	
 
    	
161.1
    	
 
    	
121.7
    	
 
    
	
Total   assets
    	
 
    	
$
    	
168.5
    	
 
    	
$
    	
126.1
    	
 
    
	
Current   liabilities
    	
 
    	
—
    	
 
    	
0.2
    	
 
    
	
Deferred credits
    	
 
    	
1.3
    	
 
    	
0.8
    	
 
    
	
Total   liabilities
    	
 
    	
$
    	
1.3
    	
 
    	
$
    	
1.0
    	
 
    


 

Unconsolidated Investments

 

Variable Interest Entity Investments-Pipelines

 

Meade

 

In 2014, WGL through its subsidiary WGL Midstream, entered into a limited liability company agreement and formed Meade Pipeline Co LLC (Meade), a Delaware limited liability company, with Transcontinental Gas Pipe Line Company, LLC (Williams) to invest in a regulated pipeline, a segment of Transco’s Atlantic Sunrise project, called Central Penn Pipeline (Central Penn). Central Penn will be an approximately 185 -mile pipeline originating in Susquehanna County, Pennsylvania and extending to Lancaster County, Pennsylvania that will have the capacity to transport and deliver up to approximately 1.7 million dekatherms per day of natural gas.

 

At March 31, 2018 and September 30, 2017, WGL Midstream held a $ 337.1 million and $ 146.7 million, respectively, equity method investment in Meade. WGL Midstream plans to invest an estimated $ 434 million for a 55% interest in Meade. Although WGL Midstream holds greater than a 50% interest in Meade, Meade is not consolidated by WGL Midstream and instead is accounted for under the equity method of accounting. WGL Midstream is not the primary beneficiary of Meade as it does not have the power to direct the activities most significant to the economic performance of Meade. Specifically, WGL Midstream applies the HLBV equity method of accounting and any profits and losses are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Condensed Consolidated Statements of Income and are added to or subtracted from the carrying amount of WGL’s investment balance.

 

Our maximum financial exposure to loss because of our involvement with this VIE is equal to WGL Midstream’s capital contributions.

 

41











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Non-Variable Investment Entity Investments-Pipelines

 

Constitution

 

WGL Midstream owns a 10% interest in Constitution. The Constitution Pipeline is proposed to transport natural gas from the Marcellus region in northern Pennsylvania to major northeastern markets. Constitution is accounted for under the equity method of accounting; any profits and losses are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Condensed Consolidated Statements of Income and are added to or subtracted from the carrying amount of WGL’s investment balance. The equity method is considered appropriate because Constitution is an LLC with specific ownership accounts and ownership between five and fifty percent resulting in WGL Midstream maintaining a more than minor influence over the partnership operating and financing policies.

 

In December 2014, Constitution received approval from the FERC to construct and operate the proposed pipeline. However, on April 22, 2016, the New York State Department of Environmental Conservation (NYSDEC) denied Constitution’s application for a Section 401 Certification for the pipeline, which is necessary for the construction and operation of the pipeline. In May 2016, Constitution filed actions in both the U.S. Circuit Court of Appeals for the Second Circuit and the U.S. District Court for the Northern District of New York, appealing the decision and seeking declaratory judgment that the State of New York’s permitting authority is preempted by federal law.  In May 2016, Constitution appealed the NYSDEC’s denial of the Section 401 certification to the United States Court of Appeals for the Second Circuit, and in August 2017, the court issued a decision denying in part and dismissing in part Constitution’s appeal. The court expressly declined to rule on Constitution’s argument that the NYSDEC’s decision on Constitution’s Section 401 application constitutes a waiver of the certification requirement. Constitution has filed a petition for rehearing with the Second Circuit Court’s decision, but in October the court denied our petition.

 

In October 2017, Constitution filed a petition for declaratory order requesting FERC to find that, by operation of law, the Section 401 certification requirement for the New York State portion of Constitution’s pipeline project was waived due to the failure by the NYSDEC to act on Constitution’s Section 401 application within a reasonable period of time as required by the express terms of such statute. The petition was consistent with a recent decision by the District of Columbia Circuit Court in another proceeding, in which the court clarified that an applicant facing similar circumstances should present evidence of waiver to the FERC. On January 11, 2018, the FERC denied the petition, finding that Section 401 provides that a state waives certification only when it does not act on an application within one year from the date of the application. On February 12, 2018, Constitution filed a request for rehearing with FERC. FERC has not ruled on the request for a rehearing. On January 16, 2018, Constitution petitioned the U.S. Supreme Court to review the judgment of the U.S. Court of Appeals for the Second Circuit, asserting that the Second Circuit’s decision conflicts with the decisions of the U.S. Supreme Court and federal Courts of Appeals on an important question of federal law. On April 30, 2018, the U.S. Supreme Court denied Constitution’s petition for writ of certiorari . The project’s sponsors remain committed to the project.

 

We have evaluated our investment in Constitution for other than temporary impairment as of March 31, 2018. Our impairment assessment used income and market approaches in determining the fair value of our investment in Constitution. Refer to Note 9 -  Fair Value Measurements. In light of the recent actions taken by the courts and regulators to uphold NYSDEC’s denial of certification and our estimation of the likelihood of an unfavorable outcome associated with the remaining legal and regulatory challenges, we recorded an other than temporary impairment charge of $ 34.0 million to “Equity in earnings of unconsolidated affiliates”, and recorded a reversal to “Operation and maintenance” expense of a previously recognized expense of $ 3.0 million . There could be additional losses in the value of the investment beyond this impairment charge. However, we believe that recoveries from the sale of the inventories held by Constitution will mostly offset these legal expenditures. We also continue to incur legal fees associated with the project. At March 31, 2018, and September 30, 2017, WGL Midstream held a $ 4.0 million and $ 38.1 million equity method investment in Constitution, respectively.

 

Mountain Valley Pipeline

 

In March 2015, WGL Midstream acquired a 7% equity interest in Mountain Valley Pipeline, LLC (Mountain Valley). On October 24, 2016, WGL Midstream acquired an additional 3% equity interest in Mountain Valley by assuming all of Vega Midstream MVP LLC’s (Vega Energy) interest in the joint venture. WGL Midstream now owns a 10% interest in Mountain Valley.

 

The proposed pipeline to be developed, constructed, owned and operated by Mountain Valley, will transport approximately 2.0 million dekatherms of natural gas per day and connects with EQT Corporation’s Equitrans system in Wetzel County, West Virginia to Transcontinental Gas Pipe Line Company LLC’s Station 165 in Pittsylvania County, Virginia.

 

42











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

At March 31, 2018 and September 30, 2017, WGL Midstream held a $ 104.3 million and $ 63.0 million equity method investment in Mountain Valley, respectively. WGL Midstream expects to invest approximately $350.0 million in scheduled capital contributions through the in-service date of the pipeline based on its pro rata share of project costs. The equity method is considered appropriate because Mountain Valley is an LLC with specific ownership accounts and ownership between five and fifty percent resulting in WGL Midstream maintaining a more than minor influence over the partnership operating and financing policies. Profits and losses are allocated under the HLBV method of accounting and are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Condensed Consolidated Statements of Income and are added to or subtracted from the carrying amount of WGL’s investment balance.

 

In April 2018, WGL Midstream entered into a separate agreement with Mountain Valley to acquire a 5% equity interest in a project to build a lateral interstate natural gas pipeline connecting to the mainline.

 

Stonewall System

 

WGL Midstream has a 30% equity interest in an entity that owns and operates certain assets known as the Stonewall Gas Gathering System (the Stonewall System). The Stonewall System has the capacity to gather up to 1.4 billion cubic feet of natural gas per day from the Marcellus production region in West Virginia, and connects with an interstate pipeline system that serves markets in the mid-Atlantic region.

 

At March 31, 2018 and September 30, 2017, WGL Midstream held a $139.3 million and $136.7 million equity method investment in the Stonewall System, respectively. The equity method is considered appropriate because the Stonewall System is an LLC with specific ownership accounts and ownership between five and fifty percent resulting in WGL Midstream maintaining a more than minor influence over the partnership operating and financing policies. Profits and losses are allocated under the HLBV method of accounting and are included in “Equity in earnings of unconsolidated affiliates” in the accompanying Condensed Consolidated Statements of Income and are added to or subtracted from the carrying amount of WGL’s investment balance.

 

The carrying amount of WGL Midstream’s investment in the Stonewall System exceeded the amount of the underlying equity in net assets by $8.8 million as of March 31, 2018, which is being amortized over the life of the assets.

 

The following tables present summary information about our unconsolidated investments:

 

WGL Holdings, Inc.

Balance Sheet Location of Unconsolidated Investments

 

	
 
    	
 
    	
Solar Investments
    	
 
    	
Pipelines
    	
 
    	
 
    	
 
    
	
(in millions)
    	
 
    	
Non-VIEs (a)
    	
 
    	
VIEs (b)
    	
 
    	
Non-VIEs (c)
    	
 
    	
Total
    	
 
    
	
March 31,   2018
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Investments   in unconsolidated affiliates
    	
 
    	
$
    	
—
    	
 
    	
$
    	
337.1
    	
 
    	
$
    	
247.5
    	
 
    	
$
    	
584.6
    	
 
    
	
Total   assets
    	
 
    	
$
    	
—
    	
 
    	
$
    	
337.1
    	
 
    	
$
    	
247.5
    	
 
    	
$
    	
584.6
    	
 
    
	
September 30,   2017
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Investments in   unconsolidated affiliates
    	
 
    	
$
    	
9.6
    	
 
    	
$
    	
146.7
    	
 
    	
$
    	
237.9
    	
 
    	
$
    	
394.2
    	
 
    
	
Total assets
    	
 
    	
$
    	
9.6
    	
 
    	
$
    	
146.7
    	
 
    	
$
    	
237.9
    	
 
    	
$
    	
394.2
    	
 
    


 




(a) Balance relates to interest held in SFEE on September 30, 2017

(b) Balance relates to equity method investment in Meade.

(c) Balance relates to equity method investments in Constitution, Mountain Valley Pipeline and Stonewall System.

 

NOTE 12. RELATED PARTY TRANSACTIONS

 

WGL and its subsidiaries engage in inter-company transactions in the ordinary course of business. Inter-company transactions and balances have been eliminated from the consolidated financial statements of WGL, except as described below. Washington Gas provides accounting, treasury, legal and other administrative and general support to affiliates, and files consolidated tax returns that include affiliated taxable transactions. Washington Gas bills its affiliates in accordance with regulatory requirements for the actual cost of providing these services, which approximates their market value. To the extent such billings are outstanding, they are reflected in “Receivables from associated companies” on Washington Gas’ balance sheets. Washington Gas assigns or allocates these costs directly to its affiliates and, therefore, does not recognize revenues or expenses associated with providing these services. Washington Gas believes that allocations based on broad measures of business activity are appropriate for allocating expenses resulting from common services. Affiliate entities are allocated a portion of common services

 

43











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

based on a formula driven by appropriate indicators of activity, as approved by management.

 

In connection with billing on behalf of unregulated third-party marketers, including WGL Energy Services and with other miscellaneous billing processes, Washington Gas collects cash on behalf of affiliates and transfers the cash in a reasonable time period. Cash collected by Washington Gas on behalf of its affiliates but not yet transferred is recorded in “Payables to associated companies” on Washington Gas’ Condensed Balance Sheets.

 

Washington Gas previously obtained third-party project financing on behalf of the federal government to provide funds during the construction of certain energy management services projects entered into under Washington Gas’ area-wide contract. In December 2016, WGL Energy Systems entered into an agreement to obtain third-party financing and receive funds directly from the third-party lender during the construction period associated with the related energy management service projects. As part of the ongoing financing arrangement, Washington Gas records a receivable representing the government’s obligation, and records an inter-company payable to WGL Energy Systems for the construction work performed for the same amount in “Payables to associated companies”. Refer to Note 3—Short Term Debt of the Notes to Condensed Consolidated Financial Statements for further discussion of the project financing.

 

The following table presents the receivables from and payables to associated companies as of March 31, 2018 and September 30, 2017 .

 

Washington Gas Receivables From / Payables To Associated Companies

 

	
(In millions)
    	
 
    	
March 31, 2018
    	
 
    	
September 30, 2017
    	
 
    
	
Receivables from   associated companies
    	
 
    	
$
    	
30.7
    	
 
    	
$
    	
32.4
    	
 
    
	
Payables to   associated companies
    	
 
    	
$
    	
111.6
    	
 
    	
$
    	
94.8
    	
 
    


 

Washington Gas provides gas balancing services related to storage, injections, withdrawals and deliveries to all energy marketers participating in the sale of natural gas on an unregulated basis through the customer choice programs that operate in its service territory. These balancing services include the sale of natural gas supply commodities related to various peaking arrangements contractually supplied to Washington Gas and then partially allocated and assigned by Washington Gas to the energy marketers, including WGL Energy Services. Washington Gas records revenues for these balancing services pursuant to tariffs approved by the appropriate regulatory bodies. These related party amounts related to balancing services provided to WGL Energy Services have been eliminated in the consolidated financial statements of WGL. The following table shows the amounts Washington Gas charged WGL Energy Services for balancing services which are located in “Utility Operating Revenues”.

 

Washington Gas - Gas Balancing Service Charges

 

	
 
    	
 
    	
Three Months Ended March 31,
    	
 
    	
Six Months Ended March 31,
    	
 
    
	
(In millions)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
Gas balancing   service charge
    	
 
    	
$
    	
8.5
    	
 
    	
$
    	
8.8
    	
 
    	
$
    	
11.0
    	
 
    	
$
    	
15.7
    	
 
    
														


 

As a result of these balancing services, an imbalance is created for volumes of natural gas received by Washington Gas that are not equal to the volumes of natural gas delivered to customers of the energy marketers. At March 31, 2018 and September 30, 2017, WGL Energy Services recognized accounts receivable from Washington Gas of $7.9 million and $1.4 million respectively, related to an imbalance in gas volumes. Due to regulatory treatment, these payables and receivables are not eliminated in the consolidated financial statements of WGL. Refer to Note 1— Accounting Policies of the Notes to Consolidated Financial Statements of our combined Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for further discussion of these imbalance transactions.

 

Washington Gas participates in a purchase of receivables (POR) program as approved by the Maryland Public Service Commission (PSC of MD), whereby it purchases receivables from participating energy marketers at approved discount rates. In addition, WGL Energy Services participates in POR programs with certain Maryland and Pennsylvania utilities, whereby it sells its receivables to various utilities, including Washington Gas, at approved discount rates. The receivables purchased by Washington Gas are included in “Accounts receivable” in the accompanying balance sheet. Any activity between Washington Gas and WGL Energy Services related to the POR program has been

 

44











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

eliminated in the accompanying financial statements for WGL. At March 31, 2018 and September 30, 2017, Washington Gas had balances of $8.2 million and $3.2 million, respectively, of purchased receivables from WGL Energy Services which are located in “Accounts receivable”.

 

NOTE 13. COMMITMENTS AND CONTINGENCIES

 

REGULATORY CONTINGENCIES

 

Certain legal and administrative proceedings incidental to our business, including regulatory contingencies, involve WGL and/or its subsidiaries. In our opinion, we have recorded an adequate provision for probable losses or refunds to customers for regulatory contingencies related to these proceedings.

 

Application for Approval of Reduction of Distribution Rates

 

On January 12, 2018, Washington Gas filed applications to reduce customer rates in Maryland, Virginia, and the District of Columbia to reflect the impact of the Tax Act, including both the impact of the re-measurement of deferred tax assets and liabilities and reduction of the federal tax rate to 21%. Washington Gas began tracking the impact of the Tax Act on revenue requirements beginning January 1, 2018, recording all impacts to regulatory assets and liabilities. In Maryland, the PSC of MD approved the application effective for bills rendered on or after February 1, 2018.

 

As of March 31, 2018, the applications with Virginia and the District of Columbia are still on-going. In Virginia, the application was dismissed on March 15, 2018 and Washington Gas will file a new general rate case in July 2018. In the District of Columbia, Washington Gas filed a revised application on February 12, 2018 and subsequently filed a joint motion and unanimous agreement of stipulation for full settlement on April 30, 2018. As a result of the on-going applications in Virginia and the District of Columbia, Washington Gas recorded a regulatory liability, representing the amounts owed to customers for reduced rates starting in January 2018 of $ 8.8 million and $ 3.1 million, respectively. Please refer to Note 7— Income taxes for more information.

 

Virginia Jurisdiction

 

Virginia Rate Case.  On June 30, 2016, Washington Gas filed an application with the Commonwealth of Virginia State Corporation Commission (SCC of VA) to increase its base rates for natural gas service by $ 45.6 million, which includes $ 22.3 million of revenue associated with natural gas pipeline replacement initiatives previously approved by the SCC of VA and paid by customers through a monthly rider. Additionally, the proposed rate increase included provisions designed to deliver the benefits of natural gas to more customers that include: (i) facilitating conversion to natural gas in locations already served by Washington Gas; (ii) expanding the natural gas system to high-growth communities in Virginia and (iii) research and development enabling innovations to enhance service for our customers.

 

Interim rates went into effect, subject to refund, in the December 2016 billing cycle. Intervenors filed testimony on January 31, 2017, Staff of the SCC of VA filed testimony on February 28, 2017 and Washington Gas filed its rebuttal testimony on March 28, 2017. On April 17, 2017, Washington Gas filed with the SCC of VA a unanimous settlement as to a specific annual revenue increase, but not as to a specific return on equity, specific accounting adjustments, or specific ratemaking methodologies, except as otherwise set forth therein. The Stipulation set forth, for purposes of settlement, a base rate increase of $ 34 million (of which $ 14.1 million represents incremental base rate revenues over and above the inclusion of SAVE Plan costs which were previously recovered through monthly surcharges). For purposes of the settlement, the mid-point of the return on equity range of 9.0% - 10.0% % will be used in any application or filing, other than a change in base rates, effective December 1, 2016. On June 30, 2017, the Chief Hearing Examiner issued a report recommending that the SCC of VA approve the Stipulation. On September 8, 2017, Washington Gas received a final order from the SCC of VA accepting settlement subject to minor modifications to Washington Gas’ System Expansion Proposals. All parties agreed to a Revised Stipulation filed on September 20, 2017, reflecting the SCC of VA’s denial of one of the System Expansion Proposals and Washington Gas’ withdrawal of the second one. The SCC of VA issued its final order approving the revised stipulation on September 25, 2017. Refunds to customers, which have been accrued by Washington Gas at December 31, 2017, were completed on February 7, 2018. Washington Gas’ methodology to compute customer refunds is pending review by the SCC of VA.

 

FINANCIAL GUARANTEES

 

WGL has guaranteed payments primarily for certain commitments on behalf of some of its subsidiaries. WGL has also guaranteed payments for certain of our external partners. At March 31, 2018, the maximum potential amount of future payments under the guarantees for external parties totaled $0.6 million .

 

45









 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

ANTERO CONTRACT

 

Washington Gas and WGL Midstream contracted in June 2014 with Antero Resources Corporation (Antero) to buy gas from Antero at invoiced prices based on an index, and at a delivery point, specified in the contracts. Since deliveries began, however, the index price paid has been more than the fair market value at the same physical delivery point, resulting in losses to date of $29.6 million . Accordingly, Washington Gas and WGL Midstream notified Antero that it sought to apply a provision of the contracts that would permit a new index to be established.  Antero objected, claiming that the contract provisions permitting re-pricing did not apply, unless Antero itself chose to sell gas at cheaper prices at the delivery point (which Antero claimed it had not).  The dispute was arbitrated in January 2017, and the arbitral tribunal ruled in favor of Antero on the applicability of the re-pricing mechanism.  However, the tribunal ruled that it lacked authority to determine whether Antero was in breach of its obligation to deliver gas to Washington Gas and WGL Midstream at a point where they could obtain the higher pricing. Accordingly, Washington Gas and WGL Midstream filed suit in state court in Colorado for a determination of this issue. The state court granted Antero’s motion to dismiss the case and the case is currently on appeal.

 

Separately, Antero has initiated suit against Washington Gas and WGL Midstream, claiming that they have failed to purchase specified daily quantities of gas and seeking alleged cover damages exceeding $100 million as of April 4, 2018, of which continues to accumulate daily according to Antero’s complaint. Washington Gas and WGL Midstream oppose both the validity and amount of Antero’s claim. WGL believes the probability that Antero could succeed in collecting these penalties is remote and therefore, no accrual was made as of March 31, 2018 .  In December 2017, WGL Midstream amended its purchase contract with Antero and, effective February 1, 2018, is no longer obligated to purchase gas at the delivery point that is the subject of these disputes.

 

SILVER SPRING, MARYLAND INCIDENT

 

Washington Gas continues to support the investigation by the NTSB into the August 10, 2016 explosion and fire at an apartment complex on Arliss Street in Silver Spring, Maryland, the cause of which has not been determined.  Additional information will be made available by the NTSB at the appropriate time. A total of 40 civil actions related to the incident have been filed against WGL and Washington Gas in the Circuit Court for Montgomery County, Maryland. Thirty-nine of these suits seek unspecified damages for personal injury and/or property damage. The final action is a class action suit seeking total damages stated to be less than $ 5 million for, among others, property damage and various counts relating to the loss of the use of the premises. Two of the 40 cases were originally filed in the District of Columbia Superior Court, but were dismissed. Those two actions were re-filed in Maryland on November 27, 2017.  We maintain excess liability insurance coverage from highly-rated insurers, subject to a nominal self-insured retention. We believe that this coverage will be sufficient to cover any significant liability to it that may result from this incident. Management is unable to determine a range of potential losses that are reasonably possible of occurring and therefore we have not recorded a reserve associated with this incident. Washington Gas was invited by the NTSB to be a party to the investigation and in that capacity, continues to work closely with the NTSB to help determine the cause of this incident.

 

46











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 14. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

 

The following table shows the components of net periodic benefit costs (income) recognized in our financial statements during the three and six months ended March 31, 2018 and 2017 .

 

Components of Net Periodic Benefit Costs (Income)

 

	
 
    	
 
    	
Three Months Ended March 31,
    	
 
    
	
 
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
(In millions)
    	
 
    	
Pension
   Benefits
    	
 
    	
Health and
   Life Benefits
    	
 
    	
Pension
   Benefits
    	
 
    	
Health and
   Life Benefits
    	
 
    
	
Service cost
    	
 
    	
$
    	
3.7
    	
 
    	
$
    	
1.3
    	
 
    	
$
    	
4.1
    	
 
    	
$
    	
1.5
    	
 
    
	
Interest cost
    	
 
    	
9.9
    	
 
    	
2.9
    	
 
    	
9.6
    	
 
    	
2.9
    	
 
    
	
Expected return   on plan assets
    	
 
    	
(10.6
    	
)
    	
(5.9
    	
)
    	
(10.2
    	
)
    	
(5.6
    	
)
    
	
Amortization of   prior service cost (credit)
    	
 
    	
0.1
    	
 
    	
(4.4
    	
)
    	
0.1
    	
 
    	
(4.4
    	
)
    
	
Amortization of   net actuarial loss
    	
 
    	
3.9
    	
 
    	
—
    	
 
    	
5.5
    	
 
    	
0.2
    	
 
    
	
Net   periodic benefit cost (income)
    	
 
    	
7.0
    	
 
    	
(6.1
    	
)
    	
9.1
    	
 
    	
(5.4
    	
)
    
	
Amount allocated   to construction projects
    	
 
    	
(1.1
    	
)
    	
1.0
    	
 
    	
(1.7
    	
)
    	
1.2
    	
 
    
	
Amount deferred   as regulatory asset/liability — net
    	
 
    	
1.7
    	
 
    	
—
    	
 
    	
1.7
    	
 
    	
—
    	
 
    
	
Amount   charged (credited) to expense
    	
 
    	
$
    	
7.6
    	
 
    	
$
    	
(5.1
    	
)
    	
$
    	
9.1
    	
 
    	
$
    	
(4.2
    	
)
    


 

	
 
    	
 
    	
Six Months Ended March 31,
    	
 
    
	
 
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
Service cost
    	
 
    	
$
    	
7.4
    	
 
    	
$
    	
2.6
    	
 
    	
$
    	
8.2
    	
 
    	
$
    	
2.9
    	
 
    
	
Interest cost
    	
 
    	
19.8
    	
 
    	
5.8
    	
 
    	
19.2
    	
 
    	
5.8
    	
 
    
	
Expected return   on plan assets
    	
 
    	
(21.2
    	
)
    	
(11.8
    	
)
    	
(20.5
    	
)
    	
(11.1
    	
)
    
	
Amortization of   prior service cost (credit)
    	
 
    	
0.2
    	
 
    	
(8.8
    	
)
    	
0.2
    	
 
    	
(8.8
    	
)
    
	
Amortization of   net actuarial loss
    	
 
    	
7.8
    	
 
    	
—
    	
 
    	
11.0
    	
 
    	
0.4
    	
 
    
	
Net   periodic benefit cost (income)
    	
 
    	
14.0
    	
 
    	
(12.2
    	
)
    	
18.1
    	
 
    	
(10.8
    	
)
    
	
Amount allocated   to construction projects
    	
 
    	
(2.2
    	
)
    	
2.0
    	
 
    	
(3.3
    	
)
    	
2.4
    	
 
    
	
Amount deferred   as regulatory asset/liability — net
    	
 
    	
3.4
    	
 
    	
—
    	
 
    	
3.5
    	
 
    	
(0.1
    	
)
    
	
Amount   charged (credited) to expense
    	
 
    	
$
    	
15.2
    	
 
    	
$
    	
(10.2
    	
)
    	
$
    	
18.3
    	
 
    	
$
    	
(8.5
    	
)
    


 

Amounts included in the line item “Amount deferred as regulatory asset/liability-net,” as shown in the table above, represent the amortization of previously unrecovered costs of the applicable pension benefits or the health and life benefits as approved in the District of Columbia. We expect the balances to be fully amortized by October 2019.

 

47











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The following tables show the changes in accumulated other comprehensive income (loss) for WGL and Washington Gas by component for the three and six months ended March 31, 2018 and 2017 .

 

WGL Holdings, Inc.

Changes in Accumulated Other Comprehensive Loss by Component

 

	
 
    	
 
    	
Three Months Ended
   March 31,
    	
 
    	
Six Months Ended March
   31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
Beginning   Balance
    	
 
    	
$
    	
(5,753
    	
)
    	
$
    	
(9,126
    	
)
    	
$
    	
(5,997
    	
)
    	
$
    	
(38,539
    	
)
    
	
Qualified cash   flow hedging instruments (a)
    	
 
    	
53
    	
 
    	
48
    	
 
    	
105
    	
 
    	
49,503
    	
 
    
	
Change in prior   service credit (b)
    	
 
    	
(273
    	
)
    	
(217
    	
)
    	
(547
    	
)
    	
(434
    	
)
    
	
Change in   actuarial net loss (b)
    	
 
    	
530
    	
 
    	
588
    	
 
    	
1,057
    	
 
    	
1,176
    	
 
    
	
Current-period   other comprehensive income
    	
 
    	
310
    	
 
    	
419
    	
 
    	
615
    	
 
    	
50,245
    	
 
    
	
Income tax   expense related to other comprehensive income
    	
 
    	
104
    	
 
    	
167
    	
 
    	
165
    	
 
    	
20,580
    	
 
    
	
Ending   Balance
    	
 
    	
$
    	
(5,547
    	
)
    	
$
    	
(8,874
    	
)
    	
$
    	
(5,547
    	
)
    	
$
    	
(8,874
    	
)
    


 




(a)        Cash flow hedging instruments represent interest rate swap agreements related to debt issuances. Refer to Note 8- Derivative and Weather-related Instruments of the Notes to Condensed Consolidated Financial Statements for further discussion of the interest rate swap agreements.

(b)        These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost. Refer to Note 14- Pension and other post-retirement benefit plans of the Notes to Condensed Consolidated Financial Statements for additional details.

 

Washington Gas Light Company

Changes in Accumulated Other Comprehensive Loss by Component

 

	
 
    	
 
    	
Three Months Ended
   March 31,
    	
 
    	
Six Months Ended March
   31,
    	
 
    
	
(In thousands)
    	
 
    	
2018
    	
 
    	
2017
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
Beginning   Balance
    	
 
    	
$
    	
(4,330
    	
)
    	
$
    	
(7,606
    	
)
    	
$
    	
(4,522
    	
)
    	
$
    	
(7,830
    	
)
    
	
Change in prior   service credit (a)
    	
 
    	
(273
    	
)
    	
(217
    	
)
    	
(547
    	
)
    	
(434
    	
)
    
	
Change in   actuarial net loss (a)
    	
 
    	
530
    	
 
    	
588
    	
 
    	
1,057
    	
 
    	
1,176
    	
 
    
	
Current-period   other comprehensive income
    	
 
    	
257
    	
 
    	
371
    	
 
    	
510
    	
 
    	
742
    	
 
    
	
Income tax   expense related to other comprehensive income
    	
 
    	
74
    	
 
    	
148
    	
 
    	
135
    	
 
    	
295
    	
 
    
	
Ending   Balance
    	
 
    	
$
    	
(4,147
    	
)
    	
$
    	
(7,383
    	
)
    	
$
    	
(4,147
    	
)
    	
$
    	
(7,383
    	
)
    


 




(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost. Refer to Note 14-Pension and other post-retirement benefit plans of the Notes to Condensed Consolidated Financial Statements for additional details.

 

48











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 16. SUPPLEMENTAL CASH FLOW INFORMATION

 

The following tables detail the changes in operating assets and liabilities from operating activities, cash payments that have been included in the determination of earnings and non-cash investing and financing activities:

 

WGL Holdings Inc.

 

	
For the six months ended March 31,
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
(In thousands)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
CHANGES   IN OPERATING ASSETS AND LIABILITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts   receivable and unbilled revenues—net
    	
 
    	
$
    	
(198,651
    	
)
    	
$
    	
(210,871
    	
)
    
	
Gas costs and   other regulatory assets/liabilities—net
    	
 
    	
44,151
    	
 
    	
8,767
    	
 
    
	
Storage gas
    	
 
    	
167,785
    	
 
    	
67,998
    	
 
    
	
Prepaid taxes
    	
 
    	
(9,537
    	
)
    	
6,375
    	
 
    
	
Accounts payable   and other accrued liabilities
    	
 
    	
(40,948
    	
)
    	
27,698
    	
 
    
	
Customer   deposits and advance payments
    	
 
    	
(17,939
    	
)
    	
(25,986
    	
)
    
	
Accrued taxes
    	
 
    	
15,413
    	
 
    	
5,780
    	
 
    
	
Other current   assets
    	
 
    	
13,436
    	
 
    	
(11,498
    	
)
    
	
Other current   liabilities
    	
 
    	
(4,241
    	
)
    	
(29,013
    	
)
    
	
Deferred gas   costs—net
    	
 
    	
7,599
    	
 
    	
(8,552
    	
)
    
	
Deferred   assets—other
    	
 
    	
(18,359
    	
)
    	
(4,508
    	
)
    
	
Deferred   liabilities—other
    	
 
    	
11,945
    	
 
    	
8,930
    	
 
    
	
Pension and   other post-retirement benefits
    	
 
    	
(2,552
    	
)
    	
(9,215
    	
)
    
	
Other—net
    	
 
    	
2,879
    	
 
    	
(531
    	
)
    
	
Changes in   operating assets and liabilities
    	
 
    	
$
    	
(29,019
    	
)
    	
$
    	
(174,626
    	
)
    
	
SUPPLEMENTAL   DISCLOSURES OF CASH FLOW INFORMATION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income taxes   paid (refunded)—net
    	
 
    	
$
    	
88
    	
 
    	
$
    	
(4,650
    	
)
    
	
Interest paid
    	
 
    	
$
    	
41,198
    	
 
    	
$
    	
32,429
    	
 
    
	
SUPPLEMENTAL   DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Extinguishment   of project debt financing
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(29,871
    	
)
    
	
Capital   expenditure accruals included in accounts payable and other accrued   liabilities
    	
 
    	
$
    	
36,703
    	
 
    	
$
    	
41,892
    	
 
    
	
Dividends paid   in common stock
    	
 
    	
$
    	
—
    	
 
    	
$
    	
1,362
    	
 
    
	
Stock based   compensation
    	
 
    	
$
    	
11,251
    	
 
    	
$
    	
6,564
    	
 
    
	
Transfer of   investments to fixed assets
    	
 
    	
$
    	
10,054
    	
 
    	
$
    	
3,959
    	
 
    
	
Transfer of   notes receivables to investments
    	
 
    	
$
    	
—
    	
 
    	
$
    	
10,031
    	
 
    


 

49











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Washington Gas

 

	
For the six months ended March 31,
    	
 
    	
2018
    	
 
    	
2017
    	
 
    
	
(In thousands)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
CHANGES   IN OPERATING ASSETS AND LIABILITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts   receivable, unbilled revenues and receivables from associated companies—net
    	
 
    	
$
    	
(180,528
    	
)
    	
$
    	
(183,096
    	
)
    
	
Gas costs and   other regulatory assets/liabilities—net
    	
 
    	
44,151
    	
 
    	
8,767
    	
 
    
	
Storage gas
    	
 
    	
65,284
    	
 
    	
51,406
    	
 
    
	
Prepaid taxes
    	
 
    	
1,763
    	
 
    	
4,001
    	
 
    
	
Accounts payable   and other accrued liabilities, including payables to associated companies
    	
 
    	
(7,206
    	
)
    	
15,863
    	
 
    
	
Customer   deposits and advance payments
    	
 
    	
(16,739
    	
)
    	
(21,186
    	
)
    
	
Accrued taxes
    	
 
    	
11,997
    	
 
    	
8,841
    	
 
    
	
Other current   assets
    	
 
    	
(11,163
    	
)
    	
(9,175
    	
)
    
	
Other current   liabilities
    	
 
    	
(366
    	
)
    	
24
    	
 
    
	
Deferred gas   costs—net
    	
 
    	
7,599
    	
 
    	
(8,553
    	
)
    
	
Deferred   assets—other
    	
 
    	
(22,173
    	
)
    	
(4,079
    	
)
    
	
Deferred   liabilities—other
    	
 
    	
877
    	
 
    	
8,746
    	
 
    
	
Pension and   other post-retirement benefits
    	
 
    	
(2,703
    	
)
    	
(5,975
    	
)
    
	
Other—net
    	
 
    	
2,672
    	
 
    	
1,290
    	
 
    
	
Changes in   operating assets and liabilities
    	
 
    	
$
    	
(106,535
    	
)
    	
$
    	
(133,126
    	
)
    
	
SUPPLEMENTAL   DISCLOSURES OF CASH FLOW INFORMATION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income taxes   paid (refunded)—net
    	
 
    	
$
    	
(953
    	
)
    	
$
    	
(6,449
    	
)
    
	
Interest paid
    	
 
    	
$
    	
28,668
    	
 
    	
$
    	
25,478
    	
 
    
	
SUPPLEMENTAL   DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Extinguishment   of project debt financing
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(29,871
    	
)
    
	
Capital   expenditure accruals included in accounts payable and other accrued   liabilities
    	
 
    	
$
    	
23,949
    	
 
    	
$
    	
28,063
    	
 
    


 

NOTE 17. PLANNED MERGER WITH ALTAGAS LTD.

 

On January 25, 2017, WGL entered into an agreement and plan of merger (Merger Agreement) to combine with AltaGas in an all cash transaction valued at approximately $6.4 billion . The Merger Agreement provides for the merger of a newly formed indirect wholly-owned subsidiary of AltaGas with and into WGL, with WGL continuing as the surviving corporation in the merger (the Merger) and becoming an indirect wholly-owned subsidiary of AltaGas. Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time (as defined in the Merger Agreement) of the Merger, WGL shareholders will receive $88.25 in cash, without interest, for each share of WGL common stock issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement). The Boards of Directors of each of WGL and AltaGas have unanimously approved the Merger, which is expected to close by the end of the second calendar quarter of 2018.

 

Consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including, among others, the approval of the Merger by the holders of more than two-thirds of the outstanding shares of WGL common stock, which approval occurred on May 10, 2017, and approvals required from certain antitrust and other regulatory bodies. A status of each of these conditions is described below. The Merger Agreement also contains customary representations, warranties and covenants of both WGL and AltaGas. These covenants include, among others, an obligation on behalf of WGL to operate its business in the ordinary course until the Merger is consummated, subject to certain exceptions.

 

Under the terms of the Merger Agreement, the Outside Date (as defined in the Merger Agreement) for consummation of the Merger was January 25, 2018. The Merger Agreement permits either WGL or AltaGas to extend the term of the Merger Agreement should the Merger not be consummated by such date. On January 11, 2018, WGL and AltaGas mutually agreed in writing to extend this Outside Date to July 23, 2018. The Merger Agreement also contains certain other termination rights for both AltaGas and WGL. Under specified circumstances, AltaGas would be required to pay a termination fee of $ 205 million, $ 182 million, or $ 68 million (depending on the specific circumstances of termination)

 

50











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

to WGL. Under other specific circumstances as outlined in the Merger Agreement, WGL would be required to pay AltaGas a termination fee of $ 136 million . In connection with entering into the Merger Agreement, WGL entered into a subscription agreement with AltaGas, pursuant to which WGL agreed, upon the occurrence of certain conditions, to issue and sell to AltaGas up to an aggregate of 15,000 shares of Series A Non-Voting Non-Convertible Perpetual Preferred Stock (Non-Voting Preferred Stock) for a purchase price of $ 10,000 per share. If the consolidated debt to total capitalization ratio is forecasted to be in excess of 62% in any subsequent quarterly period, AltaGas will purchase a number of shares of Non-Voting Preferred Stock to produce a forecasted ratio equal to 62%, but not more than 5,000 shares in any single quarter or more than 15,000 shares in the aggregate. If the Merger Agreement is terminated or the Outside Date expires, no subscription will be made after the date of termination or expiration, and WGL will have six months thereafter to redeem any Non-Voting Preferred Stock previously issued.

 

Merger Approval Proceedings

 

District of Columbia

 

On April 24, 2017, AltaGas, WGL and Washington Gas (“Applicants”) filed an application with the PSC of DC seeking approval of the Merger Agreement. In an order issued on April 25, 2017, the PSC of DC scheduled a procedural conference on May 18, 2017 with the Staff of the PSC of DC and interested parties to consider the factors to be considered in the case to determine whether the Merger is in the public interest, identify factual issues in dispute and consider a procedural schedule for the proceeding. To approve the Merger Agreement, the PSC of DC must find that the Merger taken as a whole is in the public interest. In the April 25, 2017 order, the PSC of DC stated that in making this determination, it has balanced the interests of shareholders and investors with ratepayers and the community; determined that benefits to shareholders must not come at the expense of ratepayers; and found that to be approved, the transaction must produce a direct and tangible benefit to ratepayers. It stated further that in determining whether the public interest requirements are met, the PSC of DC has in past merger cases identified seven factors it has considered in reviewing each transaction, including the effects of the transaction on (i) ratepayers, shareholders, the financial health of the utilities standing alone and as merged, and the economy of the District; (ii) utility management and administrative operations; (iii) public safety and the safety and reliability of services; (iv) risks associated with all of the Applicants’ affiliated non-jurisdictional business operations; (v) the PSC of DC’s ability to regulate Washington Gas effectively; (vi) competition in the local retail and wholesale markets that impact the District and District ratepayers; and (vii) conservation of natural resources and preservation of environmental quality. The law of the District of Columbia does not impose any time limit on the PSC of DC’s review of the Merger. The District of Columbia Office of the People’s Counsel, the District of Columbia Government and other intervenors filed testimony with the PSC of DC opposing the application on September 29, 2017. The Applicants filed rebuttal testimony on October 27, 2017. Evidentiary hearings took place before the PSC of DC on December 5 through December 15, 2017. An order is expected by the end of the second calendar quarter of 2018.

 

Maryland

 

On April 24, 2017, AltaGas, WGL and Washington Gas (“Applicants”) filed an application with the PSC of MD seeking approval of the Merger Agreement. On April 26, 2017, the PSC of MD issued an order scheduling a pre-hearing conference on May 30, 2017, to set a procedural schedule for the proceeding, to consider any petition to intervene that have been filed, and to consider any other preliminary matters requested by the parties. Maryland law requires the PSC of MD to approve a merger subject to its review if it finds that the merger agreement is consistent with the public interest, convenience and necessity, including benefits and no harm to consumers. In making this determination, the PSC of MD is required to consider the following criteria: (i) the potential impact of the acquisition on rates and charges paid by customers and on the services and conditions of operation of the public service company; (ii) the potential impact of the acquisition on continuing investment needs for the maintenance of utility services, plant, and related infrastructure; (iii) the proposed capital structure that will result from the acquisition, including allocation of earnings from Washington Gas; (iv) the potential effects on employment; (v) the projected allocation of any savings that are expected between shareholders and rate payers; (vi) issues of reliability, quality of service, and quality of customer service; (vii) the potential impact of the acquisition on community investment; (viii) affiliate and cross-subsidization issues; (ix) the use or pledge of utility assets for the benefit of an affiliate; (x) jurisdictional and choice-of-law issues; (xi) whether it is necessary to revise the PSC of MD’s ring-fencing and code of conduct regulations in light of the acquisition; and (xii) any other issues the PSC of MD considers relevant to the assessment of the acquisition in relation to the public interest, convenience, and necessity. The Staff of the PSC of MD, the Maryland Office of People’s Counsel and other intervenors filed testimony opposing the application on August 14, 2017. The Applicants filed rebuttal testimony with the PSC of MD on September 11, 2017. Evidentiary hearings were held before the PSC of MD on October 3, 2017 through October 16, 2017. Initial briefs and reply briefs were filed on November 6, 2017 and November 16, 2017, respectively. The PSC of MD is required to issue an order within 180 days of the

 

51











 

WGL Holdings, Inc.

Washington Gas Light Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

date the application was filed, but may extend the date by 45 days for good cause. The PSC of MD issued an order extending the date for review. On December 1, 2017, AltaGas and Washington Gas entered into a settlement agreement with several major parties in the merger application proceedings pending before the PSC of MD. The PSC of MD conducted evidentiary hearings in February 2018 to review the settlement agreement reached in December 2017. Reply briefs were filed by all parties in March 2018 and on April 4, 2018, the PSC of MD issued an Order granting approval of the Merger subject to conditions set forth in the Order. On April 5, 2018, the Applicants accepted the conditions set forth in the Order.

 

Virginia

 

On April 24, 2017, AltaGas, WGL and Washington Gas, filed a petition with the SCC of VA seeking approval of the Merger Agreement. Virginia law provides that, if the SCC of VA determines, with or without hearing, that adequate service to the public at just and reasonable rates will not be impaired or jeopardized by granting the petition for approval, then the SCC of VA shall approve a merger with such conditions that the SCC of VA deems to be appropriate in order to satisfy this standard. On October 20, 2017, the SCC of VA issued an order approving the merger, subject to accounting, financial, and safety related requirements to which joint applicants agree.

 

On December 21, 2017, Washington Gas filed an application with the SCC of VA for approval of a new service agreement between Washington Gas and AltaGas Services (U.S.) Inc. (“ASUS”) for Washington Gas to receive centralized corporate services, and to authorize affiliate transactions for a period of five years. On March 15, 2018, the SCC of VA issued an Order directing Washington Gas to institute certain corrective measures (“Revised Agreement”) to the original Agreement. Washington Gas has 90 days from the effective date of the Order to file with the SCC of VA a signed and executed copy of the approved Revised Agreement.

 

Committee on Foreign Investment in the United States (CFIUS)

 

On April 24, 2017, AltaGas, WGL and Washington Gas, filed a joint voluntary notice with the CFIUS. This notice was approved on August 18, 2017.

 

HSR

 

On June 15, 2017, AltaGas and WGL submitted to the Federal Trade Commission and the Antitrust Division of the Department of Justice completed Premerger Notification and Report Forms with respect to the proposed acquisition by AltaGas of certain voting securities of WGL. The waiting period required by Section 7A(b)(1) of the Clayton Act, 15 U.S.C. Section 18a(b)(1) (aka the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended) expired on July 17, 2017.  The expiration of the Clayton Act’s waiting period deems the Merger approved by the Federal Trade Commission and the Department of Justice.

 

FERC

 

On April 24, 2017, AltaGas and WGL Energy Services submitted to FERC a Joint Application for Authorization of Disposition of Jurisdictional Assets and Merger under Section 203 of the Federal Power Act. Under that section, FERC shall approve a merger if it finds that the proposed transaction will be consistent with the public interest. In making this determination, the FERC will consider the following criteria: (i) horizontal competition analysis; (ii) vertical competition issues; (iii) no adverse effect on rates; (iv) no adverse effect on regulation; and (v) no improper cross-subsidization. On July 6, 2017, the FERC issued an order authorizing the Merger, concluding that the proposed transaction is consistent with the public interest.

 

52