UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2018



¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____



Commission File Number	Exact name of registrant as specified in its charter; address of principal executive offices; registrant's telephone number, including area code	State or Other Jurisdiction of Incorporation	I.R.S. Employer Identification No.
0-55968	WGL Holdings, Inc. 1000 Maine Ave., S.W. Washington, D.C. 20024 (703) 750-2000	Virginia	52-2210912
0-49807	Washington Gas Light Company 1000 Maine Ave., S.W. Washington, D.C. 20024 (703) 750-4440	District of Columbia and Virginia	53-0162882

Indicate by check mark whether each registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

WGL Holdings, Inc.:



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer þ	Smaller reporting company ¨
	(Do not check if a smaller reporting company)
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Washington Gas Light Company:



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer þ	Smaller reporting company ¨
	(Do not check if a smaller reporting company)
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.

WGL Holdings, Inc. common stock, no par value, outstanding as of July 31, 2018: 100 shares. All of the outstanding shares of common stock, no par value, of WGL Holdings, Inc. are held by Wrangler 1 LLC, an indirect wholly-owned subsidiary of AltaGas Ltd. as of July 31, 2018.

Washington Gas Light Company common stock, $1 par value, outstanding as of July 31, 2018: 46,479,536 shares. All of the outstanding shares of common stock, $1 par value, of Washington Gas Light Company are held by Wrangler SPE LLC (the SPE), a direct wholly-owned subsidiary of WGL Holdings, Inc. as of July 31, 2018.

WGL Holdings, Inc.

Washington Gas Light Company

For the Quarter Ended June 30, 2018

Table of Contents



PART I. Financial Information

Item 1. Financial Statements (Unaudited)
WGL Holdings, Inc.
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Income	5
Condensed Consolidated Statements of Comprehensive Income	6
Condensed Consolidated Statements of Cash Flows	7

Washington Gas Light Company
Condensed Balance Sheets	8
Condensed Statements of Income	9
Condensed Statements of Comprehensive Income	10
Condensed Statements of Cash Flows	11

Notes to Condensed Consolidated Financial Statements
WGL Holdings, Inc. and Washington Gas Light Company — Combined	12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
WGL Holdings, Inc.	56
Washington Gas Light Company	87

Item 3. Quantitative and Qualitative Disclosures About Market Risk	93

Item 4. Controls and Procedures	93

PART II. Other Information

Item 1. Legal Proceedings	94

Item 1A. Risk Factors	95

Item 4. Mine Safety Disclosures	96

Item 5. Other Information	96

Item 6. Exhibits	96

Signature	98

(i)

WGL Holdings, Inc.

Washington Gas Light Company

INTRODUCTION

FILING FORMAT

This Quarterly Report on Form 10-Q is a combined report being filed by two separate registrants: WGL Holdings, Inc. (WGL) and Washington Gas Light Company (Washington Gas). Except where the content clearly indicates otherwise, any reference in the report to “WGL,” “we,” “us” or “our” is to the holding company or WGL and all of its subsidiaries, including Washington Gas, which is a wholly owned subsidiary of WGL.

Part I—Financial information in this Quarterly Report on Form 10-Q includes separate condensed financial statements (i.e. balance sheets, statements of income and comprehensive income and statements of cash flows) for each of WGL and Washington Gas. The Notes to Condensed Consolidated Financial Statements are presented on a combined basis for both WGL and Washington Gas together. The Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) included under Item 2 is divided into two major sections for WGL and Washington Gas.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, excluding historical information, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, dividends, revenues and other future financial business performance, strategies, financing plans, AltaGas Ltd.'s (AltaGas) integration of us and other expectations. Forward-looking statements are typically identified by words such as, but not limited to, “estimates,” “expects,” “anticipates,” “intends,” “believes,” “plans” and similar expressions, or future or conditional terms such as “will,” “should,” “would” and “could.” Forward-looking statements speak only as of the filing date of this report, and the registrants assume no duty to update them. Factors that could cause actual results to differ materially from forward-looking statements or historical performance include those discussed in Item 1A. Risk Factors in the combined Annual Report on Form 10-K for WGL and Washington Gas for the fiscal year ended September 30, 2017, in Part II, Item 1A. Risk Factors in our quarterly reports on Form 10-Q and in our other filings with the Securities and Exchange Commission, and may include, but are not limited to the following:


•	the inability to meet commitments under various orders and agreements associated with regulatory approvals for the merger could have a detrimental impact on WGL’s business, financial condition, operating results and prospects;


•	the inability to successfully be integrated into the operations of AltaGas following the merger with AltaGas and realize anticipated benefits;


•	the effect of the consummation of the merger on the ability of WGL to retain customers and retain and hire key personnel;


•	the effect of the consummation of the merger on the ability of WGL to maintain relationships with its suppliers;


•	potential litigation in connection with the merger;


•	the level and rate at which we incur costs and expenses, and the extent to which we are allowed to recover from customers, through the regulatory process, such costs and expenses relating to constructing, operating and maintaining Washington Gas’ distribution system;


•	the availability of natural gas and electricity supply, interstate pipeline transportation and storage capacity;


•	the outcome of new and existing matters before courts, regulators, government agencies or arbitrators, including those relating to our purchase of natural gas under the Antero gas supply contracts, and the August 2016 explosion and fire at an apartment complex in Silver Spring, Maryland;


•	factors beyond our control that affect the ability of natural gas producers, pipeline gatherers and natural gas processors to deliver natural gas into interstate pipelines for delivery to the entrance points of Washington Gas' distribution system;


•	security breaches of our information technology infrastructure, including cyber attacks and cyber-terrorism;


•	leaks, mechanical problems, incidents or other operational issues in our natural gas distribution system, including the effectiveness of our efforts to mitigate the effects of receiving low-HHC natural gas;


•	changes and developments in economic, competitive, political and regulatory conditions;


•	unusual weather conditions and changes in natural gas consumption patterns;


•	changes in energy commodity market conditions, including the relative prices of alternative forms of energy such as electricity, fuel oil and propane;

(ii)

WGL Holdings, Inc.

Washington Gas Light Company


•	changes in the value of derivative contracts and the availability of suitable derivative counterparties;


•	changes in our credit ratings, disruptions in credit market and equity capital market conditions or other factors that may affect our access to and cost of capital;


•	factors affecting the timing of construction and the effective operation of pipelines in which we have invested;


•	the credit-worthiness of customers; suppliers and derivatives counterparties;


•	changes in laws and regulations, including tax, environmental, pipeline integrity and employment laws and regulations, including the competitiveness of WGL Energy Systems, Inc. in securing future assets to continue its growth;


•	legislative, regulatory and judicial mandates or decisions affecting our business operations, including interpretations of the Tax Cuts and Jobs Act (Tax Act);


•	the timing and success of business and product development efforts and technological improvements;


•	the level of demand from government agencies and the private sector for commercial energy systems, and delays in federal government budget appropriations;


•	the pace of deregulation of energy markets and the availability of other competitive alternatives to our products and services;


•	changes in accounting principles and the effect of accounting pronouncements issued periodically by accounting standard-setting bodies;


•	our ability to manage the outsourcing of several business processes;


•	strikes or work stoppages by unionized employees;


•	acts of nature and catastrophic events, including terrorist acts;


•	decisions made by management and co-investors in non-controlled investees; and


•	changes in AltaGas’ strategy, relationship with us or operating performance.

All such factors are difficult to predict accurately and are generally beyond the direct control of the registrants. Readers are urged to use care and consider the risks, uncertainties and other factors that could affect our business as described in this Quarterly Report on Form 10-Q.

(iii)

WGL Holdings, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

Part I—Financial Information

Item 1—Financial Statements



(In thousands)	June 30, 2018			September 30, 2017
ASSETS
Property, Plant and Equipment
At original cost	$	6,320,171		$	6,143,841
Accumulated depreciation and amortization	(1,570,890		)	(1,513,790		)
Net property, plant and equipment	4,749,281			4,630,051
Current Assets
Cash and cash equivalents	33,064			8,524
Receivables
Accounts receivable	432,278			398,149
Gas costs and other regulatory assets	3,439			21,705
Unbilled revenues	144,469			165,483
Allowance for doubtful accounts	(36,257		)	(32,025		)
Net receivables	543,929			553,312
Materials and supplies—principally at average cost	18,513			20,172
Storage gas	124,767			243,984
Prepaid taxes	36,260			31,549
Other prepayments	62,258			86,465
Derivatives	12,066			15,327
Other	13,660			26,556
Total current assets	844,517			985,889
Deferred Charges and Other Assets
Regulatory assets
Gas costs	54,391			90,136
Pension and other post-retirement benefits	121,678			139,499
Other	116,650			104,596
Prepaid post-retirement benefits	240,577			231,577
Derivatives	19,643			38,389
Investments in unconsolidated affiliates	677,404			394,201
Other	14,144			11,671
Total deferred charges and other assets	1,244,487			1,010,069
Total Assets	$	6,838,285		$	6,626,009
CAPITALIZATION AND LIABILITIES
Capitalization
WGL Holdings common shareholders’ equity	$	1,648,553		$	1,502,690
Non-controlling interest	6,889			6,851
Washington Gas Light Company preferred stock	28,173			28,173
Total equity	1,683,615			1,537,714
Long-term debt	1,879,316			1,430,861
Total capitalization	3,562,931			2,968,575
Current Liabilities
Current maturities of long-term debt	100,000			250,000
Notes payable and project financing	429,520			559,844
Accounts payable and other accrued liabilities	387,326			423,824
Wages payable	24,144			18,096
Accrued interest	18,353			7,806
Dividends declared	25,620			26,452
Customer deposits and advance payments	64,516			65,841
Gas costs and other regulatory liabilities	35,648			22,814
Accrued taxes	28,410			17,657
Derivatives	20,142			43,990
Other	42,609			52,664
Total current liabilities	1,176,288			1,488,988
Deferred Credits
Unamortized investment tax credits	152,316			155,007
Deferred income taxes	444,903			868,067
Accrued pensions and benefits	189,521			181,552
Asset retirement obligations	306,603			296,810
Regulatory liabilities
Accrued asset removal costs	272,355			292,173
Other post-retirement benefits	124,072			135,035
Excess deferred taxes and other	445,354			9,403
Derivatives	114,383			122,607
Other	49,559			107,792
Total deferred credits	2,099,066			2,168,446
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities	$	6,838,285		$	6,626,009

The accompanying notes are an integral part of these statements.

WGL Holdings, Inc.

Condensed Consolidated Statements of Income (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)



	Three Months Ended June 30,						Nine Months Ended June 30,
(In thousands, except per share data)	2018			2017			2018			2017
OPERATING REVENUES
Utility	$	195,177		$	198,968		$	1,093,647		$	992,301
Non-utility	228,288			275,396			868,709			933,300
Total Operating Revenues	423,465			474,364			1,962,356			1,925,601
OPERATING EXPENSES
Utility cost of gas	51,737			49,881			370,767			259,839
Non-utility cost of energy-related sales	191,198			233,025			703,904			787,691
Operation and maintenance	107,719			97,477			322,501			316,455
Depreciation and amortization	40,388			39,094			122,095			113,487
General taxes and other assessments	35,491			32,032			135,417			122,964
Total Operating Expenses	426,533			451,509			1,654,684			1,600,436
OPERATING INCOME (LOSS)	(3,068		)	22,855			307,672			325,165
Equity in earnings of unconsolidated affiliates	7,065			7,508			(14,457		)	15,117
Other income (expenses) — net	(1,663		)	884			(2,834		)	(591		)
Interest expense	20,593			25,062			48,427			55,552
INCOME (LOSS) BEFORE INCOME TAXES	(18,259		)	6,185			241,954			284,139
INCOME TAX EXPENSE	37,068			2,149			33,181			106,381
NET INCOME (LOSS)	$	(55,327	)	$	4,036		$	208,773		$	177,758
Non-controlling interest	(6,651		)	(4,559		)	(16,801		)	(12,533		)
Dividends on Washington Gas Light Company preferred stock	330			330			990			990
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK	$	(49,006	)	$	8,265		$	224,584		$	189,301
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	51,359			51,219			51,343			51,200
Diluted	51,359			51,493			51,571			51,469
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Basic	$	(0.95	)	$	0.16		$	4.37		$	3.70
Diluted	$	(0.95	)	$	0.16		$	4.35		$	3.68
DIVIDENDS DECLARED PER COMMON SHARE	$	0.5150		$	0.5100		$	1.5400		$	1.5075

The accompanying notes are an integral part of these statements.

WGL Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)



	Three Months Ended June 30,						Nine Months Ended June 30,
(In thousands)	2018			2017			2018			2017
NET INCOME (LOSS)	$	(55,327	)	$	4,036		$	208,773		$	177,758
OTHER COMPREHENSIVE INCOME, BEFORE INCOME TAXES:
Qualified cash flow hedging instruments	53			51			158			49,556
Pension and other post-retirement benefit plans
Change in net prior service credit	(273		)	(217		)	(820		)	(651		)
Change in actuarial net loss	530			588			1,587			1,763
Total other comprehensive income before taxes	$	310		$	422		$	925		$	50,668
INCOME TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME	83			235			248			20,816
OTHER COMPREHENSIVE INCOME	$	227		$	187		$	677		$	29,852
COMPREHENSIVE INCOME (LOSS)	$	(55,100	)	$	4,223		$	209,450		$	207,610
Non-controlling interest	(6,651		)	(4,559		)	(16,801		)	(12,533		)
Dividends on Washington Gas Light Company preferred stock	330			330			990			990
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO WGL HOLDINGS	$	(48,779	)	$	8,452		$	225,261		$	219,153

The accompanying notes are an integral part of these statements.

WGL Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)



	Nine Months Ended June 30,
(In thousands)	2018			2017
OPERATING ACTIVITIES
Net income	$	208,773		$	177,758
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization	122,095			113,487
Amortization of:
Other regulatory assets and liabilities—net	5,235			2,567
Debt related costs	2,211			1,307
Deferred income taxes	38,723			81,839
Dividends received from equity method investments	14,195			10,864
Accrued/deferred pension and other post-retirement benefit cost	7,943			16,227
Earnings in equity interest	(19,543		)	(15,117		)
Compensation expense related to stock-based awards	12,610			12,114
Provision for doubtful accounts	16,258			11,601
Impairment loss	34,000			—
Unrealized (gain) loss on derivative contracts	687			(67,083		)
Amortization of investment tax credits	(5,542		)	(5,544		)
Other non-cash charges (credits)—net	(768		)	(584		)
Changes in operating assets and liabilities (Note 16)	132,723			(111,053		)
Net Cash Provided by Operating Activities	569,600			228,383
FINANCING ACTIVITIES
Common stock issued	—			295
Long-term debt issued	550,000			50,000
Long-term debt retired	(250,000		)	—
Debt issuance costs	(3,060		)	(404		)
Notes payable issued (retired) —net	(103,000		)	217,000
Contributions from non-controlling interest	16,697			17,358
Distributions to non-controlling interest	(472		)	—
Project financing	989			18,396
Dividends on common stock and preferred stock	(79,824		)	(75,672		)
Other financing activities—net	(6,558		)	(1,296		)
Net Cash Provided by Financing Activities	124,772			225,677
INVESTING ACTIVITIES
Capital expenditures (excluding Allowance for Funds Used During Construction)	(348,396		)	(352,232		)
Investments in non-utility interests	(321,436		)	(110,952		)
Distributions and receipts from non-utility interests	—			4,126
Proceeds from the sale of assets	—			9,858
Loans to external parties	—			(863		)
Net Cash Used in Investing Activities	(669,832		)	(450,063		)
INCREASE IN CASH AND CASH EQUIVALENTS	24,540			3,997
Cash and Cash Equivalents at Beginning of Year	8,524			5,573
Cash and Cash Equivalents at End of Period	$	33,064		$	9,570
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 16)

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Condensed Balance Sheets (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)



(In thousands)	June 30, 2018			September 30, 2017
ASSETS
Property, Plant and Equipment
At original cost	$	5,491,886		$	5,310,337
Accumulated depreciation and amortization	(1,472,862		)	(1,422,622		)
Net property, plant and equipment	4,019,024			3,887,715
Current Assets
Cash and cash equivalents	27,185			1
Receivables
Accounts receivable	211,854			190,740
Gas costs and other regulatory assets	3,439			21,705
Unbilled revenues	91,307			107,967
Allowance for doubtful accounts	(28,634		)	(23,741		)
Net receivables	277,966			296,671
Materials and supplies—principally at average cost	18,467			20,126
Storage gas	54,677			92,753
Prepaid taxes	23,004			23,350
Other prepayments	21,473			13,238
Receivables from associated companies	33,569			32,362
Derivatives	1,370			5,061
Other	139			102
Total current assets	457,850			483,664
Deferred Charges and Other Assets
Regulatory assets
Gas costs	54,391			90,136
Pension and other post-retirement benefits	120,967			138,573
Other	116,263			104,538
Prepaid post-retirement benefits	239,249			230,283
Derivatives	9,102			16,244
Other	5,196			3,561
Total deferred charges and other assets	545,168			583,335
Total Assets	$	5,022,042		$	4,954,714
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder’s equity	$	1,351,831		$	1,164,749
Preferred stock	28,173			28,173
Long-term debt	1,084,780			1,134,461
Total capitalization	2,464,784			2,327,383
Current Liabilities
Current maturities of long-term debt	50,000			—
Notes payable and project financing	15,460			166,772
Accounts payable and other accrued liabilities	185,505			219,827
Wages payable	22,026			16,508
Accrued interest	15,704			3,967
Dividends declared	21,126			22,098
Customer deposits and advance payments	64,069			64,194
Gas costs and other regulatory liabilities	35,648			22,814
Accrued taxes	23,158			12,808
Payables to associated companies	109,341			94,844
Derivatives	16,342			30,263
Other	7,105			7,473
Total current liabilities	565,484			661,568
Deferred Credits
Unamortized investment tax credits	3,563			4,100
Deferred income taxes	514,369			888,385
Accrued pensions and benefits	187,739			179,814
Asset retirement obligations	301,075			291,871
Regulatory liabilities
Accrued asset removal costs	272,355			292,173
Other post-retirement benefits	123,306			134,181
Excess deferred taxes and other	443,747			9,403
Derivatives	98,075			112,299
Other	47,545			53,537
Total deferred credits	1,991,774			1,965,763
Commitments and Contingencies (Note 13)
Total Capitalization and Liabilities	$	5,022,042		$	4,954,714

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Condensed Statements of Income (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)



	Three Months Ended June 30,						Nine Months Ended June 30,
(In thousands)	2018			2017			2018			2017
OPERATING REVENUES	$	199,512		$	203,186		$	1,109,022		$	1,012,193
OPERATING EXPENSES
Utility cost of gas	56,063			54,093			386,104			279,713
Operation and maintenance	82,389			77,370			252,924			246,290
Depreciation and amortization	34,043			32,761			101,157			96,003
General taxes and other assessments	30,845			27,498			121,321			109,857
Total Operating Expenses	203,340			191,722			861,506			731,863
OPERATING INCOME (LOSS)	(3,828		)	11,464			247,516			280,330
Other expense — net	(2,628		)	(908		)	(5,647		)	(3,044		)
Interest expense	14,455			12,960			44,100			38,727
INCOME (LOSS) BEFORE INCOME TAXES	(20,911		)	(2,404		)	197,769			238,559
INCOME TAX EXPENSE (BENEFIT)	(9,412		)	(733		)	43,258			91,159
NET INCOME (LOSS)	$	(11,499	)	$	(1,671	)	$	154,511		$	147,400
Dividends on Washington Gas preferred stock	330			330			990			990
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK	$	(11,829	)	$	(2,001	)	$	153,521		$	146,410

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Condensed Statements of Comprehensive Income (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)



	Three Months Ended June 30,						Nine Months Ended June 30,
(In thousands)	2018			2017			2018			2017
NET INCOME (LOSS)	$	(11,499	)	$	(1,671	)	$	154,511		$	147,400
OTHER COMPREHENSIVE INCOME, BEFORE INCOME TAXES:
Pension and other post-retirement benefit plans
Change in net prior service credit	(273		)	(217		)	(820		)	(651		)
Change in actuarial net loss	530			588			1,587			1,763
Total pension and other post-retirement benefit plans	$	257		$	371		$	767		$	1,112
INCOME TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME	69			145			204			439
OTHER COMPREHENSIVE INCOME	$	188		$	226		$	563		$	673
COMPREHENSIVE INCOME (LOSS)	$	(11,311	)	$	(1,445	)	$	155,074		$	148,073

The accompanying notes are an integral part of these statements.

Washington Gas Light Company

Condensed Statements of Cash Flows (Unaudited)

Part I—Financial Information

Item 1—Financial Statements (continued)



	Nine Months Ended June 30,
(In thousands)	2018			2017
OPERATING ACTIVITIES
Net income	$	154,511		$	147,400
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization	101,157			96,003
Amortization of:
Other regulatory assets and liabilities—net	5,235			2,567
Debt related costs	1,195			1,031
Deferred income taxes	43,795			64,040
Accrued/deferred pension and other post-retirement benefit cost	7,888			16,187
Compensation expense related to stock-based awards	10,885			11,185
Provision for doubtful accounts	16,154			9,333
Unrealized (gain) loss on derivative contracts	(7,063		)	(39,339		)
Amortization of investment tax credits	(537		)	(569		)
Other non-cash charges (credits)—net	(768		)	(583		)
Changes in operating assets and liabilities (Note 16)	33,719			(88,642		)
Net Cash Provided by Operating Activities	366,171			218,613
FINANCING ACTIVITIES
Capital contributions from WGL Holdings, Inc.	100,000			—
Debt issuance costs	(337		)	(399		)
Notes payable issued (retired) —net	(123,000		)	119,000
Project financing	—			7,324
Dividends on common stock and preferred stock	(66,622		)	(65,020		)
Other financing activities—net	(6,197		)	(1,226		)
Net Cash (Used in) Provided by Financing Activities	(96,156		)	59,679
INVESTING ACTIVITIES
Capital expenditures (excluding Allowance for Funds Used During Construction)	(242,831		)	(278,292		)
Net Cash Used In Investing Activities	(242,831		)	(278,292		)
INCREASE IN CASH AND CASH EQUIVALENTS	27,184			—
Cash and Cash Equivalents at Beginning of Year	1			1
Cash and Cash Equivalents at End of Period	$	27,185		$	1
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 16)

The accompanying notes are an integral part of these statements.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1. ACCOUNTING POLICIES

Basis of Presentation

On January 25, 2017, WGL Holdings, Inc. (WGL) entered into an Agreement and Plan of Merger (Merger Agreement) to combine with AltaGas Ltd., a Canadian Corporation (AltaGas). On July 6, 2018, the merger was consummated between AltaGas, WGL, and Wrangler Inc. (Merger Sub), a newly formed indirect wholly-owned subsidiary of AltaGas. The Merger Agreement provided for the merger of the Merger Sub with and into WGL, with WGL surviving as an indirect wholly-owned subsidiary of AltaGas. In connection with the merger, WGL established Wrangler SPE LLC., a bankruptcy remote special purpose entity (the SPE) for the purposes of owning the common stock of Washington Gas Light Company (Washington Gas), a regulated natural gas utility. The SPE is a wholly-owned subsidiary of WGL. In addition, WGL continues to own 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. Refer to Note 17—Subsequent Events of the Notes to the Condensed Consolidated Financial Statements for a further discussion of the Merger Agreement.

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. These statements do not reflect any costs related to the merger other than those incurred by WGL on its own behalf.

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 second quarter of fiscal year 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 June 30, 2018, and the three and nine months ended June 30, 2017, WGL did not record any impairments related to our long-lived assets or equity method investments. 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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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 nine months ended June 30, 2018 and 2017, WGL and Washington Gas did not record any lower of cost or net realizable value adjustments.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

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 nine months ended June 30, 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 period. Cash Flows - WGL and Washington Gas reclassified $3.6 million and $3.5 million, respectively, retroactively on the statement of cash flows for the nine months ended June 30, 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 flow as in the operating activities, WGL elected to present the change prospectively. Statutory Tax Withholding - No changes were made.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

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 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)	This standard requires restricted cash and restricted cash equivalents to be included in the cash and cash equivalents balances when reconciling the statement of cash flows. Presentation of restricted cash balances should be applied retrospectively to the statement of cash flows. Early adoption is permitted.	October 1, 2018*	In July 2018, pursuant to the Merger Agreement, WGL contributed $61.8 million to fund multiple rabbi trusts. Amounts in the rabbi trusts deemed to be restricted cash or restricted cash equivalents will be included in the cash and cash equivalents balances in the statement of cash flows. Early adoption is expected to occur in the fourth quarter of fiscal year 2018.
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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



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 has performed assessments and contract reviews of its revenue streams under the new revenue recognition model. WGL is finalizing its review and developing the new disclosures required by the standard. Currently, WGL does not expect adoption of this standard to have a material effect to its Consolidated Statements of Income or require a cumulative adjustment to retained earnings upon adoption of the standard. WGL will adopt using the modified retrospective approach.
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. Early adoption is permitted.	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 Tax Act from accumulated other comprehensive income to retained earnings. The amendment only relates to the reclassification of the income tax effects of the Tax Act 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 Tax Act in the first quarter of fiscal year 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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



ASU 2016-02, Leases (Topic 842) including subsequent ASUs with additional 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	WGL is performing a scoping exercise by gathering a complete inventory of lease contracts in order to evaluate the impact of adopting ASC 842 on its consolidated financial statements, but expects that the new standard will have an impact on the Company’s balance sheet as all operating leases will need to be reflected on the balance sheet upon adoption. In addition, WGL currently expects to utilize the transition practical expedients which allow entities to not have to reassess whether an arrangement contains a lease under the provisions of ASC 842.
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.
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*	It is not expected that the adoption of this standard will have a material effect on our financial statements.

*WGL may adopt this accounting standard early after the merger with AltaGas to align the timing of implementation with its new parent company. WGL uses fiscal year for reporting its financial statements, while AltaGas uses calendar year, and the effective dates for accounting standards are different between fiscal and calendar accounting periods.

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.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



WGL Holdings, Inc.
(In millions)	June 30, 2018		September 30, 2017
Accounts payable—trade	$	339.6	$	361.6
Employee benefits and payroll accruals	29.6		35.0
Other accrued liabilities	18.1		27.2
Total	$	387.3	$	423.8



Washington Gas Light Company
(In millions)	June 30, 2018		September 30, 2017
Accounts payable—trade	$	149.2	$	174.9
Employee benefits and payroll accruals	27.5		32.4
Other accrued liabilities	8.8		12.5
Total	$	185.5	$	219.8

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 June 30, 2018 and September 30, 2017.



Committed Credit Available ($ In millions)
June 30, 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	(402.0		)	—			(402.0		)
Net committed credit available	$	248.0		$	350.0		$	598.0
Weighted average interest rate	2.57		%	—		%	2.57		%
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 June 30, 2018 and September 30, 2017, there were no outstanding bank loans from WGL’s or Washington Gas’ revolving credit facilities.

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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 June 30, 2018, there was one contract remaining totaling $15.5 million on the Washington Gas balance sheet as a short-term obligation to third party lenders in "Notes payable and project financing". Additionally, at June 30, 2018, there is a financing contract that has not been novated for which no draws have been made for the related project.

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 June 30, 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 June 30, 2018, WGL recorded $74.0 million in "Unbilled revenues" on the balance sheet, and WGL and Washington Gas recorded $27.5 million and $15.5 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. As of September 30, 2017, WGL recorded $85.6 million in "Unbilled revenues" on the balance sheet and WGL and Washington Gas recorded $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. The primary reason for the variance between unbilled revenues and the corresponding short-term obligations to third-party lenders is due to the project for which the financing has not been drawn.

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 June 30, 2018 or September 30, 2017.

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 June 30, 2018 and September 30, 2017, WGL had capacity under a shelf registration statement to issue an unspecified amount of long-term debt securities.

At June 30, 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) that will expire in September 2018. In May 2018, Washington Gas filed a new MTN shelf with capacity to issue up to $725.0 million of MTNs under that registration statement as of June 30, 2018.

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

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



Long-Term Debt Outstanding
($ In millions)	WGL^(a)			Washington Gas			Total Consolidated
June 30, 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	3.06		%	4.89		%	4.11		%
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.

The following tables show long-term debt issuances and retirements for WGL for the nine months ended June 30, 2018 and 2017. There were no issuance or retirements for Washington Gas.



WGL Long-Term Debt Issuances and Retirements^(a)
($ In millions)	Principal^(b)		Interest Rate ^(f)			Effective Cost ^(f)		Nominal Maturity Date
Nine Months Ended June 30, 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
Nine Months Ended June 30, 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.

^(f)Represents the interest rate and effective cost at the trade date of the debt.

NOTE 5. COMPONENTS OF TOTAL EQUITY

The tables below reflect the components of “Total equity” for WGL and Washington Gas for the nine months ended June 30, 2018 and 2017.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



WGL Holdings, Inc. Components of Total Equity
(In thousands, except shares)	Common Stock			Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Taxes			WGL Holdings Common Shareholders' Equity			Non-controlling Interest			Washington Gas Light Company Preferred Stock			Total Equity
(In thousands, except shares)	Shares	Amount		Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Taxes			WGL Holdings Common Shareholders' Equity			Non-controlling Interest			Washington Gas Light Company 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)	—	—		—			224,584			—			224,584			(16,801		)	990			208,773
Contributions from non-controlling interest	—	—		—			—			—			—			16,697			—			16,697
Distributions to non-controlling interest	—	—		—			—			—			—			(472		)	—			(472		)
Business combination^(a)	—	—		—			—			—			—			614			—			614
Other comprehensive income	—	—		—			—			677			677			—			—			677
Stock-based compensation^(b)	140,182	12,390		(17,618		)	3,832			—			(1,396		)	—			—			(1,396		)
Dividends declared:
Common stock	—	—		—			(78,002		)	—			(78,002		)	—			—			(78,002		)
Preferred stock	—	—		—			—			—			—			—			(990		)	(990		)
Balance at June 30, 2018^(d)	51,359,182	$	595,106	$	(7,469	)	$	1,066,236		$	(5,320	)	$	1,648,553		$	6,889		$	28,173		$	1,683,615
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)	—	—		—			189,301			—			189,301			(12,533		)	990			177,758
Contributions from non-controlling interest	—	—		—			—			—			—			17,358			—			17,358
Other comprehensive income	—	—		—			—			29,852			29,852			—			—			29,852
Stock-based compensation^(b)	112,146	6,564		(3,971		)	(468		)	—			2,125			—			—			2,125
Issuance of common stock^(c)	26,242	1,657		—			—			—			1,657			—			—			1,657
Dividends declared:
Common stock	—	—		—			(77,213		)	—			(77,213		)	—			—			(77,213		)
Preferred stock	—	—		—			—			—			—			—			(990		)	(990		)
Balance at June 30, 2017	51,219,000	$	582,717	$	8,548		$	938,705		$	(8,687	)	$	1,521,283		$	5,234		$	28,173		$	1,554,690

^(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.

^(d)Upon consummation of the merger on July 6, 2018, WGL common stock issued and outstanding immediately prior to the merger was canceled, and WGL's common stock was delisted from the New York Stock Exchange, see Note 17-Subsequent Events of the Notes to Condensed Consolidated Financial Statements.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



Washington Gas Light Company Components of Total Equity
(In thousands, except shares)	Common Stock			Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Taxes			Total
(In thousands, except shares)	Shares	Amount		Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (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	—	—		—			154,511			—			154,511
Other comprehensive income	—	—		—			—			563			563
Stock-based compensation^(a)	—	—		(6,539		)	4,197			—			(2,342		)
Capital contributed by WGL Holdings	—	—		100,000			—			—			100,000
Dividends declared:
Common stock	—	—		—			(64,660		)	—			(64,660		)
Preferred stock	—	—		—			(990		)	—			(990		)
Balance at June 30, 2018	46,479,536	$	46,479	$	585,562		$	723,749		$	(3,959	)	$	1,351,831
Balance at September 30, 2016	46,479,536	$	46,479	$	488,135		$	586,662		$	(7,830	)	$	1,113,446
Net income	—	—		—			147,400			—			$	147,400
Other comprehensive income	—	—		—			—			673			$	673
Stock-based compensation^(a)	—	—		2,319			—			—			$	2,319

Dividends declared:
Common stock	—	—		—			(64,675		)	—			$	(64,675	)
Preferred stock	—	—		—			(990		)	—			$	(990	)
Balance at June 30, 2017	46,479,536	$	46,479	$	490,454		$	668,397		$	(7,157	)	$	1,198,173

^(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.

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 nine months ended June 30, 2018 and 2017.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



Basic and Diluted EPS
(In thousands, except per share data)	Net Income (Loss) Applicable to Common Stock			Shares	Per Share Amount
Three Months Ended June 30, 2018
Basic EPS	$	(49,006	)	51,359	$	(0.95	)
Stock-based compensation plans	—			—
Diluted EPS	$	(49,006	)	51,359	$	(0.95	)
Three Months Ended June 30, 2017
Basic EPS	$	8,265		51,219	$	0.16
Stock-based compensation plans	—			274
Diluted EPS	$	8,265		51,493	$	0.16
Nine Months Ended June 30, 2018
Basic EPS	$	224,584		51,343	$	4.37
Stock-based compensation plans	—			228
Diluted EPS	$	224,584		51,571	$	4.35
Nine Months Ended June 30, 2017
Basic EPS	$	189,301		51,200	$	3.70
Stock-based compensation plans	—			269
Diluted EPS	$	189,301		51,469	$	3.68

We incurred a net loss for the three months ended June 30, 2018; therefore, all common shares issuable pursuant to stock-based compensation plans were not considered in the diluted loss per share calculations due to the anti-dilutive effect of such shares. These shares included performance shares of 236,000. There were no anti-dilutive shares issued for the nine months ended June 30, 2018 and the three and nine months ended 2017.

NOTE 7. INCOME TAXES

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, 2014. Substantially all state income tax years in major jurisdictions are closed for years ended prior to September 30, 2014.

As of June 30, 2018 and September 30, 2017, our uncertain tax positions were approximately $43.0 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.

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.

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 June 30, 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 nine months ended June 30, 2018 are provisional amounts.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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. 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. Through the nine months ended June 30, 2018, revenues have been lowered by $25.1 million to reflect the regulatory impact of the Tax Act.

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 June 30, 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 $440.8 million, including net tax gross-up. Of this amount, $418.9 million is attributable to the regulated utility and $21.9 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 $21.9 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 WGL’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, WGL’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.

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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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 June 30, 2018 were a net gain of $1.9 million, including an unrealized loss of $3.8 million. During the three months ended June 30, 2017, we recorded a net gain of $9.1 million, including an unrealized gain of $3.2 million. Total net margins recorded for the nine months ended June 30, 2018 was a net gain of $26.5 million, including an unrealized gain of $7.0 million. During the nine months ended June 30, 2017, we recorded a net gain of $62.5 million, including an unrealized gain of $39.7 million.

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

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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. As of June 30, 2018, WGL believed that the debt issuance was 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 June 30, 2018. Subsequent to the merger on July 6, 2018, the debt issuance is no longer reasonably possible of occurring and, therefore, the $6.4 million gain recorded in accumulated other comprehensive will be recorded to income during the quarter ending September 30, 2018. In January 2018, WGL settled these swaps for a gain of $13.8 million. For the nine months ended June 30, 2018, we recorded income of $13.2 million to interest expense related to these swaps. We did not record any income or expenses related to these swaps for the three months ended June 30, 2018. Refer to Note 17—Subsequent Events for a discussion of the 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 nine months ended June 30, 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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

At June 30, 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
June 30, 2018	Notional Amounts
Natural Gas (In millions of therms)
Asset optimization & trading	24,569.9		11,698.4
Retail sales	117.1		—
Other risk-management activities	1,453.7		1,101.2
Electricity (In millions of kWhs)
Retail sales	8,408.4		—
Other risk-management activities^(a)	26,355.3		—
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 June 30, 2018 and September 30, 2017.



WGL Holdings, Inc. Balance Sheet Classification of Derivative Instruments^(b)
(In millions)
As of June 30, 2018	Gross Derivative Assets			Gross Derivative Liabilities			Netting of Collateral			Total^(a)
Current Assets—Derivatives	$	16.3		$	(4.2	)	$	—		$	12.1
Deferred Charges and Other Assets—Derivatives	19.6			—			—			19.6
Accounts payable	(0.5		)	—			—			(0.5		)
Current Liabilities—Derivatives	22.6			(45.0		)	2.3			(20.1		)
Deferred Credits—Derivatives	10.9			(135.5		)	10.2			(114.4		)
Total	$	68.9		$	(184.7	)	$	12.5		$	(103.3	)
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	)

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



Washington Gas Light Company Balance Sheet Classification of Derivative Instruments^(b)
(In millions)
As of June 30, 2018	Gross Derivative Assets		Gross Derivative Liabilities			Netting of Collateral		Total^(a)
Current Assets—Derivatives	$	1.4	$	—		$	—	$	1.4
Deferred Charges and Other Assets—Derivatives	9.1		—			—		9.1
Current Liabilities—Derivatives	3.5		(20.5		)	0.7		(16.3		)
Deferred Credits—Derivatives	—		(98.1		)	—		(98.1		)
Total	$	14.0	$	(118.6	)	$	0.7	$	(103.9	)
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 June 30, 2018 or September 30, 2017.

The following table presents all gains and losses associated with derivative instruments for the three and nine months ended June 30, 2018 and 2017.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



Gains and (Losses) on Derivative Instruments
(In millions)	WGL Holdings, Inc.						Washington Gas
Three Months Ended June 30,	2018			2017			2018			2017
Recorded to income
Operating revenues—non-utility	$	(22.5	)	$	8.3		$	—		$	—
Utility cost of gas	(4.5		)	5.5			(4.5		)	5.5
Non-utility cost of energy-related sales	10.7			(0.8		)	—			—
Interest expense	(0.1		)	(7.9		)	—			—
Recorded to regulatory assets
Gas costs	(9.0		)	6.4			(9.0		)	6.4
Recorded to other comprehensive income	0.1			0.1			—			—
Total	$	(25.3	)	$	11.6		$	(13.5	)	$	11.9
Nine Months Ended June 30,	2018			2017			2018			2017
Recorded to income
Operating revenues—non-utility	$	(26.2	)	$	25.8		$	—		$	—
Utility cost of gas	(4.1		)	40.0			(4.1		)	40.0
Non-utility cost of energy-related sales	12.3			25.9			—			—
Interest expense	12.7			(5.4		)	—			—
Recorded to regulatory assets
Gas costs	(11.3		)	62.6			(11.3		)	62.6
Recorded to other comprehensive income	0.2			49.6			—			—
Total	$	(16.4	)	$	198.5		$	(15.4	)	$	102.6

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 June 30, 2018 and September 30, 2017, respectively.



Collateral Not Offset Against Derivative Assets and Liabilities (In millions)
June 30, 2018	Collateral deposits posted with counterparties		Cash collateral held representing an obligation
Washington Gas	$	10.9	$	20.5
WGL Energy Services	14.7		—
WGL Midstream	22.0		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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 June 30, 2018, WGL Energy Services posted $8.1 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 June 30, 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 June 30, 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 June 30, 2018 and September 30, 2017, respectively.



Potential Collateral Requirements for Derivative Liabilities with Credit-Risk-Contingent Features
(In millions)	WGL Holdings, Inc.		Washington Gas
June 30, 2018
Derivative liabilities with credit-risk-contingent features	$	8.4	$	0.7
Maximum potential collateral requirements	$	1.7	$	0.7
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.

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 June 30, 2018, three counterparties each represented over 10% of Washington Gas’ credit exposure to wholesale derivative counterparties for a total credit risk of $18.1 million; three counterparties each represented over 10% of WGL Energy Services’ credit exposure to wholesale counterparties for a total credit risk of $0.6 million; and two counterparties each represented over 10% of WGL Midstream’s credit exposure to wholesale counterparties for a total credit risk of $12.0 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 June 30, 2018, WGL Energy Services recorded no pre-tax gain or loss. For the three months ended June 30, 2017, WGL Energy Services recorded a pre-tax loss of $0.3 million. During the nine months ended June 30, 2018 and 2017, WGL Energy Services recorded pre-tax gains of $3.9 million and $1.4 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.

WGL Holdings, Inc.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 June 30, 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 June 30, 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. 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 June 30, 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 June 30, 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.

Washington Gas Light Company

Part I—Financial Information

Item 1—Financial Statements (continued)

Notes to Condensed Consolidated Financial Statements (Unaudited)



WGL Holdings, Inc. Fair Value Measurements Under the Fair Value Hierarchy
(In millions)	Level 1		Level 2			Level 3			Total
At June 30, 2018
Assets
Natural gas related derivatives	$	—	$	21.7		$	36.6		$	58.3
Electricity related derivatives	—		1.0			9.6			10.6
Total Assets	$	—	$	22.7		$	46.2		$	68.9
Liabilities
Natural gas related derivatives	$	—	$	(21.1	)	$	(144.7	)	$	(165.8	)
Electricity related derivatives	—		(1.2		)	(17.7		)	(18.9		)
Total Liabilities	$	—	$	(22.3	)	$	(162.4	)	$	(184.7	)
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	)

Washington Gas Light Company

Fair Value Measurements Under the Fair Value Hierarchy

(In millions)

Level 1

Level 2

Level 3

Total

At June 30, 2018

Assets

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.

WGL HOLDINGS INC 10-Q